Europe's political tremors risk spoiling the region's market calm, with corruption allegations buffeting Spanish Premier Mariano Rajoy and Italy's Silvio Berlusconi narrowing the front-runner's lead as elections loom.

Rajoy, facing opposition calls to resign amid contested reports about illegal payments, traveled to Berlin today as euro-area leaders schedule a flurry of meetings this week ahead of a Feb. 7-8 European Union summit. Last week's nationalization of the Netherlands' fourth-largest bank and a 2.17 billion-euro ($3 billion) loss at Deutsche Bank AG underscore the fragile economic health in the region.

"The euro crisis is not over," German Finance MinisterWolfgang Schaeuble said Feb. 1 at the Munich Security Conference where fellow panelists included Deutsche Bank co-Chief Executive Officer Anshu Jain. Still, "we're in a much better position than we were a year ago," the minister said.

A sluggish economy, uncertainty over the outcome of this month's Italian election and Rajoy's new troubles threaten to curtail the time won by politicians with the central-bank bond buying. For now, European policy makers have room to maneuver as borrowing costs for indebted nations have fallen and investor confidence returns.

David Fuller's view The best January rally for many years', as it was often described in the press, occurred on top of significant gains since the mid-November lows.

Most short-term indicators have remained overbought for several weeks. Here is Fullermoney's comment last Wednesday (January 30th):

My view - I think we are quite likely to see reactions and consolidations in most stock markets over the next few weeks. However, performances will vary, as always, and I would not be surprised to see additional gains over the medium term. The main reasons: 1) improving overall sentiment as the more bearish forecasts have not been realised; 2) a continued positive monetary tailwind from low interest rates and QE; 3) a drift away from long positions in government bonds of heavily indebted economies has commenced as yields range higher.


Fullermoney Audios repeated this message on a daily basis.

So, has the process of reactions and consolidations in most stock markets commenced, or is this mainly a European wobble in response to corruption allegations buffeting Spanish Premier Mariano Rajoy, and concerns over Silvio Berlusconi's strengthening position ahead of Italy's election next week?

Eurozone stock markets were weakening all day, as you can see from these downward dynamics for some important European indices, shown on a daily basis: Euro STOXX 50, Euro STOXX Bank, German DAX, French CAC, Netherlands AEX, and Swedish OMX (not a member of the euro). Downside follow through on Tuesday would provide additional evidence that peaks of at least near-term significance were reached last week.

The United Kingdom, which is not a member of the Eurozone, also fell sharply today.

In contrast, Asia's stock markets were mostly stronger today. Japan and mainland China are only overextended in the short term: Japanese Nikkei 225, China SHASHR and Hong Kong HSI. However, the ASEAN indices have been among the world's best performers since the 2008-2009 lows and some are quite overextended in the short term: Philippines PCOMP and Thailand SET. Australia AS51 and New Zealand NZSE50FG have had very good recent runs and are due for pullbacks and consolidations.

The US stock market will obviously remain an important global influence. The S&P 500 (daily & monthly) is also overextended in the short term and today's move, two-hours before the close, has negated last Friday's upward break. It is also in the region of its 2000 and 2007 peaks, which are likely to cause some psychological resistance. However, the Dow Jones Transportation Average (daily & monthly) broke to new all-time highs last month. The rally has subsequently lost upside momentum but if it can hold most of the January gains, this will be a bullish development for Wall Street's medium-term outlook, in addition to being a favourable lead indicator for the US economy.