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"Volatility will increase, not decrease," says Matthew Smith, chief investment officer at Smith Affiliated. "We'll have more fits where everything looks great until another round of debt payments in Europe ... There could be black swans coming any time."Paul Zemsky, multi-asset strategist with ING Direct, takes a more optimistic stance, at least for the short term: "I'm hoping we get some quiet out of Europe while austerity measures get implemented in Italy and Greece."Some well-respected economists warn that Europe is in for more turmoil. Nouriel Roubini wrote in the Financial Times this past week that Italy may need to exit the euro unless a lender of last resort can buy up sovereign debt before yields reach unsustainable levels. Roubini said there were multiple factors supporting Italy's exit from the eurozone and its reversion to the lira: the European Central Bank's reluctance to be lender of last resort, the limited capacity of the International Monetary Fund to bail out larger economies and the toll from Italy's austerity measures.Some economists are saying the European debt crisis has entered a new phase. The question posed by German Chancellor Angela Merkel on whether Greece wants to stay in the euro has opened a Pandora's box. Merkel's Christian Democratic Union could adopt a motion to allow euro nations to exit the currency. According to Bloomberg, some politicians are already working on such a plan ahead of an annual party congress next week. However, other officials have said that a small European Union would actually hurt Germany.Whatever may unfold, few seem fooled by the strong rebound in stocks seen on Thursday and Friday. The Dow rebounded by a total of 363 points since Wednesday's global stock rout. But volume on Veteran's Day was light, suggesting there may not be too much conviction in the rally. If Greece can surprise investors with a referendum blockade one week only to behave better the next, the country can surely hit the repeat button in the future. The same goes for Italy, which has seen some political stabilization but is still behind Greece in welcoming in a new government.
1 2 3 4 Next › Last »A small bright spot is that the leader who has taken over from former Prime Minister Silvio Berlusconi is an economist -- not a bad signal for investors tired of politicians who don't seem to understand the enormity of the risks ahead.
Former European Union commissioner Mario Monti Sunday received the official mandate to form a new government and said he was getting to work immediately.
Monti is seen as a political outsider and has a track record for being decisive. If he doesn't fall victim to Italy's fractious political environment, he may have more success than Berlusconi in guiding the country out of harm's way.On Saturday, Berlusconi resigned, paving the way for the transition government. On Sunday the former prime minister offered his approval of a Monti-led government but only for as long as it takes to push through economic reforms.The lower house of Italy's parliament Saturday passed a budget for 2012, aimed at economic growth. The bill was already approved by the Italian Senate on Friday. Many questions around the debt crisis remain: Is there another MF Global(MF) looming out there? Will Greece's newly sworn-in government successfully push ahead austerity measures? Will the interim government even last? And, will Italy's situation snowball into a bigger and scarier Greek crisis?While the market tracks the political dance in Italy and Greece, it risks losing focus on what's happening with Europe's emergency rescue fund. According to the Financial Times, the fund, which started out with 440 billion euros, now has only about 250 billion euros to lend out. Italy contributes 139 billion euros to the fund, so the rescue number would get cut to 110 billion euros in an Italian bailout. Meanwhile, the International Monetary Fund has about 300 billion euros ($400 billion), hardly enough for Italy to survive through 2012. In short, the lack of capitalization remains a Rubik's Cube.The U.S. Keeps Chugging AlongAn important deadline in Washington D.C. hasn't perturbed the markets yet and may still take a backseat to fretting over Europe next week. But this is one worth watching. Nov. 23 is when the "supercommittee" in the U.S. Congress aims to agree on a plan to reduce the nation's deficit by at least $1.2 trillion in the next decade. If the committee fails, automatic cuts from the earlier debt ceiling agreement kick in.
« First ‹ Previous 1 2 3 4 Next › Last »While some investment strategists say that a partial reduction of the deficit will pass the test of the financial markets, others warn that a small cut may lead to worries about another U.S. credit rating downgrade. If the market's reaction to Standard's & Poor's downgrade during the summer is any indication, investors could be in for another volatile period. On the upside, expectations are so low that any progress might receive a cheer from investors.
"Zero progress would be viewed as a negative, but getting to an $800 billion cut agreement would be a positive," says Zemsky with ING Investment Management. "So far it's hard to get a play by play of what's happening because the committee has been very well disciplined about leaking details. However, as we approach the deadline, stocks could sell off a bit."
If markets don't get tied up on Europe and Washington, next week may be a brief opportunity to focus on improving U.S. economic data. Macroeconomic Advisers' outlook for economic growth in the second half brightened slightly. The research firm revised upward its fourth-quarter gross domestic growth estimate to 2.9%, citing less drag from inventories at companies.Other positive data points from last week include a narrowing of the trade gap, a downward trend in jobless claims and easing import prices as disruptions from the aftermath of Japan's earthquake fade. On Friday, the consumer sentiment reading for November, the highest in five months, was the icing on the cake."We had a stealth recovery in the U.S. while the focus was on Europe," says Zemsky of ING. "I'm expecting that news will be more market-friendly next week."The S&P 500 neared its 200-day moving average of 1270 on Friday, closing at 1264. Zemsky of ING says that if the index crosses 1270 next week, it could work toward 1350 by year-end.A fresh round of economic data next week may lift expectations further for a pickup in the economic recovery. Initial claims are expected to come in at 395,000 for the first week of November, up from 390,000 in the previous week.
« First ‹ Previous 1 2 3 4 Next › Last »On Tuesday, a regional read on manufacturing in the New York region is expected at -2 for November, an improvement from -8.48 in October.
Prices that producers faced in October probably increased, with the core reading inching up 0.1%, extending a 0.2% price increase in the prior month. The overall reading, which takes into account food and energy costs, is expected to slip 0.1%, reversing a 0.2% uptick in September.
Other key reports next week include industrial production and the housing market index on Wednesday, a business survey from the Philadelphia Fed on Thursday, and the leading indicators report on Friday. >To contact the writer of this article, click here: Chao Deng.>To follow the writer on Twitter, go to: @chao_deng >To submit a news tip, send an email to: tips@thestreet.com.
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