European Politics Continue to Move Markets
It was another yo-yo week for the stock market as ongoing worries surrounding Europe’s debt crisis kept investors in suspense. The choppy period eventually ended with a rally on Friday as welcome news of a political shake-up in Greece and Italy boosted confidence that there will be further progress toward a solution.
Greek Prime Minister George Papandreou has been replaced by former banker and European Central Bank Vice President Lucas Papademos , while Italian Prime Minister Silvio Berlusconi, who resigned on Friday, will likely be replaced by former EU Commissioner Mario Monti. The world will be watching as new leadership in both countries fight to implement reforms quickly and aggressively. Just Saturday, the Italian lower house of parliament approved a series of austerity measures demanded by Europe to shore up confidence in the country's economy. It passed by a vote of 380 to 26.
Why should any of this matter to Investors? While Greece is only the 32nd largest economy in the world, Italy holds the 8th spot, and is the 3rd largest in Europe. If these two countries can get their acts together, other debt-laden countries in the region will have a model to follow. If they fail to create change, the consequences could be far-reaching. Europe as a whole makes up 25-30% of the global economy, and millions of American jobs depend on stability and growth there. To quote Jacob Kirkegaard of the Institute for International Economics: “Europe is by far our biggest trading partner. It’s where most of our exports go. It’s where we have most of our foreign direct investments. US multinational corporations are in Europe.”
While it is unlikely that problems in Europe will cripple the American economy, we are connected to Europe in many ways, and investors know that. As long as Europe’s future remains hazy, stocks will likely continue to react to headlines from across the sea, as we have seen in recent months.
ECONOMIC CALENDAR:
Tuesday – Producer Price Index, Retail Sales, Empire State Manufacturing Survey, Business Inventories
Wednesday – Consumer Price Index, Industrial Production
Thursday – Housing Starts, Jobless Claims, Philadelphia Fed Survey
Friday – Leading Indicators
HEADLINES:
Moody's Investors Service is reviewing the risk to Penn State's reputation and finances in the wake of a child sex abuse scandal that has rocked the university. In coming months, the credit rating agency will evaluate whether the university should be downgraded. Penn State carries the second highest credit rating, reflecting very strong student demand and a strong national academic brand. The university has about $1 billion in rated debt.
Dubai’s fast-growing airline Emirates kicked off the Middle East’s biggest airshow Sunday with a huge order for 50 Boeing 777s, marking the U.S. aircraft maker’s biggest-ever single order in dollar terms.
The Securities and Exchange Commission admitted Friday that it had disciplined eight employees over their handling of the $50 billion Bernard Madoff Ponzi scheme without firing any of the workers. The disciplinary actions, which drew jeers from some victims of the investment scandal, prompted a ninth individual to leave the agency before the punishment was finalized. The actions were meted out over the past year and weren't disclosed by the agency until an article on the actions was published online Friday by the Washington Post.
QUOTE OF THE WEEK:
“If you want to feel rich, just count all of the things you have that money can't buy.” - Unknown
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