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By the end of October, we will know if global markets managed to avoid a financial train wreck. The Economic View from 35,000 Feet
Last week’s economic news at home was mixed as factory orders declined for the second time in three months, missing expectations, and Fed Chairman Bernanke painted a gloomy outlook of slow growth and high unemployment during testimony on Capitol Hill.
Weekly first time unemployment claims rose on Thursday, while better news for the labour market came on Friday with the economy generating a better than expected 103,000 new jobs and topping last month’s dismal 57,000. However, 100,000 new jobs is nowhere close to enough to put a dent in unemployment and so overall unemployment stayed stagnant at 9.1%.
But the big news was all about Greece and the ongoing struggle to avoid default and a cascading financial train wreck across Europe and around the world.
It’s a fast moving, fluid situation and here are some of the highlights and things to watch out for this week:
1. Sunday, French President Sarkozy and German Chancellor Angela Merkel met to discuss how they were going to solve the ongoing Greece problem and came away in “full agreement” but without revealing any details.
2. Credit ratings downgrades hit Europe hard last week with Moody’s downgrading a slew of banks in England and Portugal including big names Santander and RBS and Fitch downgrading Italy and Spain. rumours abound that France could soon lose its AAA credit rating, as well.
3. Dexia Bank is scheduled to go under and be demolished by the governments of Belgium and France as it succumbed to the European crisis. This is a particularly chilling development as Dexia earlier passed the European “stress tests” and so current events cast a long shadow on the strength of other European banks.
4. Greece apparently now has enough capital to make it until mid-November by most estimates (some say the end of October) and the decision about paying out another round of bailout funds should be made by the end of October, 20 one days from now.
5. Treasury Secretary Geithner says U.S. exposure to Europe is negligible but the Wall Street Journal says it could be $640 Billion or more.
Finally, and perhaps most ominously, Slovakia’s Freedom and Solidarity party says it won’t vote for the European Financial Stability won’t vote for the European Financial Security Facility on October 11th when it comes up for a vote in that country’s Parliament. Failure here could potentially tank the entire bailout package as a unanimous vote of all 17 Euro nations is required for approval.
What It All Means For Stock Market and ETF Investors
What this all means is that we are at a watershed point for the future of the U.S. and global economy. If Europe can avoid a financial train wreck in Greece, or at least put it off for a while, we could have a powerful rally as markets are oversold and we’re entering the traditional “six best months of the year” when market seasonality and “The Halloween Indicator” typically trigger a rally going into the end of the year and the start of 2012.
However, if Greece goes under,then the financial train wreck that they’ve been fighting so hard to avoid could finally be at hand.
Wall Street Sector Selector remains in the defensive mode, expecting lower prices ahead.
This Week’s Business and Financial News and Economic Reports
Business and economic reports this week include the September NFIB Small Business Index on Tuesday, FOMC meeting minutes on Wednesday, jobless claims on Thursday, and the most important reports of the week come Friday with September Retail Sales and October Consumer Sentiment.