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World Week Ahead: Greek bailout looms

Monday 20th February 2012

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It’s G-Day for the euro zone. On Monday, European finance ministers will meet in Brussels for what is widely expected to be approval of a second bailout for Greece.

In the past week, Greek political leaders have made written commitments to implement austerity measures and have dug ever deeper to find savings in a bid to secure the funds necessary to avert a default next month. Will it be enough? That’s the $64,000 question.

“Markets are likely anticipating a positive outcome with voluntary participation of the private sector and possibly some ECB involvement,” Silvio Peruzzo, an economist at Royal Bank of Scotland in London, told Bloomberg News. Even so, “Greece is likely to remain a key risk for the euro area as the implementation of the program feeds the theme of exit from the monetary union.”

Stocks in both Europe and on Wall Street mostly ended higher at the end of last week, buoyed by hopes that the EU was finally making progress on addressing its debt crisis. The Standard & Poor’s 500 Index ended its sixth positive week out of seven so far in 2012, lifting it near levels not seen in more than three years.

The index has risen 8.2 percent so far this year. For the week, all 10 groups in the S&P 500 rose as energy and technology companies posted the biggest gains, increasing at least 1.7 percent.

Hewlett-Packard, Home Depot and Intel added more than 2.6 percent, leading the Dow Jones Industrial Average higher. Frontier Communications climbed 18 percent after cutting its dividend to reduce debt.

Apple climbed 1.8 percent, exceeding US$500 for the first time. According to Thomson Reuters data, 404 of the S&P 500 companies have reported results through Friday, with 64 percent beating expectations.

Europe's Stoxx 600 added 1.8 percent to 265.93 last week, the highest daily close since July 22. The benchmark measure has rallied 24 percent from its low on September 22 and 8.8 percent this year as investors speculated euro-area policy makers will contain the sovereign-debt crisis.

Friday’s gain in Europe, ahead of the US long weekend, “is really a sign that the Greece situation is priced into the market," Andrew Slimmon, managing director of Global Investment Solutions at Morgan Stanley Smith Barney in Chicago, told Reuters.

US financial markets are closed Monday for the Presidents Day holiday. As last week, the focus for US investors in the days ahead are more quarterly results—Kraft Foods, Dell and Wal-Mart—and more data on the world’s biggest economy.

On the economic front, there are fresh reports on home sales in January. Economists polled by Reuters are looking for the recent signs of improvement to continue—consensus expectations are for a gain of 1 percent which would mark the second straight monthly increase. In December US existing home sales hit an eleven month high. Another key housing report is the Federal Housing Finance Agency data on home prices.

There will also be weekly initial jobless claims and the final February reading of the Thomson Reuters University of Michigan consumer sentiment index is out on Friday. Last Friday, the White House forecast that job creation will accelerate this year, though risks remain. It didn’t provide specific forecasts.

However, the latest reading from the Conference Board on what lies ahead, released on Friday, was in line with increasing optimism about the US recovery.

The board’s leading indicators, a gauge of the outlook for the next three to six months, climbed 0.4 percent after a revised 0.5 percent gain in December that was more than initially reported, the New York-based group said. The median forecast of economists surveyed by Bloomberg called for an increase of 0.5 percent.

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