World Week Ahead: Eyes on Macy's, Bank of England

Monday 7th November 2011

Europe seems to be slowly but surely losing the support of its international partners as their patience wears thin with a lack of resolve and direction from the region’s leaders.

Last week saw Greek Prime Minister George Papandreou incur the wrath of other EU leaders, especially Germany’s Angela Merkel and France’s Nicolas Sarkozy, by unexpectedly proposing a referendum on a fresh and hard-won new loan deal.

While late on Friday Papandreou’s government survived a confidence vote in the Greek Parliament, signalling approval of the loan deal, the veteran politician’s days at the helm appear numbered.

Meantime, the euro and equities on both sides of the Atlantic suffered. Wall Street slid on Friday and ended down for the week after four weeks of gains.

Investors are tired of the fluid situation around the EU’s fiscal crisis.

“If you can get any clarity on Europe, you can move higher,”Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock, told Bloomberg News.

The Standard & Poor’s 500 Index ended last week with a 2.5 percent decline, after posting its best monthly performance in two decades in October. The index has advanced 14 percent since its October low but has struggled to move higher.

On Friday, the euro shed 0.5 percent to US$1.3758. For the week, the greenback gained 2.6 percent against the euro.

Some market watchers, including Jack Ablin, chief investment officer at Harris Private Bank in Chicago, believe that Greece is headed for an exit from the euro.

"My main conclusion is that, strip away the debt and everything else, having Greece in the euro is untenable," Ablin, who met with economists in Athens, told Reuters. "More and more Greeks are realising that moving back to the drachma is not such a bad thing."

That may help explain why speculators are increasing long positions on the US dollar.

Confirming concern that the fiscal crisis was spreading to other EU nations, Italy on Friday agreed to monitoring by the International Monetary Fund and Ireland detailed billions more in fresh austerity measures.

However, a meeting by the Group of 20 nations showed disagreement over how to boost the IMF’s resources. German Chancellor Angela Merkel said few countries were willing to participate in the euro zone bailout fund.

“The worst thing to do would be to try and cook up a number without being clear who was agreeing to what,” British Prime Minister David Cameron told reporters, according to Reuters. “The job of the IMF is to help countries in distress, not to support currency systems.”

At least the latest quarterly results from the US have been positive. Out of the 433 of the S&P 500 companies that have reported so far, about 70 percent have surpassed expectations, according to Reuters.

Several retailers including Macy’s are set to report their latest results this week.

The world’s largest economy is showing signs of strength, even if at a slower rate than most had hoped, such as in Friday’s US Labor Department report. The unemployment rate dropped to the lowest in six months in October, coming in at 9 percent, and job gains in the prior two months were better than expected.

Macy’s is among those betting last quarter’s gain in spending will be sustained during the November-December holiday shopping season as the department-store chain is stepping up hiring of mostly part-time employees by 4 percent for the period, according to Bloomberg.

This week investors will be eyeing the government's data on the Consumer Price Index and Producer Price Index for the latest clues that the US might be weathering the storm in Europe.

"If there isn't a lot of resolution on the European front, some of the big company earnings could be market movers. There are a lot of positives about the US economy, and strong earnings are one of them," Rob Morgan, chief investment strategist at Fulcrum Securities in Philadelphia, told Reuters.

Investors will closely watch the Bank of England which is set to unveil its latest monetary policy decisions on Thursday. The central bank is expected to keep its key interest rate steady at a record low 0.5 percent.

Given the volatility in financial shares, they will also keep an eye out for the latest third-quarter results from Lloyds Banking Group on Tuesday and HSBC on Wednesday.

BusinessDesk.co.nz

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