Still Trying to Sort Out the Eurozone Problems

Last week showed that the problems in the eurozone aren’t just going to disappear. There are still some very real issues to tackle, and it’s not helping that the rest of the world seems to be stagnating economically. There has been a lot to worry about recently, and the fact that the bulls managed to eke out some gains on Friday is little short of a miracle.

FOMC Minutes and US Economic Data

The Federal Reserve released the minutes from the last FOMC meeting. The initial reaction to the minutes was the assumption that the Fed is just about ready to implement quantitative easing. Concerns about the stagnating US economy were prominent on the minds of many. However, comments later from a Fed member (although a non-voting member) crashed the party. He said that the FOMC minutes were old, and that the situation has already changed.

However, hope was re-kindled with the latest jobless claims report, which showed an increase of 372,000 claims for the week ending August 18. On the docket this week, in terms of political factors, is the GOP Convention, starting today. And let’s not forget Ben Bernanke’s upcoming speech in Jackson Hole on Friday.

In the meantime, the latest reports out of China continue to show that growth is slowing. This isn’t good news for the entire global economy, since China is considered a major player along with the United States.

Eurozone Talks

Also last week, Francois Hollande, the French president, and Angela Merkel, the German Chancellor, met separately with Antonis Samaras, the Prime Minister of Greece. Samaras continues to ask for more time to meet austerity requirements for its bailout. France is in favor of providing more flexibility to Greece, but Germany is not so eager to continue to compromise.

Even though Merkel insists that Germany wants Greece to remain in the eurozone, the Bundestag leader, Volker Kauder has expressed the view that, even though he believes Europe is the future, he wouldn’t be heartbroken to see Greece exit the eurozone.

Talks are fine and good, but nothing is likely to be decided until at least September. And, even though Greece is once again dominating headlines, it’s important not to lose sight of Spain and Italy, which are still battling high bond yields, and waiting to see if the ECB will really announce something helpful.

For now, it looks as though there is a lot of wait and see happening. Keep track of Europe, and remember, too, that there will be plenty of domestic influencers for the markets as the US presidential race heats up.

Focus Back on Europe This Week

Last week ended on a relatively subdued note. The week was mostly quiet as investors waited for the end of Angela Merkel’s vacation, and more word on what’s next for Europe. While US economic data has certainly provided some food for thought, last week wasn’t very exciting. This week, though, could prove quite exciting, depending on what eurozone leaders decide.

US Economic Data Continues to Show Improvement

US economic data showed improvement this week. For the first time in four months, retail sales showed improvement. July retail sales showed a gain of 0.8% month over month, beating analyst expectations. Additionally, there were gains for PPI.

Even though initial jobless claims rose for the week ending August 11, there is still some optimism for the US economy. Indications are that things are steadily improving — even though things aren’t picking up at a particularly rapid pace. Consumer sentiment for early August also rose, beating analyst expectations.

This good news, though, hasn’t been enough to really spur the stock market higher. Many investors are cautiously optimistic about the US economy, but there is no avoiding the European crisis. And this week marks another round of discussions about how to save the eurozone, and what’s next for Greece.

What’s Next for Europe?

German Chancellor Angela Merkel has been on vacation, but that has come to an end. She’s back in Europe, and ready to meet with other eurozone leaders. The subject is going to be Greece, and its request for more time to meet the conditions of the bailout. Even in the midst of lip service that Greece must be saved, there are rumors that leaders might really be trying to figure out a minimally-problematic Greek exit from the eurozone.

Merkel recently said that she supports the latest crisis-fighting strategy developed by Mario Draghi and the European Central Bank. She has also said that time is important, and that things need to be resolved. She still hasn’t agreed to common eurobonds, though, even though she seemed to imply that the ECB strategy of buying bonds from Spain and Italy is acceptable.

What comes out of talks this week will have a big impact on the markets. Essentially, the talks this week determine whether or not the eurozone contains this crisis, or continues on a path that leads to the collapse of the euro. Keep your eyes on Europe this week; it will have a bigger impact than what’s happening with the US economy.

The Week Ahead: US Economic Data

This week, it’s all about the upcoming economic data. While there is practically nothing of interest today, Tuesday and Wednesday will see prints of interesting data. This is data that should provide some insight into what the Federal Reserve is likely to do next. In general, though, data is expected to be lackluster.

Tuesday: July Retail Sales

On Tuesday, the July retail sales report will be out. Some are expecting a positive number, which would be an upgrade from the -0.5% seen in June. The improvement isn’t expected to be dramatic, but it is expected to be there. A lot of the improvement is expected to come from Back to School sales, which often start in July.

Also on Tuesday will be the July PPI print and the business inventories data. All of this should give a fairly good picture of the trend for the economy.

Wednesday: CPI

On Wednesday, it’s all about the CPI. Many people are concerned about CPI data, since it always seems to be unrealistic. First of all, substitutions can be made to make it appear as though inflation is within acceptable ranges. CPI is expected to show a gain of 0.2% from June to July, and a year over year increase of 1.6%.

Many, though, argue that “real” inflation is much higher than 1.6%. And once the effects of the Midwest drought really hit, true inflation is expected to be even higher. The sore point for many is that core CPI, which takes out volatile prices like food and energy, is one of the major measures that the Federal Reserve based its policies on. So, the members will act as if inflation is low, even though “regular” folks are feeling the effects in their pocketbooks.

For now, stocks are lower to start the week. This comes after Friday’s enthusiasm, and five weeks of gains. Perhaps investors are ready for a breather — and to wait and see what this week’s economic data tells us.

More Volatility Ahead: What’s REALLY Going on Here?

Last week ended in spectacular fashion. After stock markets tanked earlier in the week, dismayed at ECB President Mario Draghi’s remarks, stocks came roaring back with the help of better than expected nonfarm payrolls data. The week ahead looks to be an interesting one, with more data from the United Kingdom on the way, and economic reports from China. On top of that, investors and analysts are working up some optimism that the ECB will be forced to intervene.

Mario Draghi Disappoints Markets

After saying that the ECB was prepared to do anything in its power to save the euro, Draghi completely disappointed the markets. Many had expected him to announce bond buying programs that would help keep Spanish and Italian yields lower. Instead, Draghi announced no new plans, and indicated that intervention — if it comes — probably won’t arrive before September. The news dismayed just about everyone and sent global markets plunging.

Will European leaders really decide to do what’s necessary? Or is it a lot of talk? And could the euro fail? Optimists are re-assessing Draghi’s comments right now, and many are figuring that the ECB will be forced into intervening, and possibly have to do so before September arrives.

Nonfarm Payrolls Surprise to the Upside

What really has investors going, though, is the surprise of nonfarm payrolls. Speculation that Spain will ask for financial aid, and that the ECB will have to take action, helped markets, but really goosed them higher on Friday was the report on July’s job growth. The US economy added 163,000 jobs in July; analysts had expected an addition of 100,000 jobs.

This news spurred hopes about a US economic recovery, and stocks reacted favorably, gaining where it had lost, and reclaiming the 13,000 level.

What About This Week?

Expect more volatility. There is a lot of speculation about what to expect from the ECB, and are concerns about what’s coming for the United Kingdom and China. The UK forecast is expected to be cut by the Bank of England, and that concern is only further amplified last week’s services PMI data. China is another area of concern. Is growth still slowing? Or will economic data show that China is ready to expand more, and help lead the global economy out of its funk?

Good news will prompt more gains for the markets. However, bad news will lead to losses. Investor sentiment seems to be swinging rather widely from day to day. Until there is a better idea of what is going on, expect these sorts of gains and losses as a matter of course.