Markets Look to Spain, Middle East, and Apple

Markets are looking to see what happens on a few fronts right now. There is interest in what is next for the eurozone, thanks to the rumors that Spain might be ready to cave and ask for bailout funds. On top of that, the Middle East could be flaring up again, as protests and outrage continue. And, of course, the new iPhone 5 is out. Apple is providing plenty of focus for investors as well.

Spain and the Eurozone

Probably the most influential news this week will be what happens with Spain. The rumors are that Spain will unveil its plan for fiscal reform. There is speculation that such reform indicates that the country is finally ready to ask for aid from the European Stability Mechanism. With the German Constitutional Court giving its implicit blessing on the facility, countries can move forward with aid requests.

There are hopes that Spain will ask for a bailout — even though Spanish citizens are already protesting austerity measures. One of the reasons that Spain has been slow to ask for help is that the help comes with strings attached. Spanish politicians just haven’t been ready to face the backlash. Now, though, that could change. Markets would cheer an action to help shore up Spain and reduce the problems associated with sovereign debt in the eurozone.

Middle East Continues to Seethe

In the Middle East, there are concerns about what could happen if continued protests and outrage interrupt oil supply. There are issues in Libya, Syria, and Pakistan, and a variety of problems throughout the region. Continued unrest could provide another measure of volatility to the markets, especially in terms of oil prices and oil related assets. And, if something in Europe is resolved (like Spain asking for aid), focus would shift a little more toward the Middle East. There is a lot of potential for disruption there.

Apple

With the iPhone 5 now out, many are looking to see what’s next for Apple. The company’s share price continues above $700, and records were shattered with Friday’s release of the iPhone 5. While AAPL won’t be driving the stock market on its own, there is a lot of interest in the stock, and the company seems to be doing fine, even without Steve Jobs at the helm. And, without Jobs, a quarterly dividend is being paid, and there is a chance that the dividend will increase.

This week should be interesting. Keep your eyes open for what might be next.

QE3 Ends Up Being Quantitative Easing Unchained

The really big news last week was the announcement of QE3. After a two-day Federal Open Market Committee meeting, Fed Chair Ben Bernanke announced that another round of quantitative easing is in order. But he didn’t just announce a set figure for injection into the economy. Instead, he announced an unlimited program.

Unlike the previous rounds of easing, QE3 is basically an unlimited version. Instead of saying that the Fed will buy $400 billion in assets over time, Bernanke revealed that the Fed would inject $40 billion a month into the economy by making asset purchases. This $40 billion a month will continue indefinitely — until the Fed decides that the economy has been sufficiently stimulated. The news that extremely low rates will continue through 2015 took backseat to this new program announcement.

Quantitative Easing Immediate Impacts the Markets

Bernanke’s announcement impacted markets immediately. The Dow ended 200 points higher on Thursday, the day the announcement was made. The rally continued into Friday, but without the same drama. Commodities surged, and oil even touched $100 a barrel on Friday. The US dollar immediately dropped against its counterparts, since the increase in money supply devalues the greenback. (Some are warning that inflation is coming as a result of all the stimulus.)

Meanwhile, in Europe

The big Fed announcement overshadowed just about all the other news at the end of last week. Prior to the quantitative easing program revelation, though, Germany’s Constitutional Court ruled that the European Stability Mechanism was compatible with German laws, and the ESM received a go-ahead. This news was well-received, since the 700 billion euro bailout fund is expected to be helpful in propping up the eurozone.

At the end of the week, Eurogroup leaders also met to figure out what can be done about Greece and Spain. There are still plenty of hurdles to overcome, but there are hopes that the euro will be supported, and that the eurozone will remain intact. With this news, and the Federal Reserve news, there are expectations that stocks can maintain some bullishness for a little while.

What’s Next?

For now, there is a great deal of enthusiasm amongst investors. However, there are worries that things could become a bit grim after a couple of months. What happens if the stimulus in the United States doesn’t work as expected? What if eurozone leaders, once again, prove that they can’t come to an agreement about what should be done? There are plenty of concerns to overcome, and no country is out of the woods yet.

ECB Bond Buying and the US Employment Picture

Last week has given us some food for thought as we head in to a new and interesting week. What’s happening in Europe remains a strong focal point for investors, and US economic news is also an important focus for investors.

Mario Draghi Announced Bond Buying Program

Investors widely expected ECB President Mario Draghi to announce some sort of bond buying program following an interest rate policy decision. While the ECB kept rates where they are at, Draghi unveiled a bond buying program designed to help shore up ailing countries in the eurozone.

The program allows for the ECB to essentially make unlimited purchases of short-term bonds from embattled countries. However, the countries are supposed to be in the process of implementing austerity measures in order to qualify for the bond buying program. Draghi said that the ECB would be on the same legal level as private bond investors as well. The move is meant to shore up the euro and help struggling countries better handle their debt.

August US Employment Data Disappoints

Even thought the ADP report showed an addition of more than 200,000 private sector jobs in August, the non-farm payrolls report came in at a disappointing rise 96,000. Once again, there is the appearance that the situation isn’t improving at the rate many would like to see.

As a result, some of the speculation that QE3 is on the way sooner rather than later is back on. The idea that the employment picture isn’t improving as much as expected or desired is driving the thought that some sort of economic stimulus will be needed to get things going. Ben Bernanke has already said that the Fed is prepared to take additional measures if necessary, and now the speculation is starting again that the Fed will have to do something soon.

All of this is likely to affect stocks this week. So far, though, it is likely to send stocks a bit higher. The idea that Europe is on the upswing, and the idea that economic stimulus might be implemented in the United States, are combining to provide a little boost.

Ben Bernanke Speaks: Who’s Ready for QE3?

On Friday, central bankers from around the world met in Jackson Hole, Wyoming for a symposium over the Labor Day weekend. The most-anticipated speech of this yearly gathering is always the one given on the first day, by the Chair of the Federal Reserve. Ben Bernanke spoke to the assembled central bankers, and made a case for more stimulus.

Ben Bernanke laid out the economic situation in the United States, and expressed his concern about the continued stagnation in the labor market. He also said that the Fed stands ready to take more action, and that means that more quantitative easing could be on the way. Bernanke didn’t provide too much detail, though, offering no insights on when QE3 might be enacted. He simply made the case that stimulus might be needed, and that the Fed stands ready to provide that stimulus.

As a result, US stocks headed higher. While some think that a more dramatic rally would have occurred had Bernanke been definitive about implementing QE3 at the next meeting in mid-September, the fact that the Fed appears ready to take matters into its own hands comforted many investors and helped stocks.

Meanwhile, Across the Atlantic in the Eurozone

Back in the eurozone, the situation remains much the same as ever. ECB President Mario Draghi decided to skip the symposium in Jackson Hole, canceling his expected speech for Saturday. Spain has delayed its request to ask for a bailout, and Greece is still waiting for other eurozone leaders to agree to more flexible terms for implementing austerity measures. Nothing has been resolved, and investors are still waiting to see what will happen. Draghi has been trying to keep fear for the eurozone at bay, but his “whatever it takes” within the ECB mandate looks to be increasingly little, and he has been trying to figure out what criteria should be used to determine the point at which the ECB needs to intervene more decisively.

For now, hope seems to be on the side of the eurozone. Investors don’t believe that it will be allowed to fail. However, unless some sort of agreement about what to do is reached, and Germany (which has been balking) is a big part of that, the eurozone could quickly slip into chaos. All of this gives investors plenty to think about this week, and it will be interesting to see which way sentiment runs in the United States, as well as in Europe.