US Investors Keep Eyes On Europe

(NewsCore) – Europe-gazing will continue to trump fundamentals in the coming week as US stock investors monitor how the continent deals with its sovereign-debt problems, according to analysts.

Positive developments in Europe — in the form of several central banks making dollar financing cheaper through swap arrangements and finance ministers taking steps to effectively expand the European Financial Stability Facility (EFSF) — contributed heavily to the past week’s rally in equities.

While US markets changed little Friday, they all finished higher for the week, with the Dow Jones Industrial Average, SP 500 Index and Nasdaq Composite Index all gaining more than seven percent.

“It’s pretty clear the market’s in a Europe-centric phase for the foreseeable future until there’s some sort of resolution,” according to Chris Konstantinos, director of risk management at Riverfront Investment.

Resolution, as described by Konstantinos, may be a ways off, as it would involve making sure the euro holds together, containing debt issues so credit spreads come back to sustainable levels and reducing bond yields in places like Italy back to the three percent to four percent range, compared with their recent seven percent.

More notable than central banks coming together this week, Konstantinos said, was China’s reserve easing efforts, which for the longer term will be more beneficial to emerging markets and commodities prices.

Big events out of Europe in the coming week include a possible interest rate action from the European Central Bank (ECB) on Thursday and a summit of European leaders Friday.

Even US Treasury secretary Timothy Geithner is getting in on the act, visiting officials from the ECB and Germany on Tuesday, French and Spanish officials on Wednesday and Italian officials on Thursday.

Bill Stone, chief investment strategist at PNC Asset Management Group, said investors are looking for German chancellor Angela Merkel to produce a plan of fiscal integration at the summit based on a carrot-and-stick approach for eurozone members.

“That’s what the market hopes for because you get the carrot, that the ECB steps in and buys debt, and that’s what the market wants,” Stone said.

While lower on investors’ radar, he thinks US economic data will still matter even though it is a light week. With November nonfarm payrolls climbing by 120,000, the jobless rate falling to 8.6 percent and the November manufacturing index improving to 52.7 this week, Stone said the Institute for Supply Management’s service index will be a figure to watch Monday.

Other reports in the coming week include October factory orders data Monday, October consumer credit figures Wednesday and October trade deficit figures and December consumer sentiment Friday.

With nearly all of the SP 500 having reported quarterly earnings, about 73 percent of those reporting posted earnings above Wall Street consensus estimates, according to John Butters, senior earnings analyst at FactSet Research.

Read more: MarketWatch