Europe to remain in focus for next week SAN FRANCISCO

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Jun 23, 2012 at 6:36 PM

Europe to remain in focus for next week
SAN FRANCISCO (MarketWatch) — Events out of Europe will likely set the tone of the coming week as U.S. economic data are expected to continue to disappoint and a few companies report earnings.
One of the most important things expected out next week are details on Spain’s bank-bailout plan, according to Michael Jones, chief investment officer of RiverFront Investment Group.

“Now is the critical moment to give us the details,” he said. “The market went crazy this week when they didn’t give details.”
Spain will formally apply to the European Union on Monday for aid to its banking sector, according to Finance Minister Luis de Guindos on Friday.

The country rattled markets this past week, derailing positive sentiment out of Greece’s election that favored parties supporting the bailout for its own crisis, after reports that bad loans among Spanish banks had reached their highest level in more than a decade. As a result, the yield on Spain’s 10-year Treasury note redlined past 7%.

Up to 100 billion euros ($126 billion) has been pledged by the euro zone to help bail out Spain’s banks. Stress test results by consulting group Oliver Wyman released Thursday estimated the banks would need $64 billion to $78 billion through 2014. Also on Friday, the European Central Bank eased loan-collateral requirements.

The Stoxx Europe 600 Index (STX:XX:SXXP) finished the week up 1%, and 0.7% lower on Friday. Stateside, the Dow Jones Industrial Average (DJI JIA) finished down 1% for the week and the S&P 500 Index (SNC:SPX) declined 0.6% in the five-day period. The Nasdaq Composite Index (NASDAQ:COMP) rose 0.7% in the same time frame.

The most encouraging developments for markets will be if Spain’s banks agree to a plan where preferred stocks are converted into common stocks, much in the way Citigroup Inc. (NYSE:C) agreed to convert shares in 2009, and if bailout loans are made senior to all other debts, Jones said. “If they do that it’ll be extremely encouraging to European markets. A lot of bad things happen if they don’t.”

It will be a heavy week for U.S. economic data, and investors will be waiting to see if there’s continued weakness in the economy, said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

U.S. indicators fared poorly in the past week as manufacturing in the Philadelphia region declined, sales of previously owned houses fell and the Federal Reserve cut its growth outlook. Also, the Federal Reserve disappointed stock watchers when it opted for an extension of so-called Operation Twist rather than a full-blown third installment of quantitative easing.

Data in the coming week, however, could be easily trumped by news coming out of the two-day meeting of the European Council in Brussels beginning Thursday, Luschini commented.

He said he was less concerned about Spain, since the country appeared to have enough support to bail out its banks. “I’d look more to European officials as for what might be done in the meeting in Brussels. They need actual solutions. Partial solutions are like no solutions.”

As for domestic economic indicators, RiverFront’s Jones said he does not see much in the week ahead that will detract from a definite downward pattern.

On Monday, the Chicago Fed national activity index for May is released along with May new-home sales. On Tuesday, the Case-Shiller home-price index for April is released, along with consumer-confidence figures for June.

May durable-goods orders and pending home-sales figures will be released on Wednesday, and on Thursday comes weekly jobless claims and first-quarter GDP figures.

On Friday, the personal-income, consumer-spending, and core personal-consumption expenditure price index comes out for May, in addition to the Chicago purchasing-managers index and UMich consumer-sentiment gauge for June.

Also, a handful of companies on the S&P 500 will be reporting quarterly results over the coming week.
http://www.marketwatch.com/story/europe-to-re...2012-06-23

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