Share this
Digg
Del.icio.us
StumbleUpon
Netscape
Yahoo
Technorati
Googlize this
Facebook
Export PDF
Print
E-mail
THE ANNOUNCEMENT THAT European policymakers were able to come to an agreement to at least temporarily address that region’s debt crisis helped stocks rally for a fourth consecutive week. For the week ended Oct 28, investors were also cheered by some better US economic data that further reduced the odds that the US would sink into a double-dip recession.
The agreement (which includes an expansion of the European rescue fund and an agreement by Greece’s debt holders to accept some losses) is still lacking in some details and certainly does not solve all of Europe’s long-term debt issues. Nevertheless, the European debt deal is a significant milestone and helps remove some of the risks that had been weighing on the global economy and financial markets.
Despite some uncertainty, one of the most important takeaways from this news is that all of the parties were able to come together to make some hard decisions, take some losses and set up a new institutional structure that is powerful enough to take action while assuaging the concerns of many (chiefly Germany) over creating a more tightly intertwined fiscal union. It is important to remember that it was only a couple of years ago that the thought of any bailout was a complete non-starter among most policymakers. Europe has been able to move from that point to an agreement in which countries will effectively guarantee each other’s debt — a notable achievement.
There are still some significant long term concerns about the fiscal stability of several European countries, particularly given that overall European economic growth is likely to remain weak. Italy and Spain, for example, still need to enact some serious fiscal reforms, which will be difficult to do, given a charged political backdrop.
On the other side of the Atlantic, recent data confirms that the US economy is continuing to grow. While not very quickly and certainly not fast enough to effect noticeable improvements on a persistently high unemployment rate, it is growth nonetheless. Business investment levels and spending on equipment and software continue to improve and consumer- spending levels have been ticking up. These trends were confirmed by news that GDP in 3Q grew by an initial estimate of 2.5% (with final sales figures growing a healthy 3.6%). Corporate earnings have also remained solid. We are more than halfway through the 3Q reporting season and companies have again been surpassing expectations for revenues and earnings.
