World Week Ahead: Full-speed ahead

World Week Ahead: Full-speed ahead

Dec. 6 (BusinessDesk) - It’s been a topsy turvy few weeks for investors but all systems now appear set for a year-end rally.

Last week ended on a high with Wall Street posting its best five-day run in a month; the Dow Jones industrial average advanced 2.6% to 11,382.09 and the Standard & Poor's 500 Index gained 3% to 1,224.71.

The latest American jobs report - while was weaker than expected - was generally dismissed as investors opted to focus on signs that holiday sales are putting retailers on pace for a solid end to 2010.

“When things don't fall apart on bad news, you know that the market is no longer vulnerable,” Randy Frederick, director of trading and derivatives at Schwab Center for Financial Research in Austin, Texas, told Reuters. “The overall sentiment is pretty solid.”

A similar situation is developing in Europe. While investors are expected to push Portugal and Spain to the wall - and the euro too, doing so isn’t going to be as great a shock to the system as it was first with Greece and then Ireland.

In a preemptive move, governments in both Portugal and Spain last week checked criticism of their finances by passing tough austerity budgets or detailing plans to sell state assets.

Last week also showed that the European Central Bank wasn’t going to be pushed around, as it aggressively bought Irish and Portugese bonds and in so doing made it clear that it was prepared to do more.

In many ways, it’s when central bankers act that investors pay attention the most, especially when the bankers are able to get a step ahead as the Bank of Japan did earlier in the year when it moved to temporarily halt the yen’s rapid rise.

Another positive for bond investors is an increasing push for the ECB to take a page from the Fed - that is making it absolutely clear that betting against the euro zone will cost speculators.

On Saturday, Belgian Finance Minister Didier Reynders said the euro region could boost the size of its 750 billion-euro bailout fund and perhaps soon rather than as discussed in 2013.
“If we decide this in the next weeks or months, why not apply it immediately to the current facility?” Reynders told reporters.

On the U.S. economic front this week, there’s the Institute for Supply Management’s semi-annual economic forecasts for the U.S. manufacturing and services sectors, due on Tuesday, the weekly mortgage data on Wednesday and jobless claims on Thursday.

On Friday, investors will eye reports on import and export prices in November, the international trade deficit for October, and a preliminary reading December consumer sentiment from the Thomson Reuters/University of Michigan Surveys of Consumers.

International Monetary Fund's managing director Dominique Strauss-Kahn said on Saturday that the global economic outlook was "not so bad".

Speaking to the Belgian parliament, Strauss-Kahn also said that Europe's recovery was still “sluggish”.

As a result, the euro may stumble this week.

The battered euro, which weakened 7% in November, recovered somewhat last week, gaining the first three trading days of December.

On Friday the currency strengthened 1.5% to US$1.3414 on Friday, posting its largest three-day gain since May.

"The strong rally in the euro we have seen in recent days will likely fizzle out," Greg Anderson, G10 strategist at Citigroup in New York, told Reuters.

But that shouldn’t put too much of a damper on the generally positive optimism heading into this week.

(BusinessDesk)

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