11/10/2011
By Carlos Guillen, Research Analyst

More Articles by Carlos Guillen

A Slow, Painful Recovery

Apple Takes Everyone by Surprise

Equities Get Axed

Perhaps already expected, but never failing to put investors at the edge of their seats, equity markets continued to demonstrate strong volatility during this week's trading activity as news from Europe has dominated investors' psyche. Here at home, on Thursday's initial claims data headed in the right direction, and the trade deficit narrowed as exports grew at a faster pace than imports. The net effect of all the forces caused the Dow Jones Industrial Average to land in green territory, finishing up close to 1%.

On the positive side, there was news that Greece has found its new prime minister, and Italy is getting close to picking one itself. After a rather suspenseful beginning to the week, former European Central Bank vice-president Lucas Papademos was appointed to head an interim crisis cabinet, a position that will have as its main goals to save Greece from default and to prevent the nation from being shown the door of the euro zone. In Italy, former European Commissioner Mario Monti is now being considered as the favorite to replace Italian Prime Minister Silvio Berlusconi within days and to lead an emergency government that would implement long delayed reforms of pensions, labor markets, and business regulation.

On the negative side, European Central Bank policy makers said the ECB can't do much more to stem the region's sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy's borrowing costs. However, Italy was able to raise 5 billion euros by selling one year maturity bonds, an action that has helped to bring relief to Italian borrowing costs that rose above 7% yesterday.

Also negative was that the European Commission cut its euro-region growth forecast for next year by more than half and said it sees the risk of a recession as leaders struggle to contain the fiscal crisis. The commission's new gross domestic product growth forecast now stands at 1.5% this year and 0.5% in 2012. This compares to the prior projection of 1.6% and 1.8% this year and next, respectively.

On the domestic front, according to the Labor Department, initial claims during the week ended November 5 totaled 390,000, which decreased from the 400,000 revised figure reported for the prior week and landed in line with the Street's estimate of 400,000. The four-week moving average of insured unemployment for the week ended October 29 totaled 3.69 million, representing a decrease of 19.5 thousand week to week. While the trend in initial claims is still encouraging, its level is still too high to cause significant changes to the unemployment rate.

Carlos Guillen
Wall Street Strategies