Europe will remain in focus. The EU, the International Monetary Fund (IMF), and the European Central Bank (ECB) are struggling to deal with the heavy load of outstanding Greek debt. I believe that the key players are coming to the conclusion that Greece will never be able to pay back all of their outstanding bonds, so other methods of reducing debt are under consideration such as simply buying the bonds on the open market. Efforts by EU leaders to instill confidence in the process has certainly calmed the bond market, however, it has also undermined this process by driving up Greek bond prices making bond purchases by the EU a more expensive proposition. Economic stress in Spain has also raised the specter that the Catalan region of Spain is going to move forward with an independence referendum. The British paper, The Telegraph, reports that today’s (Sunday) elections will bring a pro-independence party into power, and that 57% of Catalans support independence from Spain. The main complaint is that Catalonia is paying more than their fair share of taxes to the Spanish federal government. Any vote of independence is likely several years to the future, but calls into question the integrity of the EU at a difficult time.
The upcoming week has several important economic reports due out. The most significant will be the second estimate of the 3rd Quarter US GDP. Consensus is anticipating an upgrade to 2.8% from the first estimate of 2.0%. Such a jump would be a very strong indicator of an improving economy. October New Home Sales is expected to show a very minor drop from the annual rate reported in September of 389,000 units to 387,000. Additionally, the weekly Initial Jobless Claims report for last week is expected to show an improvement of 20,000 from the previous week’s surprisingly high 410,000 to 390,000. In general, these and the other economic indicators continue to reflect an economy that is growing, but a very modest rate.
My next Market Commentary and Update will be published in two weeks.