Can the Federal Reserve Save the Eurozone?

11.28.11 In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on four items impacting markets this coming week:

The Eurozone is working on a plan to speed integration. Rather than going through an arduous treaty process involving all of its members that would be too slow to react to the crisis, 17 of the 27 Eurozone nations are working to sign bilateral deals with one another that would provide a solid “mechanism” to govern sovereign austerity measures across the board.  The hope in such a step is that the ECB (European Central Bank) will boost its bond intervention, although it’s not clear whether the central bank would agree.  Officials also want to make budget discipline legally binding and enforceable by European authorities.  What is the immediate driver for the new sense of urgency?  Simply put, it has been the fear engendered by recent Italian bond auctions and the fact that Italy is simply too big to bail out.

Here’s another interesting question to ponder concerning Europe: “Could the Federal Reserve possibly step in and save the situation?” Having rescued the financial system in 2008-2009, and with events moving faster than Europe can react to, there are some who are calling on the Fed to save the Eurozone.  As Ben Bernanke stated in 2002, the Fed has the authority to buy foreign government debt.  In a  direct call to action, Berkeley’s Brad DeLong stated “The Fed needs to buy up every single European bond owned by every single American.”Financial Market Outlook

The final judgment on the season is still out, but retail sales started well over the holiday weekend. Despite a lackluster overall economy, deep discounts and midnight openings drove a 16.4% increase in retail sales to a record $52.4 billion over Thanksgiving.  The number of consumers who visited stores or Internet shopping sites rose 6.6% to $226 million, also a record.  These results have clearly helped financial markets this morning. As for “Cyber Monday” today, Internet purchases are expected to hit new highs, with ComScore forecasting that sales will reach $1.2 billion this year.

This will be a busy week for economic data in the United States. October new home sales will come out this morning.  Later in the week, the Federal Reserve will release its Beige Book.  The “main event” comes Friday with the release of U.S. non-farm payrolls and other labor market data for November.  Economists surveyed by Dow Jones Newswires expect the report to maintain the trend of recent months, with somewhat more than 118,000 jobs likely created in November.

As always, email me here with your questions or comments.  I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.

Ashley Page
Senior Vice President
Wealth Consultant
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.

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