With the bond market taking the day off in observance of the Veterans Day and the economic calendar relatively on the thin side, Europe will likely remain the dominant issue in the market. And the overall tone of European headlines appears to be on the reassuring side. This should help the market sustain the positive momentum from Thursday.
Italy's Senate passed next year's budget that includes a host of austerity measures demanded by Euro-zone leaders. The passage of the measure from parliament's lower chamber, expected over the weekend, will pave the way for the exit of Silvio Berlusconi. The country is expected to install a technocratic government led by Mario Monti, a respected economist and former EU official. Greece has gone through a similar change and installed a non-partisan technocratic government. In other headlines, Germany's Angela Merkel denied rumors of Franco-German plans to create a two-tier Euro-zone union, where all the troublesome countries would be pushed into an outer periphery.
All of this combined is helping calm market jitters about the Italian situation and in the process bringing down the yields on Italian government bonds. Those yields have been steadily coming down after moving into the danger zone of above 7% on Wednesday. The European Central Bank (ECB) appears to be playing a quite but helpful role in bringing down the temperatures in the bond market. Continuation of this trend over the coming days will improve the odds that Italy will be able to muddle through its problems, enabling the Euro-zone deal to take effect. Nothing is certain on the European front these days, but some measure of stability in Italy and Greece will give the Euro-zone deal the space it needs to come to grips with the situation.
On the earnings front, Disney (DIS) came out with solid EPS and revenue beats after the close on Thursday. Nvidia (NVDA) also posted a positive surprise as its focus on smartphones and tablet computers appears to be helping it sustain growth despite the lackluster PC market. Nordstrom (JWN) matched earnings expectations on modestly better than expected revenue numbers. But the upscale retailer provided guidance that came short of expectations.
The stock market gains in October reflected the improving U.S. economic outlook and the hope that Europe was finally getting on with tackling its problems. The third quarter reporting season also played a positive role, by reassuring investors about on the corporate earnings front. But the Italian situation reminded investors that resolving the European problem will be a long and painful process. But as long as Europe continues to move in the right direction, we can expect favorable momentum in the market to remain in place.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment