Europe Remains in the Focus

There is really not much new to report since my previous update.  The news coming from U.S. continue to be  generally positive.  Companies continue to report strong earnings.  Consumer sentiment index rose last week to 67.7, above expectations.  Business activity rose to 56.2 (a reading above 50 indicates growth).  First time unemployment claims dropped to 366,000, well below the “magic” 400,000 threshold and are at the lowest level in three years.

Stock prices have been attractive on the valuation level for some time now.  However, that and the positive news above do not matter at the moment, as all attention continues to focus on developments in Europe.  The possibilities of a Eurozone break-up or a major default do exist and that places a lid on any meaningful market rally.  We are still waiting on evidence of concrete immediate term plans to address European issues.

The Euro recently broke below a psychological level of $1.30.  A strong dollar is not good news for U.S. based companies with international exposure, as it reduces revenues in dollar terms.  However, in this case, a weak Euro could be very beneficial to European companies by making their goods cheaper.  This could release strains on the European economy and provide a boost to global equity prices.