In Europe, an election and a collapse in budget talks renew the turmoil and are now likely to dominate market sentiment but across the pond there is a different and positive story for the markets.
For the US, either someone has done a great job ‘beating’ down analysts’ earnings estimates for the current reporting round, or Wall Street really does face the prospect of genuinely better fundamentals as the year progresses. More on this shortly.
In Europe, round one of the French elections has gone François Hollande’s way thus casting uncertainty for the markets over what the prospect of a Socialist victory on May 6th could mean for ratifying the Inter-governmental Treaty on the fiscal compact and resolving the debt crisis. Among other things, Hollande has indicated an intention to re-negotiate the terms of the fiscal compact to include measures aimed at growth, an ambition that will take some doing.
In Italy, fiscal austerity and the weak economy are leading to slippage in deficit targets as demonstrated last week by a document due to be approved by parliament this week. GDP growth is forecast to fall more than previously expected, thus forcing the government of Mario Monti to raise next year’s budget deficit to 0.5 percent of GDP from a previous target of 0.1 percent and pushing out to 2014 the target of budget balance. In the Netherlands, the leader of the centre-right coalition has had to acknowledge the collapse over the weekend in talks on budget cuts thus making elections likely and adding further to the concern about a resolution to the eurozone’s debt crisis. More >