A critical week in Europe and the U.S. jobs report should keep markets on edge in the week ahead.
Friday closed the books on the dismal month of September and on the worst stock market quarter since the financial crisis.
October poses the same challenges for stocks. It will be a crucial time for Greece, which must show it has taken measures to qualify for the next tranche of IMF and EU funding by mid-month. Markets are also looking to European leaders to show commitment to some bigger plan to stop the crisis from spreading to other countries and deeper into the banking sector.
The September jobs report is the big item to watch for U.S. data in the coming week, but there is also testimony from Fed Chairman Ben Bernanke, who appears before the Congressional Joint Economic Committee to discuss the economy and recent monetary policy at 10 a.m. Tuesday.
The pressure could be on the Fed chairman, after Republican congressional leaders asked him to hold off on further stimulus ahead of the last Fed meeting, where it approved the "Operation Twist" program.
Stocks were volatile in the past week, with the Dow up 1.3 percent to 11,152. It was down 6 percent for the month of September and 12 percent for the quarter. The S&P 500 was off 0.4 percent for the week to 1131, and for the quarter it is down 12.9 percent, its worst quarter since the fourth quarter of 2008.
Markets have been reacting to the triple fears of a Chinese slowdown, U.S. recession and expanding European sovereign crisis. While many economists do not expect a recession, they do see the risk rising.
"If we get weak U.S. employment numbers, that will just remind people how weak and bleak the outlook is for the major economies," said Brian Dolan of Forex.com.
The consensus is for 50,000 jobs in September, after August's jobs report showed zero new jobsand an unemploymentrate of 9.1 percent.
"That's the standout. The rest of the economic data stream has been largely ignored," said Art Hogan of Lazard Capital Partners. "The big question everyone wants to know is what the guidance looks like for 2012. Are your estimates too exuberant? They've got to be coming down a bit, if in fact, the economy is slowing."Euro stress
Europe should be a major source of headlines in the coming week, as European finance ministers meet Monday and Tuesday. The European Central Bank holds a rates meeting Thursday.
Traders had speculated there could be a rate cut coming in Europe, but Dolan said Friday's inflation report of 3 percent CPI for the euro zone makes that unlikely. "What they will do is extend liquidity measures," said Dolan.
German Chancellor Angela Merkel meets Thursday, ahead of the upcoming November G-20 meeting with IMF managing director Christine Lagarde and ECB President Jean-Claude Trichet, World Bank chief Robert Zoelick and OECD Secretary General Angel Gurria. Merkel will hold a press briefing after the meeting, which is also expected to focus on the sovereign crisis.
While the market mood is pretty glum, economists say they aren't seeing all bad out there. Friday's income data were disappointing, but consumer sentiment was better than expected at 59.4, up from August's three-year low of 55.7.
Thursday's durable-goods report showed that nondefense capital goods orders, excluding aircraft, rose 1.1 percent after falling 0.2 percent in July. That was above economists expectations of 0.3 percent and reflects improved business spending.
"We've seen firm industry production data and some of those things are observable on a week-to-week basis, and if people are worried about some grand downturn we should see it in the chain stores sales data and the production data," said Citigroup economist Steven Wieting. "The point is the economy has been somewhat firmer through the third quarter." Wieting said he raised his third-quarter GDP forecast to 2 percent form 1.6 percent.
He said besides jobs, he is watching auto sales for September, which should show improvement over August. There is also chain-store sales data due out on Thursday. Other data of importance this coming week are the ISM surveys which measure manufacturing and service-sector activity and also include jobs components.
But everyone will be looking overseas as the big threat to the U.S. economy is whatever comes out of Europe. "We think they do restructure Greece and that it has political ramifications that are painful for the rest of Europe, and it's not a benign event," said Wieting. "There's timing and scales that are important ... how prepared Europe is, is important."
Here's the economic calendar for the week. All times are EDT:
Monthly auto sales
10:00 a.m. ISM manufacturing (September)
10:00 a.m. Construction spending (August)
10:00 a.m. Factory orders
08:15 a.m. ADP employment (September)
10:00 a.m. ISM nonmanufacturing (September)
Monthly chain-store sales
08:30 a.m. Weekly jobless claims
08:30 a.m. Employment report (September)
10:00 a.m. Wholesale trade (August)
03:00 p.m. Consumer credit (August)
There are just a few earnings reports in the week ahead. Yum Brands reports Tuesday, and Costco , Monsanto , Ruby Tuesday and MarriottInternational report Wednesday. Constellation Brands releases earnings Thursday.