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Europe's Crunch Time May Drive Market Amid Earnings Flood

The coming week is crunch time for European officials working to fix their debt crisis, and it's also the first big rush of the corporate earnings season in the U.S.

NYSE trader
Oliver Quilla for CNBC.com
NYSE trader

There is a parade of Fed speakers, including Fed Chairman Ben Bernanke on Tuesday, and a hefty calendar of economic data. Inflation and housing data top the list.

But analysts say Europe will be the big driver for markets, and it is important to see that officials remain on track in efforts to develop a bigger plan to stop the sovereign debt crisis from spreading through the banking system.

G-20 finance ministers were meeting over the weekend in Paris, and European finance ministers gather at the end of the week before attending a summit next weekend. They are working to structure a planahead of the G-20 leaders meeting in early November.

Stocks have been rallying on optimism Europe will find a way to shore up its banks and lever the bailout fund to stop the spread of the debt crisis. One option being discussed was a bigger role for the IMF, using money at its disposal or new money from its members.

The Dow jumped nearly 5 percentfor the week to 11,644, and is now slightly positive for the year. It is also up 9.3 percent from its Oct. 3 low. The S&P 500 rose nearly 6 percent to 1224, and it's 11.4 percent above its Oct. 3 low. The Nasdaq, driven by technology shares, was the best performer of the three, rising 7.6 percent to 2667. As stocks and other risk assets rallied, the euro also soared, gaining 3.8 percent for the week to 1.388.

"There's so many options on the table but what the market is reacting to is it appears that the message has gotten through — the first step to fixing a problem is realizing you have a problem," said Robert Sinche, head of global currency strategy at RBS.

"This weekend is pretty interesting. The last time (Treasury Secretary Timothy) Geithner was in Europe, it didn't go too well. This time it's the finance ministers from Australia, Canada, South Africa. Everybody's saying something needs to be done," he said.

Geithner told CNBC's Steve Liesman Friday that the U.S. plans to be an active partner as efforts intensify to resolve the European crisis. He said by next week IMF participants should have a "more comprehensive strategy" to solve the crisis and put in place a plan at the G20 summit, which begins Nov. 3.

Sinche said the market remains bearish toward the euro despite the seeming progress by European leaders to work toward a bigger plan to stem the crisis. "Is there a point this week where people really do throw in the towel?" he said. "...If people think there's something real coming here, it possible you could see a pretty significant squeeze."

Earnings Central

About a fifth of the S&P 500 report earnings, including tech heavyweights Apple, Microsoft, Intel, and IBM. The major financials are also reporting — Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and American Express. Other blue chips include Coca-Cola, McDonald's, Johnson and Johnson and General Electric.

Symbol
Price
 
Change
%Change
VOW3
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NOVU
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SC0Y
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GS
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IBM
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INTC
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JNJ
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KO
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MCD
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MSFT
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WFC
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"It's earnings next week as much as anything," said Barry Knapp, head of U.S. equities portfolio strategy at Barclays. "There's some sectors that have been battered enough that there's room for upside. Tech, I would think would be the star next week. Industrials could perform well. I don't think it matters what the banks say, those stocks aren't going up," he said. JPMorgan, considered the best of the bunch, reported a disappointing profit decline Thursday and was cautious about the coming year.

"It's hard to see how even better than expected earnings (for financials) are going to matter, because the regulatory overhang is so big," he said.

Stocks were also lifted Friday as better-than-expected retail sales data showed that consumers were spendingin September, and revisions showed improved levels in July and August. Several economists raised their GDP forecasts for the third quarter to 2.5 percent or more after the 1.1 percent gain in September sales, the best performance in 11 months.

That could bode well for retailers in the holiday season, said Knapp, noting that the back-to-school season is the best indicator for holiday retail sales. However, he said the retail stocks have already made strong gains so they may not have much more upside.

What to Watch:
(all times Eastern Daylight Time)

Monday

Key Earnings: IBM, Citigroup, Wells Fargo

0830 a.m. Empire State Survey

0915 a.m. Industrial Production

0730 p.m. Richmond Fed President Jeffery Lacker on the economic outlook

0800 p.m. Chicago Fed President Charles Evans on monetary policy and the economy

Tuesday

Key Earnings: Bank of America, Coca-Cola, Johnson and Johnson, Intel, Goldman Sachs and Apple

0830 a.m. PPI

0900 a.m. TIC data

1000 a.m. National Association of Home Builders

0815 a.m. Boston Fed President Eric Rosengren opens Boston Fed conference on long tern effects of the great recession

0115 p.m. Fed Chairman Ben Bernanke keynotes at the Boston Fed conference

0630 p.m. Atlanta Fed President Dennis Lockhart on the economic outlook

Wednesday

Key Earnings: American Express, Travelers, Morgan Stanley, United Technologies, BlackRock, AMR

0830 a.m. CPI

0830 a.m. Housing starts

0200 p.m. Beige Book

0830 a.m. Boston Fed Rosengren addresses Boston Fed conference

0900 a.m. Atlanta Fed Lockhart on Latin America at Atlanta Fed's Americas Center event

0430 p.m. Atlanta Fed Lockhart on leadership and career at George Tech

Thursday

Key Earnings: AT&T, Microsoft, Blackstone. L.M. Ericsson, Nokia, Eli Lilly, Union Pacific, Chipotle

0830 a.m. Initial jobless claims

1000 a.m. Existing home sales

1000 a.m. Philadelphia Fed survey

1000 a.m. Leading indicators

1015 a.m. St. Louis Fed President James Bullard opening remarks at St. Louis Fed's annual economic policy conference

1250 p.m. Cleveland Fed President Sandra Pianalto on manufacturing and the economic outlook

0800 p.m. Minneapolis Fed President Narayana Kocherlakota at Minnesota Council on Economic Education's Annual recognition of teacher excellence and innovation

Friday

Key Earnings: General Electric, McDonald's, Verizon, Honeywell, Schlumberger

No data

0100 p.m. Minneapolis Fed Kocherlakota at Harvard Club of Minnesota on making monetary policy

Questions? Comments? Email us at marketinsider@cnbc.com Follow me on twitter @pattidomm

Disclaimer

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.