Market Insider

Europe Debt Crisis Keeps a Stranglehold on the Market

Europe will keep its stranglehold on markets Friday. A lack of U.S. economic data will give investors little else to focus on ahead of the weekend.

There are a few major earnings, but traders have spent more time this week worrying about German newspaper headlines and news wires quoting unnamed EU sources than about some of the major earnings news. General Electric, an economic bellwether, McDonald's, Verizon and Honeywell report Friday morning.

Lazard Capital Markets' Art Hogan said the market is following individual names but is not focused on the overall, big picture earnings story.

"The bar was lowered enough that we're going to have a significant number of beats here," but that and improving economic data "are second and third in terms of our focus, with all of our focus being on Sarkozy and Merkel," Hogan said, referring to French President Nicolas Sarkozy and German Chancellor Angela Merkel.

"We've got a week where we've got a third of the Dow and 20 percent of the S&P 500 reporting. So it's certainly a much better sample set of the earnings picture for the quarter than we had last week," said Hogan.

Seventy percent of the S&P 500 companies reporting so far have beaten earnings estimates, according to Thomson Reuters. Despite the maket's macro fixation, there are, of course, individual stocks moving on earnings news. On Thursday, Chipotle, was higher in later trading after reporting a 25 percent increase in profits. Microsoft also reported Thursday, with earnings meetingand revenue beating, but it had little effect on the stock.


During the trading day Thursday, there was a head-spinning number of European crisis-related headlines. Reports that Sarkozy and Merkel were unable to agreeon the main points of a bailout plan and postponed a summit to hammer out the details until next week continued to unsettle investors.

A plan for how the European Financial Stability Fund (EFSF) would be utilized was expected to come at the summit, now scheduled for next week.

"Hopefully then we can start moving the focus on Europe to the second page, and really get earnings to move stocks," said Hogan.

Stocks ended mixed: The Dow finished up 37 at 11,541 and the S&P 500 closed up 5 at 1215. The euro fellto $1.37 following news that the EU summit would be delayed.

"I think we could see the euro up to 1.41 if there's an upside surprise" from the EU summit next week, said Mary Nicola, currency strategist at BNP Paribas. "Let's say they come out and say 'we're going to recapitalize the banks. We've increased the firepower of the EFSF and they click all those boxes, we could see a signficant euro rally. There would be no holding it back to 1.41."

Copper continued to decline Thursday, losing 6.1 percent to $3.0545 per pound, its lowest level since July 20, 2010. The metal fell in part on concerns about weaker Chinese demand, and is now 33 percent below its February, 2011 record high of $4.623 per pound.

Brent crude rose 1.3 percent to $109.76 per barrel Thursday, while WTI crude was down 0.9 percent to $85.30 per barrel. Analysts did not see immediate impact from the death of Libyan leader Muammar GaddafiThursday, but they expect the new Libyan government to move quickly to resurrect that country's oil production and that could possibly put longer term downward pressureon Brent.