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World Week Ahead: The price is right

World Week Ahead: The price is right

November 29 (BusinessDesk) - American consumers are shopping up a storm as they finally feel enough confidence to spend money in an economy that seems to be on the road to a real recovery.

Across the Atlantic, Europeans are waiting with baited breath to see whether Ireland’s financial bailout will be followed by similar packages for Portugal and Spain - and whether the euro zone has the political will to remain intact.

Those are the two main themes set to dominate financial markets in the final month of 2010. As for this week, the latest slew of housing and jobs data could help clarify how happy the holidays will be for the world’s biggest economy.

“We’re still in the early stages of the labor-market recovery” in the U.S., Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, told Bloomberg.

And that means that investors are still a bit wary.

In a shortened week, the U.S. benchmark stock indexes fell. The Dow Jones industrial average shed 1% and the Standard & Poor's 500 index declined 0.9%.

Last week the Stoxx Europe 600 Index shed 1.1%, its biggest weekly drop since September.

The initial read on Black Friday retail sales was positive, though it appears that a lot of those who stood in line for the door crasher promotions might need still higher discounts.

Sales rose just 0.3% to US$10.7 billion, ShopperTrak, the Chicago-based consulting firm, said on Saturday.

Still, there were other signs of consumer strength. Shoppers took advantage of earlier-than-usual promotions in the first two weeks of November, pushing up sales 6.1% and 6.2% respectively, according to ShopperTrak.

Retailers in recent weeks have begun to offer deeper discounts earlier than usual in a bid to pry open consumers’ wallets. Consumers, while more eager to spend this year than last, have been conditioned to wait closer to Christmas for the biggest bargains and that appears to be the case this season too.

"The consumer is more confident and they are spending a bit more money, and I think retail as a whole is perking up," Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas, told Reuters, adding that retail stocks "look relatively cheap to us, and I think sales are going to surprise to the upside."

The other key theme for investors is the continued debt woes in Europe.

The European Union has all but approved an 85 billion euro (US$115 billion) rescue for Ireland after a week of negotiations.

"The assistance to Ireland is nearly done," French Economy Minister Christine Lagarde told reporters. "We just have a little fine-tuning to be done, notably on interest rates."

A German government source said the ministers were also discussing Portugal and its possible need of an EU bailout.

On Friday, Portugal’s lawmakers passed a tough austerity budget and European Commission President Jose Manuel Barroso denied that a financial rescue plan was in the works for Portugal.

That did little to deter the bond vigilantes who pushed Ireland into the hands of the IMF and appear set to do the same to Portugal and Spain.

Spanish officials continue to say they do need help to manage their finances. Clearly, markets aren’t so convinced.

On Friday, the euro dropped to US$1.32, bringing the week’s fall to 3.5%.

"The bigger question is will Spain and Portugal remain immune and I would look and say, 'no'," Greg Salvaggio, vice president of trading at Tempus Consulting in Washington, told Reuters.

"The situation in the euro zone will continue to deteriorate," he said, adding the euro could drop "below US$1.30 and perhaps as low as US$1.25 by year-end."


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