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Fundamentals and the Week Ahead




Concern over Greece’s debt crisis and its potential spread through Europe continued to influence global markets. As leaders intensified negotiations, Evolution Securities stressed that the country’s request for a $60 billion bailout does not reduce the risk of default next year and a debt restructuring will be a necessity without even more aid.


Standards & Poor’s lowered its credit rating for Greece and warned bondholders they would recover just 30 percent of their initial investment if the country restructures its debt. S&P also reduced Portugal’s rating by two steps as well as Spain’s. Ignis asset Management further warned that Portugal may follow Greece in having its debt downgraded to junk.


German Chancellor Angela Merkel said Greece needs to show its budget is on a sustainable path and a full German agreement to a bailout may take a few days, while Greek finance minister George Papaconstantinou said money will be available soon adding that the country won’t restructure its debt.


Reports, meanwhile, indicated that Greece may need as much as EUR 120 billion, rather than the initial EUR 45 billion promised. German Chancellor Angela Merkel added that negotiations with Greece over financial aid must be accelerated as the stability of the euro-zone was at stake, while European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy added their voices to the urgency of the matter.


In the U.S., assistant Treasury secretary Michael Barr told bankers the U.S. is “more vulnerable than ever” to another crisis. That concern may have propelled Federal Reserve officials to restate their intention to keep the benchmark interest rate near zero for an extended period. The Fed’s preferred inflation gauge climbed at the slowest pace on record giving officials scope to keep interest rates low and encourage hiring.


The Labor Department reported that initial jobless claims fell by 11,000 to 448,000 in the week ended April 24, signaling a slight improvement in the jobs market as the number of people receiving unemployment insurance and those getting extended payments decreased.


The Commerce Department showed that U.S. gross domestic product (NYSEMKT:GDP) grew 3.2 percent in the first quarter boosted by higher household spending


The U.S. Senate questioned Goldman Sachs executives about their role in marketing financial products that contributed to the financial crisis, as federal prosecutors weigh fraud charges against the firm.


Japan’s consumer prices fell for a 13th month in March, indicating that deflation was still weighing on the economy despite signs of growing exports and a recovery.  Japan’s unemployment rate rose to 5 percent in March, slightly above expectations.


The Week Ahead


In the U.S., the labor Department will present its April unemployment report, while first quarter productivity report will give further indication to the state of the economic recovery. April auto sales and March factory orders are also due for release in the coming week.


Europe will likely be preoccupied with negotiating Greece’s bailout package as leaders will seek to calm investor nerves about the euro-zone. Retail sales in the euro-zone for March may give some indication of whether the Greece crisis is impacting the consumer. The European Central bank will also announce its interest rate set for May.

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