GLOBAL MARKETS WEEKAHEAD-Sweet Europe, sour America?

(Refiles to add dropped word “are” in paragraph 6)

By Jeremy Gaunt, European Investment Correspondent

LONDON, July 23 (BestGrowthStock) – Investors are finding themselves
with a new kind of balancing act — one in which they have to
juggle with three major regions posing three significantly
different circumstances.

Europe’s bank stress testing, the focus of much of the past
week’s market focus, is but one ball in the air.

First there is the United States, which is believed to be
facing another slowdown, if not a double-dip recession.

Then there is Europe, suffering a debt crisis and
austerity-bound, yet suddenly surprising everyone with an
unexpected burst of economic vigour.

Thirdly, comes Asia, growing away so merrily that investors
are beginning to be concerned that too much zeal will be
exercised in trying to slow things down.

On top of that there is the decoupling of economics and
earnings — keeping bond yields down and lifting stocks. The
latest investment flow data from EPFR Global showed “yield
hungry but skittish” investors flooding into bonds, but world
stocks (.MIWD00000PUS: ) (.TRXFLDGLPU: ) are up more than 7 percent
for the month.

“We are really in a much more difficult stage of the
recovery right now,” Michala Marcussen, head of global economics
at Societe Generale, said at a briefing with Reuters

She described markets as struggling with a “rotating
crisis” in which one problem in one region becomes the focus of
concern, only to be quickly replaced by another in another

“That ping pong is likely to go on for some time,” she said.


Entering the new week, investors will first have to deal
with any fallout from the stress tests of 91 European banks, due
out of Friday after much fanfare.

Markets have been fairly calm about the tests, which, with
Greece and other peripheral euro zone economies in mind, were
designed to see how banks would fare in serious future crises.

The consensus has been that some smaller banks may fail but
that the amounts needed to recapitalise them against future
crises would be manageable or indeed in many cases have already
been put on one side by governments.

Franz Wenzel, strategist at AXA Investment Managers in
Paris, sees no broad impact for equities from the results, even
if a number of small banks need to have capital hikes.

“Recapitalisation will affect the usual suspects: small
regional banks. But all this will be done in a smooth and
harmonised way with local authorities, and it shouldn’t be a
market-disruption event,” he said.

Of much more impact, however, may be highly surprising signs
of economic revival in Europe.

European purchasing managers’ indexes in the past week
showed private sector business activity accelerating in July,
surprising economists who had expected a slowdown.

They indicated third-quarter euro zone growth of around
0.6-0.7 percent, double the 0.3 percent forecast in the most
recent Reuters poll.

This was followed up by German business sentiment posting a
record jump in July to its highest level in three years.

Non-euro zone member Britain also surprised with its economy
growing twice as fast as expected in the second quarter of this
year propelled by a sharp pick-up in services and the biggest
rise in construction in almost 50 years.

Investors being investors, of course, these robust numbers
triggered some new concerns about monetary tightening — hence
the spike in the euro and pound against the dollar.


The biggest piece of data likely to focus investors’
attention in the coming week is U.S. second-quarter GDP, out on

The U.S. economy is clearly coming off the boil, if, indeed,
it was boiling. After three quarters of solid growth it is
showing signs of slowing with firms still reluctant to hire and
the housing sector seemingly unable to exit a prolonged rut.

It was enough, during the past week to prompt promises from
Federal Reserve Chairman Ben Bernanke for more action if there
are further signs of faltering.

This would particularly be the case if jobs don’t pick up.

“We are ready and will act if the economy does not continue
to improve, if we don’t see the kind of improvements in the
labour market that we are hoping for and expecting,” he told the
House of Representatives Financial Services Committee.

This admission that all is not well has broad implications
for investors even if other global drivers — major emerging
market economies, such as China, and now Europe — are still on
the upswing.

The question could turn out to be whether markets and other
economies can thrive without the U.S. engine. History suggests

Stock Investing

(Additional reporting by Blaise Robinson; Editing by Susan

GLOBAL MARKETS WEEKAHEAD-Sweet Europe, sour America?