RPT-GLOBAL MARKETS WEEKAHEAD-Sweet Europe, sour America?

(Repeats story first filed on Saturday)

By Jeremy Gaunt, European Investment Correspondent

LONDON, July 24 (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 debate, may have some impact on Monday but may well
pale into insignificance given the most recent numbers on the
broader economy.

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
journalists.

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
region.

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

EUROPEAN TIGER?

Entering the new week, investors will first have to deal
with any fallout from the stress tests of 91 European banks,
which showed just seven failed, confirming fears the criteria
used had been too soft.

Markets had 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 health check on 91 banks in 20 countries was widely
criticised as being too soft. It was also overshadowed somewhat
by a slew of data on European economies that suggested the banks
may face less pressure and loan defaults than earlier thought.

That leaves investors to make up their own minds about
particular banks, armed with the extra data the tests provided,
including on sovereign bond holdings, to judge where further
weak spots may be. [ID:nLDE66M1A2]

“With so few banks failing, investors will question whether
the economic scenarios are sufficiently severe,” said Jon Peace,
analyst at Nomura in London.

“It will be natural for investors to consider the margin by
which banks passed,” he added, citing a good pass margin for
Scandinavian and British banks, but Greek, Spanish and Italian
banks faring less well.

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.

WEAKLING AMERICA?

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

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
not.

Stock Today

(Additional reporting by Blaise Robinson; Editing by Patrick
Graham)

RPT-GLOBAL MARKETS WEEKAHEAD-Sweet Europe, sour America?