Europe's shadow darkens outlook

Sun Feb 5, 2012 3:35pm EST
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By Pedro Nicolaci da Costa

WASHINGTON (Reuters) - A renewed focus on Europe's banking and debt crisis may quickly sap the nascent optimism about global economic prospects that followed a remarkably solid U.S. January employment report.

While the U.S. jobless rate fell to the lowest level in nearly three years, euro zone unemployment has climbed to 10.4 percent, its highest since before the adoption of the euro.

China, another key engine of growth, is hitting its own speed bumps as it faces a rocky real estate market and high local debt levels.

Curiously, the better U.S. employment outlook may deprive global equity markets, which have been a source of strength for economic activity, of a key recent impetus for continued gains -- the prospect of another monetary easing from the Federal Reserve.

"There does not appear to be any particular economic urgency for the Fed to step in," said Vassili Serebriakov, currency strategist at Wells Fargo.

Global investors could be in for a bit of a hangover from a post-jobs report surge in stocks that pushed the Nasdaq to 11-year highs as attention turns back to the prospects for a Greek default and chances of contagion beyond Europe.

As the economic data calendar thins out and the world turns its focus back to the euro zone's financial debacle, there is little reason to hope for a decisive resolution to the two-year ordeal.

Even basic scheduling has become a sticking point in Greece's negotiations on a debt restructuring with bondholders. On Friday, Jean-Claude Juncker, head of the Eurogroup of finance ministers, said officials would no longer be meeting on Monday, as previously expected, but might do so later in the week.   Continued...

<p>Workers maintain the huge Euro logo next to the headquarters of the European Central Bank (ECB) in Frankfurt, December 6, 2011. REUTERS/Ralph Orlowski</p>