The ECB also meets this week with Mario Draghi taking over as chief from Jean-Claude Trichet.
“Despite optimism following last week’s meetings of European leaders, the cold reality is that Europe may be slipping into recession as a result of continued uncertainty and fiscal austerity,” JP Morgan’s Kelly wrote in a weekly outlook. “While current economic weakness does seem to justify reversing the ECB’s tightening moves from earlier this year, the new Italian ECB head may want to avoid appearing overly dovish from the outset while continued ECB support for peripheral debt already constitutes monetary easing of a sort.”
President Obama will attend G-20 summit meetings this week, and again, leaders will likely be discussing the debt deal.
“Most observers recognize that this agreement contains significant flaws,” Kelly noted. “Even with a 50% haircut to Greece’s privately held debt, it is hard to see how Greece’s debt/GDP ratio can be stabilized without a revival in economic growth, that, in turn, may require substantial fiscal transfers. However, the flexibility and determination of European leaders in working towards last week’s agreement augers well for eventual decisions in this direction.”
In economic data, the week’s big report is the October update on nonfarm payrolls, which crosses Friday.