Today's Coming Crisis Movie

Saturday, July 23, 2011

Don't expect both U.S.,European debt troubles to be cured (despite what they're telling you)

Equity markets are bracing for potential debt decisions from the United States and Europe this week, but investors holding their breath for a double dose of good news and a big rally will likely be disappointed, analysts said.

This week is key for debt crises on both sides of the Atlantic as the the deadline for raising the United States' debt ceiling approaches, while expectations are high that eurozone leaders meeting Thursday in Brussels will reach some kind of deal to ease Greece's debt problem.

But Europe presents a much more complex problem than the United States does, meaning a band-aid solution is much more likely to come out of Thursday's eurozone meeting than a conclusive one. Still, a decision on the U.S. debt ceiling will be enough to produce a "relief rally" for investors, said Colin Cieszynski, analyst with CMC Markets Canada.

"Markets are trading well below the highs of earlier this month, and if you go back to May, before this stuff really started happening ... you can see there's still room for markets to get a lift on the deal," Colin Cieszynski, analyst with CMC Markets Canada, said. "Corporate earnings that have been coming out have been generally supportive. This debt ceiling thing has been holding some momentum back, so its removal could help a bit."

While expectations are high that the U.S. debt ceiling impasse will witness a resolution, market sentiment is not so sure about Europe's debt crisis. (more)