US stocks could struggle to make headway this week if a meeting of European finance ministers fails to reassure markets that they can contain Greece's debt problems.
Greece's financing problems have focused investors' attention on the growing mountain of public debt as cash-strapped governments around the world spend their way out of recession. The fear is Greece's problems could spread, hurting financial markets.
Finance ministers from the eurozone will meet tomorrow, when US markets are closed for the Presidents Day holiday, followed by finance ministers from the rest of the European Union on Tuesday.
"What the market wants to hear is that there is a viable remedy," said Quincy Krosby, market strategist with Prudential Financial in Newark, New Jersey.
"The market will be anticipating how other problems will be handled. Can the solution be applied to the problems that may crop up in Spain, Portugal, Italy [and Ireland] because traders believe the aftershocks are not over."
While international headlines continue to grab investors' attention, the plight of the US economy has taken a back seat. That may change during the week with a government report on housing starts as well as the latest industrial output figures on Wednesday.
The Dow industrials and the S&P500 rose 0.9 per cent last week, while Nasdaq added two per cent. Still, the broad-based S&P500 is now down 6.5 per cent since hitting a 15-month closing high on January 19.
Some US investors have been comparing Greece's debt woes to the bankruptcy of US investment bank Lehman Brothers, which sent markets into a tail spin in September 2008.
European Government sources have been sending mixed signals to markets, suggesting a lack of consensus about how to prevent Greece's debt problems from ballooning. One source said the region's finance ministers were unlikely to put together an aid package next week.
Wal-Mart Stores is set to report its quarterly scorecard on Thursday. The world's biggest retailer is seen as a bellwether for the economy, and markets prize forward-looking commentary from its executives.
Wal-Mart's quarterly results will also show whether the company gained ground during the critical holiday sales period and if its retail strategy is holding onto its shoppers.
Wal-Mart is seen posting fourth-quarter profit of $1.12 (Dh4.11) per share, according to Thomson Reuters I/B/E/S.
A series of smaller retailers will also start reporting earnings this week. They include Abercrombie, Fitch on Tuesday and JCPenney on Friday.
In total they could provide a valuable insight into the mood of consumers, who account for two-thirds of US economic activity.
On Friday, China hiked bank reserve requirements for the second time in as many months as it aims to cool its economy. That worried investors counting on buoyant demand from a driving force of the world recovery.
In the United States, manufacturing and housing will be in focus during this week. US housing starts are expected to rise to 580,000 in January, according to a Reuters poll, after an unexpected fall in the previous month. Investors are concerned that an end to the home credit later this year could undermine a housing recovery.
Industrial production is expected to increase 0.7 per cent in January. That would continue the steady uptick of recent months and be grist to the mill for those predicting a strong turnaround in the economy.
As more economic data emerges, investors will be casting a wary eye in the direction of the Federal Reserve as it gauges when to raise interest rates.
Chairman Ben Bernanke on Wednesday detailed how the US central bank will begin to wean the economy off its extraordinary monetary stimulus, presenting another headache for markets.
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