Investors Look for Breakthrough in Europe: Market Preview
NEW YORK (TheStreet) -- With anxiety over the Greek elections and Federal Reserve meeting having passed, the markets are now gearing up for the much-anticipated summit of eurozone leaders next week.
Investors may not be impressed with the outcome, analysts say.
"The real issue is whether the euro area will agree to further risk-sharing," said Michala Marcussen, an economist at Societe Generale.
In his opinion, "the answer is no." The summit, he said, will lead to a "summer of stress."
Marcussen expects that the main discussion topics at the summit to include the capacity of the European Stability Mechanism to directly recapitalize banks -- given the concerns about Spain's banking sector -- and eurobonds.
"We remain skeptical that any meaningful breakthrough will be achieved," UBS analysts said.
Still, the markets were garnering some hopes Friday that eurozone leaders were coming nearer to making headway, with the European Central Bank pursuing measures to boost banks on the continent by loosening collateral requirements, and Germany, France, Italy and Spain agreeing to a growth package at their "mini" summit in Rome.
They're expected to push for this package, worth about 1% of the European Union's gross domestic product, or 130 billion euros.
The eurozone summit, taking place June 28 and 29 in Brussels, has the potential to trigger "big moves in the worldwide market," said Ryan Detrick, senior technical strategist at Schaeffer's.
This year, the S&P 500 Index is up more than 6%, tacking on 0.4% for the week. The Dow Jones Industrial Average is up 3.5%, but flat for the week. The tech-heavy Nasdaq has been the strongest performer, rising more than 10% in 2012. The index is up 1.7% for the week.
Aside from the EU summit, the other event that Mark Miller, an analyst with Capital Economics, will watch for is the German parliamentary vote to approve the European Stability Mechanism and fiscal pact on Friday. A ratification is widely expected.
Beyond this, the European Commission's survey on eurozone economic confidence will be published on Thursday, where Miller will look for an outcome of 89.5 in June. Miller said if this is realized, it would add to signs that the economy is contracting -- and would also be the softest outcome since October 2009.
A number of other events next week may also add to market volatility.
Roger Volz, a director at BGC financial, said he will be observing end-of-quarter fund rebalancing to gauge sentiment for the balance of the summer.