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Week Ahead: risk of an ‘accident’ in Europe

The focus on Europe’s debt woes is only likely to grow next week, alongside key a key report on Britain’s banking sector.

 
Week Ahead: risk of an ‘accident’ in Europe

As investors take a collective deep breath after a particularly choppy few sessions in financial markets, the focus on Europe’s debt woes is only likely to grow next week, alongside key a key report on Britain’s banking sector.

A fifth ‘progress report’ on Greece by its international lenders, a Greek debt exchange and a host of bond purchases by the European Central Bank are all ‘risk events’ that could add further fuel to the debt crisis, warned Jörg Krämer, chief economist at Commerzbank.

‘There is a likelihood that an accident may occur’, he added. ‘Thus, high levels of market unrest are likely in the weeks and months ahead.’

And Jeremy Batstone-Carr, director of private client research at Charles Stanley, pointed out that while the ultimate outcome for the euro was still unknown, ‘we do know that the stakes are very high’.

Worries about the eurozone have weighed on UK banks of late – as have concerns about the impact of a much anticipated final report from the Independent Commission on Banking, due on Monday.

The government-appointed commission is expected to confirm proposals that would split banks’ high street and investment banking arms, but is unclear as to the speed and urgency with which they will be implemented.

Meanwhile, UK investors will await on Monday a trading announcement from AB Foods (ABF.L), the owner of discount fashion retailer Primark.

On Tuesday, emerging markets fund manager Ashmore Group (ASHM.L) will deliver its maiden full-year results as a FTSE 100 company, while official data is expected to show that UK inflation edged up 4.5% in August, according to Deutsche Bank.

Howard Archer, chief UK economist at IHS Global Insight, cautioned that there remained a ‘strong likelihood’ that consumer price inflation would hit 5% in the near-term due to jumps in utility prices – although it was likely to fall back in 2012.

Important data are also due on the UK trade balance, in addition to figures on retail sales in the United States.

Housebuilder Barratt Developments (BDEV.L) is to report full-year earnings on Wednesday, while Next (NXT.L), Britain’s second-biggest fashion retailer, and construction group Galliford Try (GFRD.L) are to publish interim results.

‘In keeping with purer housebuilders, we expect an upbeat statement from Galliford in terms of short term outlook and a maintained stance on the group’s ability to hit its housing targets by 2012/13’, said Howard Seymour, analyst at Numis.

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14 comments so far. Why not have your say?

William Bishop

Sep 11, 2011 at 16:04

More to the point relative to the crisis in the eurozone is that the resignation of Jurgen Stark effectively spells out the extent of German disillusion with the ECB's current policy of attempting to support the PIIGS' bond markets. Yet this seems necessary to keep the show on the road at all pending goverment approvals for the enhanced bailout fund (of which the Germans may well also disapprove, should it take over the bond buying). Germany's extreme reluctance to envisage any form of bailout for countries which it sees as having behaved irresponsibility continues to inhibit any measures substantial enough to give the "bond market vigilantes" pause, yet Germany is the only eirozone country with the resources to underwrite such measures. This one could run and run, with too little too late decisions being just enough to keep the eurozone in play, but not sufficient to provide any lasting stability.

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Medved

Sep 11, 2011 at 17:51

Serves the Germans right for pretending all those years ago that a Mark was equal to a Euro and (worse) to an East German Mark. Talk about chickens coming home to roost.

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OSPREY

Sep 11, 2011 at 17:51

The outlook has become far to murky for me and since there is no one of any stature able to take some sensible long term decisions it is time to hunker down - forget the possibility of any upside for a while - and go into deep conserve mode. Take as much of the risk out of the equation now.

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g hen

Sep 11, 2011 at 21:00

Herr Stark resigned because he does not want to be associated with the fact that the ECB will HAVE to print money in order to buy PIIGS bonds.

Surely the markets should have reacted positively to this news as it signals the fact that the Germans will do the very thing they have been telling us they will not do?

Can you imagine what would happen to the Mark if it was re-introduced at the expense of the Euro--and what that would do to German exports when their currency doubled in value?

Germany needs the Euro and will pay to keep it.

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robert munro

Sep 12, 2011 at 07:50

Whether they like it or not, they are 'in it together'! What will sterling do, I wonder?

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Medved

Sep 12, 2011 at 09:31

It wll benefit sterling to the extent that it will allow the governement to QE inflate away a bit more debt on the back of a slightly stronger GBP.

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John Coles

Sep 12, 2011 at 09:32

Thank goodness we are NOT 'in it together'. Gordon Brown redeemed his moronic decision on gold with his aversion to the EURO.

As to Sterling, well as Gloria Raynor might have put it: "We will survive."

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Rose G

Sep 12, 2011 at 10:37

In the world of finance, globalisation has been promoted & national interests have been abandoned - is it not time to give up on globalisation & concentrate on getting localisation on the agenda. All that globilisation has done is to reduce wages, reduce numbers of jobs unless as a worker you are prepared to accept less than a living wage (especially in Asia & other developing countries).

The financial markets are a mess - I am not sure why we don't admit to the failures in all these areas & look for other ways to deal with day to day transactions. The banks have not been able to lend, they are in fact being given money or in certain countries the national banks have been printing money - these measures are not very reassuring to the ordinary individual who believed that saving their money in a bank was a safe mechanism - we now know that we cannot keep savings in banks, because they have risked our savings on purchasing very risky products, & even after the bail out, banks whose main reason for existence is to lend money, are unable to do this effectively. I wish we could all use the post office to bank our savings & let the banks go to hell - its where they belong!

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joe stalin

Sep 12, 2011 at 10:43

G hen is absolutely right of course. Stark can stick to his principles and be as "disillusioned" as he likes it matters not a jot. Germany knows full well that it has been one of the biggest net beneficiaries of the EURO warts and all. What we are seeing at the moment is little short of CDS market manipulation and a coordinated attack on the French banks which makes a refreshing change from the persistent activity we have seen on the UK ones. The French banks have enough liquidity to deal with anything that may or may not happen in Greece.

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john_r

Sep 12, 2011 at 13:55

Market manipulation? - surely not. Lets be clear, if Greece defaults then many large French banks become bankrupt overnight. The UK is perhaps in a slightly better position but be assured that if the French banks get hit then the knock on effect will hit british banks too.

Looks like being another eventful week and you can't blame the banks for this one.

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snoekie

Sep 12, 2011 at 16:42

John C, Brown did not agree to go into the Euro, not as a considered decision to protect sterling, but for very selfish, self serving reasons.

If he had taken us into the Euro, he would have Brussels breathing down his neck on decisions and his lunatic decisions. It would have taken away a lot of his powers to manipulate (and destroy) the currency and financial decisions.

By retaining sterling as a separate entity, he was lord of the destiny as he saw it.

No not wisdom (although with the benefit of hindsight it looks like it), but pure selfishness to have a free hand.

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John Coles

Sep 12, 2011 at 17:21

I don't think I credited Brown with any wisdom, Snoekie.

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Lee Appleton

Sep 12, 2011 at 18:06

G Hen, is right the Euro is simply a mechanism to promote cheap German exports in exchange for an Agri-fund to support inefficient French farming.

How many Drachmas/Escudos/,Punts/Lira/Pesetas to the Deutsch Mark would it be now.

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Leander

Sep 13, 2011 at 00:52

I agree with G Hen and snoekie to the extent that Gordon Brown wrongly gets credit for keeping the UK out of the Euro. His psychopathic outlook led him to oppose joining because Blair wanted in. We were just lucky. incidentally, where are the Heseltines and Kenneth Clarkes of the world who thought those of us who were against entry into the Euro were swivel-eyed antedeluvians? Don't hear much urging to go in now!

Germany seems now damned if she stays in an unreformed Euro as she will forever be bailing out the PIIGS and damned if she leaves, even within a group of like economies, by being punished by a punitive exchange rate. Just how did we ever get into this predictable disaster.

Better off out

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