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Investing Specialists

European Debt Issues Spook Markets Again

Europe managed to throw a little cold water on a week with otherwise surprisingly good economic data.

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Economic data this week was surprisingly good with improved home prices, a still-growing services sector, a shrinking trade deficit and retail sales that looked surprisingly positive. However, Europe managed to throw a little cold water on markets, as interest rates are on the rise again in Spain and Italy (a political scandal in Spain and banking scandal at a major Italian bank are probably behind the increases).

It didn't help matters that the European Central Bank president was wondering aloud about the negative consequences of a rising euro. With exception of some occasionally decent numbers out of Germany, the here-and-now data from Europe is still weak, but at least the reports aren't getting much worse. However, each month that improvement gets delayed causes sovereign debt to stay at elevated levels. Unfortunately, I don't think we have heard the last of the European debt crisis. The good news is that unless there is a complete financial system failure, it won't make a huge difference to the U.S. economy, which ships almost nothing to Europe. (Today's U.S. trade report backs up that contention.)

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.