7 Reasons Why Europe's Recent Rally Could Be Short-Lived

With European leaders promising a debt crisis solution by the end of the month and all 17 countries having voted for the expansion of the EFSF, some renewed optimism has recently boosted the euro and European stock markets.

However, Europe's debt situation remains extremely complicated as it into its crucial EU summit on October 23.

Morgan Stanley's Global Currency Research team has outlined some major issues that they think will throw off Europe's path to a final solution.

In fact, they think the recent rally in the euro is just a short-term bear market rebound.  They see the euro at $1.30 in Q4 of this year and $1.25 in Q1 2012.

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How Global Stock Markets Stacked Up During Last Week's Big Rally

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Major indexes posted solid returns this week as markets across the globe rallied. Some, including two in the U.S., saw year-to-date returns cross back into positive territory.

The approval of the EFSF expansion and the improving economic data out of the U.S. proved a major boon.

Look for market focus to shift to earnings over the coming weeks.

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STOCKS RALLY BUT FADE BIG TIME IN FINAL MINUTES: Here's What You Need To Know (SPY, DIA, QQQ, AA, PEP, , FCX, C, BAC, MS, JPM, LIZ, RIMM)

Sam Ro | Oct. 12, 2011, 4:00 PM | 773 |   x You have successfully emailed the post. Fear is fading out of the markets as the European picture becomes more clear.

First, the scoreboard:

Dow: +102, +0.9%
S&P 500: +12, +1.0%
NASDAQ: +21, +0.8%

And now, the top stories:

If you looked only at the major indices, you probably wouldn't have known earnings season kicked off on a disappointing note.  Alcoa reported earnings of 15 cents per share, sharply missing analysts' estimate of 22 cents per share.  The company painted a pretty bleak picture of Europe.However, Europe's picture may soon improve. Word out of Slovakia indicates that leaders will pass the EFSF expansion later this week.  Markets applauded this news sending US stocks higher.European markets closed on a high note as the euro surged against the dollar.As usual, US bank stocks benefited from the improving picture in Europe.  Citigroup and Bank of America both jumped.  Morgan Stanley gained 3%.  JP Morgan, which announces quarterly earnings Thursday morning, climbed 3%.In other earnings news, PepsiCo reported Q3 earnings just barely ahead of expecations as strong revenue more than offset higher costs.  Shares closed up 3%.Industrial and precious metals also booked big gains today, led by a 3% jump in copper prices. Miners Southern Copper and Freeport-McMoran saw shares rise 3% and 2%, respectively.Amidst the bull rally in risky assets, the Treasury had its worst 10-year note auction in nearly a year with the yield climbing to 2.27%.Another area of weakness was agricultural commodities, which reacted to a USDA report that indicated higher than expected supply. Wheat plunged by 6%, erasing most of yesterday's gains.FOMC minutes came out today.  During the September meeting, some members had favored more more quantitative easing, even suggesting expansion of the Fed's balance sheet.  The committee also cut its outlook for US GDP growth.Meanwhile, Research In Motion fell 2% as the company's BlackBerry network outages spread into North America.In other corporate news, Liz Claiborne announced it would be selling off its brands for $328 million.  Shares soared.Don't Miss: Nouriel Roubini's $1.2 Trillion Plan To Save The Entire WorldPlease follow Money Game on Twitter and Facebook.
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Stocks Are Actually Making A Really Big Rally Right Now

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Don't look at the number on your screen, showing the S&P down 1.4%.

Remember, the market was closed yesterday, and the major index futures were down over 2.2% during truncated trading.

So actually, compared to yesterday, the market is up quite nicely.

The only other winner: The dollar, thanks to the huge Swiss National Bank intervention, which might induce more European safe-haven flows to come to dollars, rather than Swiss Franc.

Meanwhile, this headline from Dow Jones just came out: "Bernanke Letter: Europe Credit Event Could Hit Many Markets, Financial Firms - Fed Closely Monitoring Developments In Europe"

Gold is down big now, having had a classically bonkers day of action.

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European Markets Are On A Big Late Rally

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The August Rally Continues Thanks To Scraps Of Good News In Europe

  x You have successfully emailed the post. World markets picked up considerably in the past few hours.

Most of Asia opened lower but rallied to close flat in the Nikkei and Shanghai, and with 1.6% gains in the Hang Seng. Lower because of U.S. corporate sentiment, Japan saw a bounce when its own corporate sentiment improved.

European markets opened low but quickly rallied to 1% gains.

Bouygues SA lifted markets when it said it would buy back shares. Other small but good headlines included comments from Olli Rehn that Greek debt is on a durable declining path, a larger than expected fall in German unemployment and positive comments from the Irish finance minister.

Dow futures point to a near-100 point open.

Since August 22 the Global Dow is up 6%, but since July 22 it is down 12%.

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The Global Rally Loses Steam In Europe

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Asian markets rallied again, with only Shanghai down for the second day. The Hang Seng was up 1.7% and the Sensex was up 1.5%.

Update: European markets started sharply higher but lost gains early. Now the DAX, the Cac 40 and the FTSE MIB are  in the red. The FTSE is still up 2.3% after not trading turing yesterday's rally.

A few things to worry about in Europe.

Spread crept higher going into a 8 billion euro Italian bond auction. The 10year bond rose from 5% at the begining of the week to 5.1% yesterday to 5.22%. The BTP/Bund spread after the auction rose above 300 basis points.

Plus traders say the ECB bought a significant amount of the Italitan 10-year, according to Reuters.

The EMU economic sentiment index fell to 98.3 versus expectations of 104.

New complications with Finland's Greece deal.

US futures point to a negative open.

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Stock Rally Underway Around The World

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