Weekly Market Recap: Berlusconi Steals Greece’s Spotlight, MF Global Deepens, Markets Rally

DJIA 12,153 S&P500 1,263 Nasdaq 2,678 Gold 1,789 Oil 99

The S&P 500 (NYSEARCA:SPY) and Dow Jones Industrial Average (NYSEARCA:DIA) ended the week in the green after another bipolar phase in Europe. Despite great earnings from Cisco (NASDAQ:CSCO), the Nasdaq (NASDAQ:QQQ) shed a few points when all was said and done. On the commodities front, Oil (NYSEARCA:USO) ran up in a pure uptrend all week, while Gold (NYSEARCA:GLD) climbed a bit higher.

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Now, for our analysis of the 15 reasons markets moved this week:

Monday

1) Greece. Greek Prime Minister George Papandreou and opposition leader Antonis Samaras agreed late Sunday to create a transitional administration to oversee the country’s debt deal with the European Union and then hold early elections. Though the agreement will see Papandreou resign and his government overturned, it looks as if the Greece issue may finally be nearing resolution, as investors now turn their eyes toward Italy. 

2) Italy. With Greece now seemingly on the right track, investors are keenly watching developments in Italy, where Prime Minister Silvio Berlusconi is struggling to prove he can implement austerity measures pledged to European Union allies amid reports that the he will likely resign very soon. Though Berlusconi has denied such reports, he faces a vote of confidence Tuesday and many are betting he’s headed out the door as his coalition’s majority continues to deteriorate, with numerous members of his party defecting to the opposition over the last week. Italy must push through 45.5 billion euros in austerity measures, approved by Berlusconi’s government in August, in order to secure European Central Bank purchases of Italian debt. Yields on Italian 10-year bonds soared above 6.65%, nearing the 7% level that drove Greece, Ireland, and Portugal to seek bailouts.

3) Banks. Embattled investment bank Jefferies (NYSE:JEF) managed to stay in positive territory today after disclosing that it had sold a large amount of its European sovereign debt. Shares dropped roughly 18% last week on fears that it could be the next MF Global (NYSE:MF). Despite news that the financial industry lost roughly 650,000 customers and $4.5 billion in deposits to credit unions because of Bank Transfer Day — a grass-roots movement that urged bank customers to close their accounts and instead deposit funds in credit unions on or before November 5 — some of the biggest U.S. banks moved upward today, outperforming the major indices. Though Bank of America (NYSE:BAC) declined, Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), JPMorgan (NYSE:JPM), and Citigroup (NYSE:C) all tacked on respectable gains.

Tuesday

Markets closed up on Wall Street today: Dow +0.84%, S&P +1.17%, Nasdaq +1.20%, Oil +1.53%, Gold -0.35%.

On the commodities front, Oil (NYSE:USO) climbed to $96.98 a barrel. Precious metals were mixed, with Gold (NYSE:GLD) falling to $1,784.90 an ounce while Silver (NYSE:SLV) climbed 0.38% to settle at $34.96.

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Today’s markets were up because:

1) Berlusconi. After a rocky morning, markets turned upward today on reports that Italian Prime Minister Silvio Berlusconiplanned to resign, a fact Berlusconi himself confirmed in the last hour of trading. The premier said he will step down after parliament approves austerity measures pledged to European Union allies in order to secure European Central Bank purchases of Italian debt. Berlusconi’s announcement comes after his center-right coalition failed to secure an absolute majority in a crucial budget vote in the lower house, with only 308 votes in the 630-seat Chamber of Deputies, fueling demand for his resignation. 

2) Earnings. Fossil (NASDAQ:FOSL) posted third-quarter earnings results that topped Wall Street’s expectations, though simultaneously lowering its guidance for the current quarter due to the strengthening dollar. Shares of Rackspace (NYSE:RAX) advanced after the company posted better-than-expected sales late Monday, while Priceline (NASDAQ:PCLN) shares also gained on an earnings beat. 

3) Banks. Citigroup (NYSE:C), JPMorgan (NYSE:JPM), BNP Paribas, Royal Bank of Scotland (NYSE:RBS), and HSBC Holdings (NYSE:HBC) could be facing capital surcharges of 2.5 percentage points on top of Basel III capital requirements, news that had the banks trading lower before markets rallied on news of Berlusconi’s resignation. Bank of America (NYSE:BAC), Barclays (NYSE:BCS), and Deutsche Bank (NYSE:DB) may face surcharges of 2 percentage points, according to a provisional list prepared by global regulators, which has Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Bank of New York Mellon (NYSE:BK), Credit Agricole, Credit Suisse (NYSE:CS), and UBS AG (NYSE:UBS) facing surcharges of 1.5 percentage points. Wells Fargo (NYSE:WFC), Societe Generale, and Dexia SA, along with the remaining 15 banks on the list, are looking at surcharges of 1 percentage point.

Wednesday

1) Italy. Stocks sold off sharply right out of the gate this morning as Italy’s borrowing costs rocketed past the 7% level that drove Greece, Ireland, and Portugal to seek bailouts. The sell-off only intensified in the afternoon amid reports that European Union officials had no plans to rescue Italy, the euro zone’s third-largest economy. The news not only led to a slump in U.S. markets, but European markets as well, while the euro fell more than 2% against the dollar. 

2) Greece. After Prime Minister George Papandreou announced plans to step down over the weekend, handing over the reins to a unity government tasked with pushing through austerity measures required to secure bailout funds, the world turned its eyes instead to Italy, though apparently a bit too soon. It was all but settled earlier today that that House Speaker Filippos Petsalnikos would head Greece’s new coalition government, only for it to emerge hours later that  there was no successor due to feuding between the two main political parties. And unless the new government, which has yet to take shape, can push through budget reforms to secure emergency funding from the European Union and International Monetary Fund, Greece will run out of money next month and default on its debt.

3) Banks. Bank stocks were among the biggest losers in today’s market sell-off, with Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), and Morgan Stanley down more than 6%. JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) shares fell more than 4%.

Thursday

1) EU. French bond yields spiked today, while Italian yields, which climbed to a record 7.48% yesterday, eased slightly after a successful 5 billion-euro debt auction. Talk of a possible emergency meeting of the European Central Bank helped calm nerves after yesterday’s sell-off, while news emerged that former ECB vice president Lucas Papademos would step in for outgoing Prime Minister George Papandreou to head Greece’s interim government. Even the European Commission chimed in with some news today, cutting its growth forecast for the euro zone in 2012 from 1.8% to just 0.5%.

2) Jobless claims. The number of Americans filing for initial unemployment insurance dropped to a seven-month low of 390,000 in the latest week, according to the U.S. Department of Labor’s Unemployment Insurance Weekly Claims Report, which was released this morning. The expectation was for jobless claims of 400,000.

3) Companies. Cisco Systems (NASDAQ:CSCO) shares rallied today after a sell-off on Wednesday spurred by the networking giants’ fourth consecutive quarterly report in which earnings declined. Green Mountain Coffee Roasters (NASDAQ:GMCR) declined today after the company reported sales and earnings that widely missed expectations late Wednesday. Apple (NASDAQ:AAPL) shares also fell today amid concern that a drop in supplier orders might be a sign of weakening iPad and iPhone sales.

Friday

Markets closed up on Wall Street today: Dow +2.19%, S&P +1.95%, Nasdaq +2.04%, Oil +1.32%, Gold +1.69%.

On the commodities front, Oil (NYSE:USO) climbed to $99.07 a barrel. Precious metals were also up, with Gold (NYSE:GLD) climbing to $1,789.30 an ounce while Silver (NYSE:SLV) rose 1.61% to settle at $34.81.

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Today’s markets were up because:

1) Italy. Italy’s Senate today approved debt-reduction measures intended to shore up investor confidence and pave the way for a new interim government that may be led by former European Union Competition Commissioner Mario Monti. The Chamber of Deputies will give final approval of the legislation tomorrow, after which Prime Minister Silvio Berlusconi will formally tender his resignation.

2) Greece. Greece swore in a new prime minister, Lucas Papademos, early Friday. Papademos, a former banker and European Central Bank vice president, will head the new national unity government tasked with pushing through austerity measures that will secure further bailout payments from the so-called troika, consisting of the European Union, European Central Bank, and International Monetary Fund. The controversial austerity measures will put Greece on track to get its next 8 billion-euro installment of aid, allowing it to pay its bills next month and avoid immediate default. 

3) Companies. Disney (NYSE:DIS) reported record earnings after closing bell on Thursday, posting a 21% gain in net income for the 2011 fiscal year. Shares of Nordstrom (NYSE:JWN) declined after the department store chain reported an increase in quarterly earnings after close on Thursday, though lowering their full-year outlook, while shares of Nvidia (NASDAQ:NVDA) rose after the chip maker posted a third-quarter profit after close yesterday that doubled from the year earlier period. 

BONUS: Consumer Sentiment Defies Scary EU Feelings.

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