Trading on US stock markets may be a bit lighter than usual come Monday as New York cleans up after Hurricane Irene,but it won't take long for investors to focus anew on the storm clouds building in the U.S. and European economies. While New York subway and commuter rail suspensions may thin out trading desks early in the week,electronic trading is expected to function normally. And since Irene's destructive powers did not live up to their advance billing,financial markets will be able to look ahead to a busy week's worth of U.S. economic data,topped by the monthly jobs report on Friday. The focus will shift to payrolls quickly,said Kathy Lien,director of research at GFT Forex in New York. Investors will put Irene in the back of their minds. Normally the most scrutinized report of the month,the payrolls release will take on added importance coming as it does after Federal Reserve chief Ben Bernanke refrained from prescribing a new dose of medicine for the ailing economy. But the top U.S. central banker did not rule out more easing in the future,either,and stressed that reducing a jobless rate running in excess of 9 percent was crucial. That means that the next payrolls number will play a very big role in his decision,Lien said. The median estimate in a Reuters poll of 62 economists is an 80,000-job gain in August,below the prior month's 117,000 tally and not enough to alter the jobless rate significantly. Analysts said worries about the U.S. economy would likely add up to more volatility for the stock market. Benchmark 10-year Treasury yields,meanwhile,have backed up a bit this week but remain near multi-decade lows at 2.19 percent. Recent data showed economic growth slowed to a 1 percent annual rate in the second quarter after nearly flat-lining in the first. EURO WORRIES Just as worrisome is the state of the euro zone,which continues to struggle with a sovereign debt crisis that has threatened to escalate into a banking crisis. Even last week,with the focus on Bernanke,investors were starting to turn their gaze back to the old world; the cost of insuring Greek debt against default neared record highs. Markets fear German Chancellor Angela Merkel has been giving mixed messages,pledging to do what it takes to bolster the euro zone but keeping an eye on domestic opposition to Germany spending too much on bailouts. This will be tested at the end of the coming week by state elections in Germany. There is also a series of important debt auctions in Italy,Spain and France to test investor appetite. After Greece,Italy has the highest debt-to-output ratio of any euro zone country,and the yield on its 10-year government bond hit a two-week high above 5 percent last week. Marc Chandler,head of global currency strategy at Brown Brothers Harriman in New York,said Italian debt maturing over the next year or so may prove more than the European Central Bank can absorb if private creditors boycott future auctions. Any signs of stress could hurt the euro,which gained on the dollar last week but has had a tough time pushing through the top of a broad $1.40-$1.45 range that has persisted since mid-July. MORE VOLATILITY Oil and natural gas prices,which received support last week on concerns Hurricane Irene could damage refineries or transport and create supply shortfalls,could face downward pressure,since the storm appeared to deliver little long-term damage to infrastructure. I don't think supplies are an issue,and the displacement and disruption of the driving patterns should offset whatever reduced capacity you will face over the next day or two,said John Kilduff,partner at Again Capital LLC in New York. I think all of the gains we saw ahead of the storm should be erased. Storms aside,history does not bode well for this time of year. Although September marks the return from holidays for many investors,it is the cruelest month for stock markets. Since 1971,MSCI's index of developed stock markets has fallen an average of 0.7 percent in September - the worst reading for any month of the year. That's not particularly good news for investors,given that the index has given up roughly 10 percent this year. We have had a lot of volatility leading up to (the storm),said James Barnes,senior fixed-income manager at National Penn Investors Trust in Wyomissing,Pennsylvania. So we are probably going to see more volatility.
