Market Outlook Week of September 12, 2011

Friday's markets were ripe with rumors of an imminent Greek Default, which did not materialize.

Yet.

Markets were first spooked on Friday by the announcement that Juergen Stark, the German Chief Economist of the European Central Bank, had unexpectedly quit for "personal reasons." Apparently he was "personally" appalled at the ECB's policy of buying the debt of stressed Euro Zone countries.

Bloomberg then reported (since updated) that Germany has begun preparing for a Greek default:

"Officials in Merkel's government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. The move capped a week of escalating German threats that Greece won't get the money unless it meets fiscal targets and investors raising bets on a default."

The Wall Street Journal is reporting that French Banks are about to endure a downgrade by Moody's in regards their holdings of Greek Debt.

Meanwhile officials representing the G-7 were busy plugging holes in the dam, by vowing to "'take all necessary actions to ensure the resilience of banking systems and financial markets," and to make a "concerted effort" to support a flagging world economy. They detailed no new policies.

If the policy wizards behind the curtain are able to postpone the End of Europe As We Know It, the markets may take an interest in the reporting of August PPI on Wednesday, which will be followed by the CPI report on Thursday.

While the next major Fed news will be the two day meeting scheduled for September 20-21, the Ben Bernank, will be making "brief opening remarks" on Thursday morning at the Conference on the Regulation of Systemic Risk. This is potentially an opportunity for the Chairman to either comment if Europe continues to deteriorate, and/or signal potential policy responses to come the following week.

From a technical perspective the key level to watch for stocks on the downside will be the 1125 area in the S&P 500, and whether or not the yield on the Ten Year Treasury will remain below 2.0 %.

Oh, and by the way President Obama will continue touting his jobs plan, but all the big wave surfers will be in Europe.