Ahead of Wall Street for November 14

Developments in Europe will remain the dominant issue in the market today given the relatively thin economic calendar. Italy appears to be taking the necessary steps to muddle through its debt problems and not drag down the entire Euro-zone project. This is helping calm some of the more exaggerated fears that had taken effect early last week.

Europe aside, the rest of this week brings a host of important reports that will help refocus the market on the domestic economic outlook. These reports range from inflation readings to housing and measures of the nation’s manufacturing health. With earnings season now effectively over and Italy stepping back from the edge, the tone and substance of economic reports over the next few days will drive the market’s direction.

The Italian parliament has passed a set of austerity measures aimed bringing down the country’s fiscal situation under control. Silvio Berlusconi is being replaced with Mario Monti, an ex-EU commissioner, who is expected to set up a technocratic and non-political interim government.

This arrangement got a vote of confidence of sorts from the bond market, given the successful completion of the bond auction today. Italy was able to sell €3 billion in 5-year bonds. The clearing yield on these bonds of 6.3% was up from what the government had to pay in the same auction only a month back. But the yield was below what the secondary markets were pricing ahead of the auction. Yields on 10-year Italian government bonds had crossed the critical 7% level last week, but have since started coming down as some of the more severe anxieties have eased.

Other reports showed a sharp fall in industrial production in September, increasing the odds that the Euro-zone economy may fall into a recession. This is inline with last week’s grim economic outlook from the European Commission, the EU’s executive arm.

The slew of headwinds facing the common market prompted the European Commission to lower its Euro-zone GDP growth forecast for next year to 0.6% from 1.9% just six months ago. What this means is that even if the Euro-zone soverign debt situation gets addressed, Europe will remain a negative drag on the world economy.

On the earnings front, we had J.C. Penney (JCP - Analyst Report) report in-line results this morning, but the retailer provided a soft outlook for the coming quarter. In other corporate news, Warren Buffett announced his Berkshire Hathaway (BRK.A - Snapshot Report) has made a $10.7 billion in IBM (IBM - Analyst Report), giving it a roughly 5.4% stake in the company.

Read the full analyst report on IBM

Read the full analyst report on JCP

Read the full analyst report on BRK.A