Global Effects on US Recovery

Preliminary reports suggest Europe may be slipping back into recession. 
That's one major danger to the US recovery. 

China suffered a rare trade deficit earlier in the year caused by weak external and internal demand after 5 months of decreased purchasing activity, and now manufacturing sector declines.  
Europe's double dip which looms stronger, will be affected further if China, a major market for European exports, continues to stagnate and shrink.  

That combined with credit shortages in Europe, means the easing of the sovereign debt crisis earlier this year, following the European Central Bank's(ECB) massive aid package, may all be for naught if global recession puts more pressure on a banking system already teetering on crisis.  Defaults and shrinking credit will reintroduce huge sovereign risk to a Euro Zone out of options other than full restructuring with dramatic write off's.  
And with a further domino effect on country risk through out the continent. 

The effect on the US in the banking/financial  sectors and credit availability and exports sectors certainly will echo with bad news.  

That scenario is one that could de-rail a nascent and fragile real estate recovery in the US (below).  Always a precursor to more serious troubles.  

One North American zone (in a hazardous world economy Canada and the US continue to build closer ties and interconnections across industry, energy and resources) advantage is a better positioned corporate sector and more stabally perceived fundamentals and political systems.  
In a volatile risk and surprise filled world that's a major capital attractor. 

Next week's release by the ECB may shed some light on money supply and recent bank lending - but doesn't presage the future.  

More important to the North American zone outlook, are the upcoming corporate earnings reports. 

Banks are set to contract loan portfolios by $1 trillion. This de-leveraging, though needed, will put further strain on the refinancing markets. Bond yields in Italy and Spain edge up. The German offer of a financial boost to the Euro zone financial rescue Fund, the European Financial Stability Fund, may ease concerns temporarily.

But we expect continued problems in Europe, absent some good news on fundamentals soon.