Partly Cloudy In Davos (EWG, VGK, EWU, EWQ, IEV)

---

Partly cloudy economic skies greet financial movers and shakers today in Davos.

Today the World Economic Forum in Davos, Switzerland begins amid concern over the European financial crisis and mixed economic reports coming out of Europe.

German Chancellor Merkel will deliver the opening speech Wednesday evening and attendees at the convention are a “who’s who” of global finance including Christine Lagarde, Timothy Geithner, European Central Bank President Mario Draghi, British Prime Minister David Cameron, Bill Gates and George Soros.

They’ll have a lot to talk about as it was reported today that Britain’s economy shrank by 0.2% in the fourth quarter, missing analysts estimates.  The iShares United Kingdom Index (NYSEARCA:EWU) declined on Tuesday and has been in a choppy trading pattern that will likely continue as the FTSE 100 gave up -0.6% in Wednesday trading.

On a brighter note, Germany’s widely watched Ifo business confidence index rose for the third straight month last month to 108  and beating expectations of 107. iShares Germany Index (NYSEARCA:EWG) declined slightly on Tuesday while the DAX slipped in Wednesday trading in Europe.  Still, iShares Germany (NYSEARCA:EWG) is up approximately 5% since the beginning of the year.

Germany also had a good bond auction but all eyes are still on Greece where the two year bond yields an almost unimaginable 175% which tells a lot about how markets view the outcome of the struggle in Greece.

Overall, many analysts expect a renewed European recession this year which will make it harder for Europe to resolve its debt problems and those problems are likely to be the centerpiece of the discussion in Davos this week. With problems in Greece ongoing and France (NYSEARCA:EWQ) losing its AAA credit rating, there are plenty of issues to be resolved as the big names gather in this tony ski town for their annual confab.

Broad market European ETFs like Vanguard MSCI Europe (NYSEARCA:VGK) and iShares Europe 350 (NYSEARCA:IEV) are all up significantly for 2012 after taking bear market-like losses in 2011 and the future here will depend upon the outcome of the Greek debt negotiations.

Bottom line:  The world is looking for answers from the leaders assembled in Davos this week, and failure to deliver, will dampen confidence and sentiment going forward and heighten the risk of Europe taking the developed world “over the edge.”  Lots of brainpower has descended onto Davos and let’s hope it can be productively applied to today’s challenging environment and the clouds over Davos.

Go here for a Special Offer from Wall Street Sector Selector

Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.