"It's like that wave approaching the shoreline that you see in the distance and don't think is big, and then it's 100 feet in front of you and you realize it is."

That's how London-based economist Mark Chandler described Europe's perspective on the potential 'latest wave' of the housing crisis -- the research report by Lehman Brothers (NYSE: LEH) that Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) may have to raise up to $46 billion and $29 billion in additional capital, Bloomberg News reported.

Europe is concerned that the pair's announcement "signals another round of write-downs here in England and Europe as well as in America" Chandler told BloggingStocks Tuesday, with negative consequences for the stock market, and, equally significant, for business and consumer confidence, he said.

Europe's major stock markets decline

Indeed, Europe's major stock markets did not react favorably Tuesday to the Lehman report. London's FTSE fell 66.70 points to 5446.00, Germany's DAX declined 104.49.35 to 6,291.71, and France's CAC 40 fell 78.22 to 4,263.37 in Tuesday afternoon trading.

Oil fell more than $5 to about $140 per barrel Monday morning after Iran's foreign minister expressed confidence in talks with western governments regarding the nation's nuclear program, Bloomberg News reported.

Iran's foreign minister Manouchehr Mottaki told CNN talks are "in a new environment" and "new approaches" are possible.

A rising dollar Monday morning also helped push oil lower. The dollar strengthened against the euro and the British pound on expectation G-8 industrial leaders will verbally support the dollar at an upcoming economic summit in Japan.

Oil fell $5.14 to $140.15 per barrel Monday morning before recovering slightly to $141.30. The other major energy commodities also plunged in early Monday trading. Heating oil plummeted 13 cents to $3.97 per gallon, unleaded gasoline fell about 10 cents to $3.47 per gallon, and natural gas plunged 42 cents to $13.16 per million BTUs.

Economist Glen Langan, who argues that fundamentals (primarily rising demand) are the major factors determining oil's price, said legitimate progress on the Iran uranium enrichment issue would ease traders' concerns about Iran's supply. "Iran is still OPEC's No. 2 producer and a major exporter of oil, so lasting good news with regard to Iran will ease traders minds about tensions in and near the Persian Gulf. That will take some pressure off prices," Langan said. About 20% of the world's oil flows through the Persian Gulf and the Strait of Hormuz.

OPEC President Chalib Khelil predicted that oil will rise $170 per barrel by the end of 2008, due to the weak dollar and geopolitical tensions, Bloomberg News reported.

Khelil said that as "the dollar continues to weaken against the euro," it will push oil to the aforementioned level and that political pressure on Iran is boosting the price as well.

Oil rose $3.46 to a record $143.67 per barrel Monday morning before drifting back slightly to $142.67 on concern the dispute over Iran's nuclear program may disrupt supply from that OPEC nation, energy trader Jim Dietz said. Iran is OPEC's second largest producer.

Meanwhile, the dollar was virtually unchanged against the euro at $1.5739 in early Monday trading.

European business confidence declined more than forecast, the European Commission announced Friday -- an indication slowing euro-zone economy and rising inflation are beginning to lower business executives' expectations for the immediate quarters ahead.

The EC's sentiment index fell to 94.9 in May from 97.6 in April. It was the index's lowest reading since May 2005, Bloomberg News reported Friday.

Europe's major stock markets closed mixed Friday on the news. London's FTSE gained 11.70 points to 5529.90, Germany's DAX decline 37.69 to 6,421.91, and France's CAC 40 dropped 28.87 to 4,397.32.

Europe's execs: in defensive mode

London-based economist Mark Chandler told BloggingStocks that the slowdown in the United States, record oil prices, and rising inflation on the continent have but many of Europe's executives in defensive mode.

"Maybe the biggest concern is the impact of the slowdown in America and its affect on trade. Executives here are really concerned about a possible deeper U.S. recession dragging Europe lower. Their concern is well-rooted, because there's just not enough Asia demand to compensate," Chandler said. "Oil prices hitting $140 are another negative. It's not going to hurt the U.K. as much, but Europe could really be hurt by consumers cutting back spending on retail goods.

Staples (NASDAQ: SPLS) shares are falling today after the European Commission approved SPLS's $2.7 billion acquisition of Dutch office supply company Corporate Express NV. The transaction has already received regulatory approval in the U.S. and Canada. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on SPLS.

After hitting a one-year low of $19.69 in November, the stock hit a one-year high of $25.85 on Monday. This morning, SPLS opened at $24.76. So far today the stock has hit a low of $24.44 and a high of $24.98. As of 11:00, SPLS is trading at $24.54, down $0.57 (-2.3%). The chart for SPLS looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $27.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 16.3% return in three months as long as SPLS is below $27.50 at September expiration. Staples would have to rise by more than 11% before we would start to lose money. Learn more about this type of trade here.

McGraw-Hill (NYSE: MHP) shares opened lower today, but have rebounded as the day moved on after the European Union Internal Market Commissioner announced that bond and credit rating agencies, including MHP's Standard & Poor's, will face mandatory new European Union regulation as a result of these agencies' roles in the U.S. sub-prime mortgage crisis. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MHP.

After hitting a one-year high of $71.97 last June, the stock hit a one-year low of $33.91 in March. This morning, MHP opened at $42.87. So far today the stock has hit a low of $42.10 and a high of $43.65. As of 12:00, MHP is trading at $43.60, down $0.13 (-0.3%). The chart for MHPlooks bullish and steady.

For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make an 11.1% return in two months as long as MHP is below $50 at August expiration. McGraw-Hill would have to rise by more than 14% before we would start to lose money.

MHP hasn't been above $50 since October and has shown resistance around $45 recently. This trade could be risky if the company's earnings (due out in late-July) are a positive surprise, but even if that happens, this position could be protected by resistance MHP might find at its 200 day moving average, which is currently around $44 and falling.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in MHP.

OPEC said Wednesday it wants a "solution" to end record-high oil prices, including an examination of the role speculators and governments of consuming and producing nations, when it meets later this month in Saudi Arabia, Bloomberg News reported.

Saudi Arabia, the world's top oil exporter and holder of the largest proved oil reserves, said it wants heads of state from consumer/producer nations to attend the June 22 meeting in Jeddah, Reuters reported, although it was unclear if any heads of state outside the cartel will attend the meeting.

A International Energy Agency official said the IEA's Executive Director Nobuo Tanaka would attend the meeting.

After a week-long pullpack with many traders calling a correction in a bull market, oil's seemingly inexorable drive to a price few individuals or companies can afford continued Wednesday. Oil closed up $5.11 to $136.42 per barrel after the U.S. Energy Information Administration announced a below-consensus 4.6-million-barrel decline in weekly oil inventories.

Although OPEC's previous meeting in Rome led to no new insights regarding oil, OPEC General Secretary Abdalla el-Badri told Bloomberg News this meeting will be different: "This one is different. This one is specifically to tackle the high oil prices, why they are high, who is to blame," el-Badri said. "Is this a real shortage in the market, or speculation, or the dollar? What is wrong?"

German Chancellor Angela Merkel said continental Europe should take the lead in financial market reform because the "Anglo-Saxon" model of regulation had failed, The Financial Times reported Wednesday.

Merkel, speaking before her meeting with U.S. President Bush and ahead of next month's G-8 leading industrialized nations economic summit, called for a European credit ratings agency to counter-balance Moody's and Standard & Poor's (NYSE: MHP), adding that despite the progress Europe has made with the euro, the financial regulatory framework is still "a strongly Anglo-Saxon dominated system."

Reforms sought by Berlin will include a ban on agency ratings for products they helped to create, new capital adequacy ratios for banks, and the prevention of bank sale of products they don't understand.

London-based economist Mark Chandler told BloggingStocks Wednesday he agrees with Merkel on the need for both financial market reform and a Europe-based counterweight to complement the largely U.S.-based regulatory framework, but is slightly surprised by Merkel's rhetoric.

Advanced Micro Devices (NYSE: AMD) shares opened in the green this morning but have dropped as the day moved on after rumors surfaced that the EU was planning to take action against competitor Intel (NASDAQ: INTC). AMD headed back down after the EU denied that it has yet reached a decision in the matter. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMD.

After hitting a one-year high of $16.19 in July, the stock hit a one-year low of $5.31 in January. This morning, AMD opened at 7.01. So far today the stock has hit a low of $6.77 and a high of $7.07. As of 12:45, AMD is trading at $6.80, down $0.12 (-1.7%). The chart for AMD looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $9 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in five months as long as AMD is below $9 at October expiration. AMD would have to rise by more than 32% before we would start to lose money. Learn more about this type of trade here.

Europe's economy grew more than forecast in Q1 2008, the European Union's statistics office announced Thursday, as Germany's economy continues to bolster the continent's results.

Euro-zone GDP increased 0.7% in Q4 2008, 0.2 percentage points above the Bloomberg News survey consensus estimate.

Germany served as the primary economic engine, recording 1.5% in the quarter – its fastest growth in 12 years, Bloomberg News reported Thursday. Meanwhile, France registered 0.6% GDP growth. Together, Germany and France account for about 50% of the euro-zone's GDP.

On a year-over-year basis, euro-zone GDP increased 2.2% in the 15-nation group. Growth in the 27-nation European Union increased 2.4%.

However, despite the upside GDP surprise from both the euro-zone and Germany, key economic officials downplayed the results. European Central Bank President Jean-Claude Trichet told Reuters the news, while positive, simply confirmed what he had expected – that Q1 2008 would be good and the ensuing period slower.

A hint by Trichet?

Economist David H. Wang told BloggingStocks Thursday there could be a glimmer of hope for those who favor an interest rate reduction by the ECB. It was unusual for the ECB's Trichet to reference slower growth after the release of a GDP report, he said. Trichet, an inflation hawk, regularly speaks of Europe's industrial capacity and price pressures in the context of GDP, Wang said.

"I don't know if this was a hint, or perhaps a mini-hint, regarding monetary policy," Wang said. The currency market shrugged-off Trichet's comments, with both the euro and British pound remaining at essentially the same levels they were earlier in the day versus the dollar, at $1.5440 and $1.9445, respectively.

The European Central Bank and the Bank of England Thursday each kept their key, short-term interest rates the same, at 4% and 5%, respectively, the banks announced. Economists surveyed by Bloomberg News had expected both the ECB and BOE to maintain current interest rate levels.

In its previous meeting, the ECB had kept its benchmark interest the same at 4%; meanwhile, the BOE lowered its key rate by 25 basis points to 5% from 5.25% on 10 April 2008.

In contrast, the U.S. Federal Reserve has lowered its key, short-term interest rate five times, or by 325 basis points, to 2% from 5.25%, as it attempts to jump-start a U.S. economy dragged to near-stall levels by its worst housing slump in a generation.

Further, for at least the time being, the ECB and BOE do not appear to be concerned about the euro's and the pound's steady, two-year rise versus the dollar. The euro traded at $1.5383 and the pound at $1.9583 in Thursday morning trading; each is about 4% off its 2008 highs.

Europe's economic growth will slow for a third straight year in 2009, to 1.5%, as higher inflation on the continent cuts into consumers' disposable income, the European Commission announced Monday.

The projection, provided in the EC's spring economic forecast, is 0.6 percentage points lower than the 2.1% 2009 GDP forecast projected in November 2007, and below the 1.7% growth rate anticipated for 2008.

Further the EC expects euro-zone inflation to increase to 3.2% this year, up from 2.6% in 2007, and then decline to 2.2% 2009.

Moreover, it's that higher, projected inflation for 2008 that in part led to the EC's more-modest growth expectations for 2009: the EC does not expect the European Central Bank to lower interest rates in the near future, as it attempts to reign-in rising inflation.

Europe's inflation rises

Higher oil, grain, and other commodity prices have amped-up inflation in both the United States and the European Union. However, the end of the housing boom in the U.S. economy has also substantially slowed the world's largest economy to near-recession levels, while Europe, with fewer housing-related problems to-date, has managed to maintain a modest growth level.

China let the yuan rise to a record level versus the dollar Friday, Bloomberg News reported, in a sign Beijing may be modifying its currency stance in order to regain control of inflation.

The yuan strengthened to 6.9907 yuan versus the dollar Friday, its strongest level since the Chinese Government moved from a fixed or "dollar pegged" currency rate to a system that limits the yuan's currency appreciation to about 5% per year.

China has kept the yuan artificially low -- or not set by free-market, foreign exchange forces -- in order to stimulate economic growth and protect its young economy. The low yuan keeps the cost of Chinese exports low -- a major factor in both China's record trade surplus with the United States and its surging manufacturing export revenue. Critics charge that the low yuan gives China an unfair advantage versus foreign manufacturers: many of these producers, among others, argue that the yuan would appreciate to 5 or even 4.5 yuan to the dollar if allowed to float freely.

Although confidence that market forces will be the only factors determining currency rates is decreasing, there's little indication the world's major central banks are about to initiate a coordinated action to support the dollar.

The dollar has fallen more than 20% versus the euro and more than 10% versus the British pound since 2006. In the months ahead, monetary officials may face increased pressure to intervene as companies in Europe complain about the higher prices they must charge for their exports to the U.S. to retain purchasing power amid a falling dollar.

"The risks of coordinated intervention are going to increase in the second quarter for sure as the dollar weakens further,'' Mitul Kotecha, head of foreign-exchange research in London at Calyon, told Bloomberg News Monday. The firm is the securities unit of Credit Agricole SA, France's second-biggest bank.

In midday Monday trading, the dollar was mostly higher against the world's other major currencies after U.S. stock markets rose. The dollar gained about one-half cent to $1.5356 versus the euro, about 1 yen to 100.55 versus Japan's yen, and about 1.5 cents to $1.0288 versus the Swiss franc. The dollar was virtually unchanged at $1.9822 versus the British pound.

News that the European Commission is planning to adopt proposals next week that will ask sovereign wealth funds to accept a code of conduct to govern their investment activities, raises the question if the U.S. government should take a look at the impact these funds may have on U.S. security.

Peter Mandelson, the European trade commissioner, said the code will outline standards of governance and transparency for such funds.

"The emphasis in their investments should be on commercial motivations, not national or strategic considerations. I think such a code is possible to draw up and would get acceptance from the wealth funds," the report quoted Mandelson as saying.

German companies, for example, are worried that China will steal their intellectual property or that Russian President Vladimir Putin wants to use such investments "as a political instrument," according to European Member of Parliament Wolf Klinz.