The euphoria surrounding the recent plan to address the eurozone debt crisis quickly faded after Greek Prime Minister George Papandreou called a referendum on the European financing package on October 31.  Only a few days later that same week, did it became apparent there would be no referendum.  Papandreou agreed to step down paving the way for a coalition government.  The new interim Greek prime minister was sworn in today, Lucas Papademos, a former vice president of the European Central Bank.

Greece has taken a backseat to Italy over the past week, and is fast becoming the next trouble spot in Europe.  The Italian Prime Minister, Silvio Berlusconi, lost a vote of confidence from his government and has agreed to step down as soon as the package of economic measures has been approved.  It is expected to be given final approval this weekend, in order for the newly appointed Prime Minister, Mario Monti, to form a new government before the markets reopen Monday.

In other news, last Thursday, the European Central Bank, now under new leadership, cut its benchmark interest rate by a quarter percentage point to 1.25%. Mario Draghi used this first meeting in his new job to show that he was prepared to be more pro-active than his predecessor.

On the North American front, last Friday’s U.S. job reports proved better than expected, however the Canadian employment report was very disappointing. Canada lost 54,000 jobs in October and the unemployment rate rose to 7.3% according to Statistics Canada. The loss was a surprise to economists who on average had forecast the economy to create 15,000 jobs.

On a positive note, fears of a U.S. and global recession have faded. Economic data from both the U.S. and China have been more encouraging, suggesting the U.S. economy will muddle along and China will avoid a hard landing. U.S. corporate earnings season is nearing its conclusion with 88% of S&P 500 companies having reported third-quarter financial results. Corporate guidance was more subdued, but third-quarter earnings nevertheless should lend support to this market.

With the positive news flow surrounding earnings season largely behind us, the market will focus on Europe and the outcome of the upcoming Super Committee meeting on November 23rd. The Committee is tasked with cutting the deficit by U$1.2 trillion over 10 years. If they are unable to reach a deal by Thanksgiving, or if Congress is unable to pass the plan by Christmas, automatic spending cuts will be triggered starting in 2013. Failure would heighten investor concern that the U.S. is incapable of tackling its long-term debt problems.

Despite the significant stock market rally, we expect equity market volatility to continue and recommend profit taking to lock in recent short-term gains. Gold technically looks very attractive here.  We expect that gold bullion and gold equities should perform well in the current environment. Again, we would like to re-interate that focusing on quality dividend paying securities is an important strategy to help mitigate volatility in your portfolio.