Wright Investors' Service

U.S. stocks fail to rally again as Spain fears mount

wrightnetblogger2 — Fri, 25 May 2012 21:08:05 +0000

Unlike Wednesday and Thursday, U.S. stocks failed to mount a late-day rally on Friday and closed slightly lower on the day but up for the week. NASDAQ notched the biggest gain for the week, rising 2.1% despite Friday’s 0.1% decline, while the S&P (down 0.2% Friday) was up 1.7% for the week and the Dow (-0.6% Friday) rose 0.7%. U.S. Treasury bonds, which ended trading at 2 PM ET ahead of the Memorial Day weekend, closed slightly higher in price on Friday but down on the week. The yield on the 30-year security rose five basis points for the week to 2.84% while the 10-year yield rose four bps to 1.74%. Facebook, easily the most talked-about stock all week, closed its first week of trading down another 3.4% Friday to close at $32 a share, off $6 from its $38 offering price.

The main focus of the market’s attention Friday wasn’t Greece but Spain. Bankia, Spain’s fourth largest bank, said the government will inject €19 billion into the troubled lender, the biggest bank bailout in the country’s history. Standard & Poor’s cut the credit rating of Bankia and four other big Spanish banks. Meanwhile, financial troubles are now also beginning to surface among Spain’s regional governments, as the head of the Catalonia region asked the central government to expedite aid to help the regions pay their debts. Yield spreads on Spanish government bonds widened against German debt Friday, although the IBEX 35 index of Spanish stocks rose 0.5% Friday. The index is down 24% so far this year.

European stocks ended higher on Friday and, despite this week’s worries about Spain and Greece, up for the week. The DAX index rose 0.4% Friday, ending up 1.1% for the week, while the Stoxx Europe 600 rose 0.6% Friday to bring its weekly gain to 1.5%. The big winner for the week, of course, was the 30-year German bund, which dropped 12 basis points in yield to a record low 1.97% after starting the week at 2.09%. The 10-year German note fell six bps in yield to end at 1.37%. German Chancellor Angela Merkel, while opposed to the issuance of jointly-issued euro bonds, reportedly is willing to consider a proposal on common liability for sovereign debt that involves the creation of a fund that would help governments in the euro zone reduce their outstanding debt in exchange for economic reform. The euro fell for the fourth straight day, bringing its loss for the week to 1.6%.

In the only economic report released Friday, the University of Michigan consumer sentiment index jumped to 79.3 from 76.4 at the end of April, its highest level since October 2007. More favorable job and wage prospects were the main factors behind the improved outlook, the UM report said. The index easily beat the Street’s consensus estimate, which had called for no change from the mid-month reading of 77.8.

Reports/dates/facts/links worth paying attention to over the next week:

May 29: S&P/Case-Shiller home price indexes for March; Conference Board consumer confidence index for May.
May 30: Pending home sales index for April.
May 31: Q1 GDP first revision; ADP national employment report for May; weekly unemployment claims.
June 1: Employment situation for May; personal income and outlays for April; motor vehicle sales for May; ISM manufacturing composite index for May.

Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

U.S. stocks rally late for second straight day

wrightnetblogger2 — Fri, 25 May 2012 05:56:33 +0000

U.S. stocks staged another late rally on Thursday after the Italian prime minister offered encouraging words about Greece remaining in the euro zone and the possibility of jointly-issued euro bonds. The Dow and the S&P closed with modest gains, while the NASDAQ ended slightly in the red. Stocks had traded in negative territory most of the afternoon but rallied after Mario Monti said in an interview on Italian television that most leaders at Wednesday night’s European Union summit – although not Germany’s – favor issuing eurozone bonds to help support troubled members. He also said Greece is likely to remain in the eurozone. Monti’s comments did nothing for the euro, however, which fell 0.4% to $1.2534 late in the day.

European stock markets recovered about half of what they lost in Wednesday’s rout, but it certainly wasn’t due to the disappointing economic reports that were released Thursday. The Stoxx Europe 600 rose 1% and the CAC 40 rose 1.2%. But the German DAX index rose only 0.5%. That might have been due to the release of the Ifo business climate index for Germany, which fell to 106.9 in May from a previous 109.9. The index had been above 109 in each of the previous three months and is now at its lowest level since November. Other European economic reports were nearly as negative. The Markit PMI composite output index for the eurozone fell to 45.9 in May from 46.7 in April, the steepest rate of decline in nearly three years. Output has now fallen in eight of the past nine months. The index for Germany fell to 49.6 from 50.5 in April, the first drop in six months and only the second time since July 2009. Yet, the 30-year German bund rose in price again, tacking on ½ point to reduce its yield still further to 1.97%, down two basis points.

There were also new concerns about China. According to a report on Bloomberg, China’s biggest banks may fall short of lending targets for the first time in at least seven years due to reduced demand for credit. The European slowdown is reducing demand for Chinese goods. Separately, the HSBC PMI flash estimate for Chinese manufacturing fell to 48.7 in May from 49.3 in April, its seventh consecutive month below 50, which indicates worsening business conditions. Chinese stock prices were mostly in the red Thursday.

U.S. economic reports released Thursday were also on the disappointing side. Durable goods orders for April rose a weak 0.2%, up from March’s 3.7% decline but below the 0.5% increase the Street was expecting. Ex transportation, orders fell an unexpected 0.6% following the 0.8% drop in March, the first back-to-back decline in a year. Forecasts had called for a 0.7% increase. Weekly unemployment claims were basically unchanged at 370,000.

Reports/dates/facts/links worth paying attention to over the next week:

May 25: University of Michigan consumer sentiment (second reading for May); U.S. bond markets to close at 2 P.M. ET for Memorial Day weekend.
May 29: S&P/Case-Shiller home price indexes for March; Conference Board consumer confidence index for May.
May 30: Pending home sales index for April.
May 31: Q1 GDP first revision; ADP national employment report for May; weekly unemployment claims.
June 1: Employment situation for May; personal income and outlays for April; motor vehicle sales for May; ISM manufacturing composite index for May.

U.S. stocks rally back as Europe plummets

wrightnetblogger2 — Thu, 24 May 2012 02:16:58 +0000

U.S. equities, which had been down as much as 1.5% during the session, managed to rally back Wednesday afternoon to close narrowly mixed. Stocks began to move higher shortly after the European markets closed (at around noon Eastern time), fell back again around 2 PM, then rallied the rest of the afternoon. The NASDAQ ended the day with a 0.4% gain, the S&P was up 0.1%, while the Dow closed with a narrow loss. But oil prices continued to sink, falling 1.5% to $90.45 a barrel for Nymex crude, while other commodities also fell.

European markets got clobbered, as it looks more and more likely that Greece will eventually leave the euro zone, with whatever implications that entails. The Stoxx Europe 600 dropped 2%, while the main German, French and U.K. indexes all fell by about 2.5% each. Bourses in southern Europe got hit even worse, with Spanish and Italian stock indexes both down more than 3%. In a sign of how panicky European markets are getting, the 30-year German government bund jumped more than 2.6 points in price to lower its yield by more than 10 basis points to 1.99%, the first time it has been under 2.0%. By way of comparison, the yield on the 30-year U.S. Treasury bond closed Wednesday at 2.82%, down four bps. The euro dropped more than 1% to a 52-week low of $1.2545 earlier in the day but managed to bounce back slightly to trim its loss for the day to 0.8%, ending late at just under $1.26. The euro has lost 5% in the past four weeks.

Wednesday brought additional evidence that the U.S. housing market may have hit bottom, although the news got little attention. New home sales for April rose 3.3% compared to March to a seasonally adjusted annual rate of 343,000, beating the Street estimate of about 335,000. Compared to a year ago, sales were up 10%. The report also showed a rise in home prices, with the median sales price climbing 4.9% from the same month last year. In a separate report, the FHFA’s home price index rose 1.8% in March, up from a 0.3% increase the month before, and up 2.7% compared to a year earlier.

The Congressional Budget Office warned that the U.S. economy would fall into a “mild” recession in the first half of next year if Congress allows the Bush tax cuts to expire and $1.2 trillion in spending cuts to take effect in January. The CBO said the measures, while reducing the federal budget deficit, would lead to an economic contraction at a 1.3% annual rate in the first half of 2013 (which would in fact undo at least part of any deficit reduction).

Reports/dates/facts/links worth paying attention to over the next week:

May 24: Durable goods orders for April; weekly unemployment claims.
May 25: University of Michigan consumer sentiment (second reading for May); U.S. bond markets to close at 2 P.M. ET for Memorial Day weekend.
May 29: S&P/Case-Shiller home price indexes for March; Conference Board consumer confidence index for May.
May 30: Pending home sales index for April.
May 31: Q1 GDP first revision; ADP national employment report for May; weekly unemployment claims.
June 1: Employment situation for May; personal income and outlays for April; motor vehicle sales for May; ISM manufacturing composite index for May.

Stocks give back early gains while Facebook continues face-plant

wrightnetblogger — Tue, 22 May 2012 22:50:30 +0000

The Dow Jones Industrial Average, up 70 points or 0.6% around 11:00 ET, ended Tuesday little changed on the day after a 100-point drop in the final hour of trading and then a late push back essentially to a flat-line close. Stock prices lacked Monday’s momentum, but the Dow appeared headed for a second day of gains until Greek Prime Minister Papademos suggested that a Greek exit from the euro is under consideration and a real possibility. These comments, on the eve of a meeting of European leaders eager to avoid a break-up of the euro, were not taken constructively by traders, who also took the euro currency under $1.27, where it was down more than one cent on the day and at a four-month low. The S&P 500 managed to end slightly to the good for the day, powered mostly by the financials (+0.7%), utilities (+0.6%) and consumer discretionary (+0.3%) market sectors. There was some sell-off in yesterday’s big movers, materials (-0.6%) and technology (-0.3%). After Monday’s bounce higher, Apple lost 0.8% in Tuesday trade, while Facebook shares lost another 9% to $31.12, off 18% from its IPO setting of $38 a share.

The market’s early rise appeared to be the result of this morning’s report of a 3% increase in sales of existing homes in April and a 10% jump in median selling prices last month. These upticks, particularly the higher home prices, comport with other recent evidence suggesting modest improvement in the long-depressed housing sector. Not as reassuring was the fall in the Richmond Fed’s manufacturing index during May; like the Philly Fed’s survey release last week, this seems to point to some uneven regional economic trends.

On a far broader scale, the Organization for Economic Co-operation and Development (OECD) made a similar point in its economic forecasts out today – namely disparate trends in different regions of the global economy. Warning of no growth or worse in the Euro area, OECD forecasters look for better trends in some regions of the global economy (U.S. and Japan) and a moderate upswing in the large emerging economies. In addition to seeking ways to keep the monetary union together, tomorrow’s mini Euro summit has the objective of finding ways to promote growth and work down sovereign debt. European stocks had their best day in a month Tuesday, with the Bloomberg European 500 index climbing 2.0% and Italy (+3.4%) especially strong.

Germany will sell 5 billion euros of new two-year notes Wednesday, which is noteworthy because they will pay no interest. As radical as this sounds, two-year German notes offered only a yield of just 4 basis points in the secondary market at the low last Thursday. Japanese two-year debt yields ten bps currently, and two-year U.S. Treasury notes yielded just 16 bps at their low last September and are only 29 bpscurrently. Given that inflation rates are running close to 2% in the U.S. and Germany, the low or zero interest on nominal German and U.S. debt point up the high value placed on safe havens currently – as well as the financial repression being exercised by world central bankers.

Reports/dates/facts/links worth paying attention to over the next week:

May 23: New home sales for April; Federal Housing Finance Agency house price index for March.
May 24: Durable goods orders for April; weekly unemployment claims.
May 25: University of Michigan consumer sentiment (second reading for May); U.S. bond markets to close at 2 P.M. ET for Memorial Day weekend

Stocks rebound despite Facebook’s 11% day-two decline

wrightnetblogger2 — Mon, 21 May 2012 22:18:01 +0000

U.S. and European stock markets rebounded Monday following last week’s downturn. Among the major U.S. market indexes, NASDAQ was by far the biggest gainer on the day, rising 2.5% and recovering almost half of last week’s losses, while the S&P 500 rose 1.6%, roughly 35% of its retreat last week. Both barometers were helped by a big snapback in the price of Apple shares, which jumped $31, or nearly 6%, to $561, gaining back all but $5 of last week’s decline. The Dow climbed 1.1% to 12504 on the day. Oil prices also rebounded, with Nymex crude rising $1.50 to $93 a barrel, while copper and unleaded gasoline futures prices gained close to 2%. Gold was up slightly. Treasury bond prices, which soared last week, were slightly lower on Monday; the 10-year T-note’s yield rose two basis points to 1.74%.

A rebound in European stocks led U.S. share prices higher on Monday, although the gains there were more modest compared to American markets. Over the weekend, leaders from the Group of Eight nations affirmed their desire that Greece remain in the euro zone, while weekend polls showed growing support for Greek conservative parties heading into the June 17 parliamentary elections. Global share prices may also have gotten a boost from reports of growth-supporting comments from Chinese Premier Wen Jiabao. The Stoxx Europe 600, which fell more than 5% last week, rose 0.5% Monday, with German stocks rising a full percentage point and French stocks gaining 0.6%. The euro rose 0.2%, climbing back above $1.28. German bunds were narrowly mixed, with securities at the long end rising about ¼ point in price while shorter-term notes fell slightly; yields on the debt of other European sovereigns inched lower.

Facebook wasn’t helped by Monday’s general upturn – quite the opposite in fact. In its second day of trading, FB slumped more than $4 a share, to about $34. The stock was down from the opening, hitting its session low of $33 a share just before 10 A.M. before recovering a bit and holding steady the rest of the session. J.P. Morgan Chase fell 3%, or about $1 a share, to $32.52 after the bank said it was suspending its $15 billion share-repurchase program following the disclosure of its $2 billion-and-counting trading loss. However, the bank said it intends to keep its current dividend in place.

The VIX volatility index, which has been on a sharp upswing the past two months, settled down on Monday. The index fell more than 12%, to 22. Since March 26, when it hit a 2012 low of 14.2, the index had jumped 76% to over 25 before Monday’s pull back. But it’s still a long way from its 52-week high of 48 reached last August.

Reports/dates/facts/links worth paying attention to next week:

May 22: Existing home sales for April.
May 23: New home sales for April; Federal Housing Finance Agency house price index for March.
May 24: Durable goods orders for April; weekly unemployment claims.
May 25: University of Michigan consumer sentiment (second reading for May); U.S. bond markets to close at 2 P.M. ET for Memorial Day weekend.

Facebook frenzy ends with a whimper

wrightnetblogger2 — Fri, 18 May 2012 22:35:38 +0000

Facebook’s opening day of trading provided a much-needed diversion for a weary market, but in the end it couldn’t pull stocks into positive territory to end a long week. And for all the hype attached to its IPO, FB’s first day of trading was either a dud or anticlimactic, depending on who’s doing the spinning, as the shares ended the day virtually unchanged at the $38 initial offering price. Of course, that might simply mean that the underwriters priced the deal perfectly. After a half-hour delay in trading due to some technical difficulties, Facebook finally started trading at 11:30 AM. It traded as high as $45 a share – briefly – then gradually drifted lower as the trading day progressed.

U.S. stocks closed the week with big losses, but long-term, high-grade sovereign bonds had a terrific week. NASDAQ was the week’s big loser, falling 5.3%, including 1.2% on Friday. The S&P 500 was next worst, falling 0.7% on Friday and 4.3% for the week, while the Dow closed the week down 0.6% on the day and off 3.5% for the week. All three indexes are now down to where they were in mid-January.

But U.S. and German government bonds had a great week. The 30-year U.S. Treasury bond ended the week with a 2.79% yield, down 23 basis points on the week, while the 10-year was at 1.72%, down 12 bps for the week. German bund yields were down about 10 bps on the week. Oil fell again on Friday, falling 1.7% to about $91 a barrel for Nymex crude, its lowest closing level since Halloween.

European markets ended the week with steep losses. The Stoxx Europe 600 fell 1.1% Friday to bring its loss for the week to more than 5%. The index is down more than 12% since a recent a peak on March 16, wiping out all its gains for the year, and is at its lowest level since Dec. 21. The German DAX index fell 0.6% Friday and was down 4.7% for the week, while the CAC 40 index of French stocks was off a modest 0.1% Friday but down 4% for the week.

The euro closed Friday on an upnote, rising 0.6% to $1.2777 late in the day. German Finance Minister Wolfgang Schaeuble said investors better get used to the turmoil – if they haven’t already – telling French radio that the continent’s debt crisis may last another two years. As if on cue, Deutsche Bank warned that banks in Ireland may need a second bailout, and Spain’s central bank reported that 8.37% of the loans held by the country’s banks were past due, the highest rate since September 1994 and nearly 10 times higher than the level reported in 2007.

Reports/dates/facts/links worth paying attention to next week:

May 21: Chicago Fed national activity index for April.
May 22: Existing home sales for April.
May 23: New home sales for April; Federal Housing Finance Agency house price index for March.
May 24: Durable goods orders for April; weekly unemployment claims.
May 25: University of Michigan consumer sentiment (second reading for May); U.S. bond markets to close at 2 P.M. ET for Memorial Day weekend.

Facebook euphoria fails to lift stocks

wrightnetblogger2 — Thu, 17 May 2012 22:14:34 +0000

Disappointing economic reports and growing tension in Europe sent stock prices down sharply on Thursday, even as Facebook prepared to come to market with its initial public offering. The NASDAQ dropped a full 2%, while the S&P 500 fell 1.5% and the Dow fell 1.2%. European stocks once again led the way downward, but the negative tone accelerated after the release of several disappointing U.S. economic indicators. Meanwhile, U.S. and German government bond prices soared in a flight to safety. Oil prices remained weak, while gold rebounded. After the close, underwriters priced Facebook shares (ticker symbol FB) at $38, toward the high end of the expected range, to sell 421.2 million shares to raise $16 billion, the largest IPO by a technology company (valuing the entire company at just over $100 billion).

In Europe, stocks fell again as the head of Greece’s radical left party dared the country’s continental partners to cut off funding to the country. In an interview with The Wall Street Journal, Alexis Tsipras, head of the Coalition of the Radical Left, or Syriza, and possibly the country’s next prime minister, warned that if the country’s funding is cut off, the nation would simply repudiate its debts. Tsipras said it was in those countries’ “own interest” not to cut off funding to Greece, but that if they did, “then we will be forced to stop paying our creditors.” Meanwhile, Moody’s cut the bond ratings on 16 Spanish banks. The broad-based Stoxx Europe 600 lost 1.1% while the major bourses in the U.K., France and Germany were down 1.2% each. The anxiety sent investors pouring once again into long-term U.S. and German government bonds, both of which soared about two points in price, sending interest rates plummeting. The U.S. Treasury sold 10-year inflation-indexed TIPS at a record low auction yield of negative 0.39%.

The latest jobless claims number wasn’t bad, but the economic reports that followed today were worse than expected. Unemployment claims for the most recent week were unchanged at 370,000, slightly above analyst expectations of a drop to 365,000. But the Philadelphia Fed’s index of general business activity for May was much worse than expected, actually falling to negative 5.8 from a positive 8.5 in April. It was the first negative reading in eight months. The Street had been expecting an increase to 10.0. Piling more bad news on top of that, the Conference Board said leading economic indicators for April fell 0.1%, which was down from a 0.3% increase the previous month and below the 0.1% uptick analysts were expecting.

What’s wrong with this picture? While the Facebook IPO appears to be a blowout, Apple stock is starting to look like yesterday’s news. The stock fell $16 a share, or nearly 3%, to $530 a share on Thursday. Apple has now dropped more than $100 a share since hitting its closing peak of $636 on April 9. Several large hedge funds reported they took profits in Apple, which had been one of their largest holdings, during the first quarter.

Reports/dates/facts/links worth paying attention to over the next week:

May 21: Chicago Fed national activity index for April.
May 22: Existing home sales for April.
May 23: New home sales for April; Federal Housing Finance Agency house price index for March.
May 24: Durable goods orders for April; weekly unemployment claims.
May 25: University of Michigan consumer sentiment (second reading for May); U.S. bond markets to close at 2 P.M. ET for Memorial Day weekend.

Stocks, commodities fall again as Greeks set new vote

wrightnetblogger2 — Wed, 16 May 2012 22:41:01 +0000

The European financial crisis continued to weigh on stocks across the globe on Wednesday. Asian stocks were especially weak today, while losses in U.S. and European stocks were comparatively moderate. In the United States, the Dow and the S&P 500 both fell 0.3% while the NASDAQ dropped 0.7%. In Europe, most stock markets were lower. The Stoxx Europe 600 and the FTSE 100 both dropped 0.6%, while the German DAX index slipped 0.3%. The only major national bourse to buck the trend was the French CAC index, which managed a 0.3% gain. Asian stocks were down sharply on the European situation – and perhaps on disappointment with recent Chinese economic data – as Chinese and Korean stocks fell 3% or more and Japanese stocks were down about 1%. Oil and gold prices continued to decline, with oil falling below $93 a barrel, its lowest level since November. The U.S. Energy Department reported that oil stocks continued to build. Gold was off more than 1% to $1,539 an ounce, while silver fell 3% to its 2012 low of $27.20 an ounce, where it was close to an 18-month low.

Greece managed to put together a caretaker government and prepared for new elections on June 17. European Central Bank President Mario Draghi conceded that Greece could choose to exit the euro area but said it was the bank’s “strong preference” that the country remains. Meanwhile, the ECB said it would temporarily stop lending to some Greek banks to limit its risk. The head of the country’s central bank said Greeks had withdrawn as much as 700 million euros ($891 million) since the May 6 elections. The euro, which had been higher earlier in the day, fell another 0.2% to $1.27, essentially at its lowest level since mid January.

Better-than-expected economic reports helped boost U.S. stocks in the morning but they didn’t stay boosted. April housing starts rose to an annual rate of 717,000 units, up 2.6% from a revised 699,000 pace in March and 30% higher than a year earlier. The April figure beat Street estimates of 690,000 units. Building permits were a little less promising, falling a bit below expectations last month. Industrial production rebounded in April to a 1.1% increase, the biggest gain since December 2010 and more than twice the market consensus, which had been expecting a 0.5% increase. However, March’s figure was revised downward to show a 0.6% decline, from no change originally. Capacity utilization rose to 79.2% from 78.4% in March.

The Federal Reserve released the minutes of the Federal Open Market Committee’s April 24-25 meeting, which suggested a slightly greater chance of QE3 if the economy starts to slow. Several committee members, up from “a couple” at the previous meeting, indicated that “additional monetary policy accommodation could be necessary if the economic recovery lost momentum,” the minutes said. The Fed continued to reiterate that low interest rates would likely remain in effect through the end of 2014.

On the eve of Facebook’s initial public offering, the quote of the day award goes to: ”The time to buy Facebook was five years ago.” So said University of Florida finance professor Jay Ritter, as reported in an AP article ahead of Friday’s IPO. Even five years after Apple’s IPO in 1980, the stock was basically unchanged from its day one price. This may be an indication of the hype that often attends technology IPO’s, since Apple has been one of the great stocks of the past three decades, something that was evidenced in the share price only over a sufficiently long period.

Reports/dates/facts/links worth paying attention to over the next week:

May 17: Weekly jobless claims; Philadelphia Fed survey for May.
Headline of the day: “Housing Less Dilapidated, but Still a Fixer-Upper” from the WSJ’s Real Time Economics blog.

Grrrrrrrreece…

wrightnetblogger — Tue, 15 May 2012 22:55:06 +0000

The Dow Jones Industrial Average fell 0.5% Tuesday, its ninth decline over the past 10-trading sessions, as worries about a possible bank run in Greece offset some positive economic data in the U.S. and Europe. Stocks were ahead for much of the day, before once again fading late. Reports of withdrawals of up to 700 million euros from Greek banks, at the same time that efforts to form a government appear headed for failure, suggest the potential for panic in peripheral European markets. In sovereign bond markets today, yields on Spain, Italy, Ireland and Portugal bonds gapped higher by 12-38 basis points, even as 10-year German and U.S. Treasury yields held relatively flat. European stocks, up early on a mix of mostly positive economic reports out of Europe, could not sustain the gains and ended roughly 1% lower, extending their pattern of the current global stock sell-off, with declines roughly twice the magnitude of the U.S.’s. Another indication of the flight-to-safety mentality in play right now: the Bloomberg trade-weighted dollar index has risen every day so far in May. The euro dipped to a four-month low of $1.2729 today.

On the positive side of the global economic ledger, German GDP was reported to have increased 0.5% during the first quarter – roughly a 2% annual rate – just slightly under the U.S.’s 2.2%. Unlike some of the less healthy economies of Europe, the German economy has avoided recession, bouncing back faster than expected from the fourth quarter’s weak result (-0.2%). Germany’s growth played a big role in the Euro-Zone’s better-than-expected report on Q1 economic activity (0.0% change, compared with Street forecasts of a 0.2% decline). The German ZEW current-situation survey result for May was also better than expected (44 vs 39), although business expectations, while still a positive reading at 11, came in under forecasts centered around 19.

U.S. economic data released on Tuesday was also mixed, with perhaps a slight tilt to positive. The New York Fed’s Empire Manufacturing index was up in May (17 versus a reading of 7 in April and a Street forecast of 9), although here too the future activity index reading of 29 sank from April’s three-month high of 46. The NAHB home builders’ sentiment index hit almost a five year high last month, suggesting that housing may be starting to emerge ever so slowly from its depression. Retail sales came up a bit short of Street projections last month, rising 0.1% from March’s robust level (+0.7%), which was probably boosted by the way the Easter holiday fell this year versus last. Still, April sales were higher in real terms – since consumer prices were flat last month – and on a smoothed, three-month moving average basis, real sales growth remains relatively healthy. With only modest real gains in May and June, a 2% annual rate of growth in consumer spending is still possible for the second quarter. That may not be trend growth, but under the circumstances (high debt levels and anemic employment growth), 2% growth may actually be optimal in the sense that it represents households living more within their means than during the pre-crisis, higher-growth era.

Reports/dates/facts/links worth paying attention to over the next week:

May 16: Housing starts for April; industrial production for April; release of minutes of the Federal Open Market Committee’s April 25 meeting.
May 17: Weekly jobless claims; Philadelphia Fed survey for May.

Greece is the word in Monday’s markets, but “Grexit” is a close second

wrightnetblogger2 — Mon, 14 May 2012 22:33:04 +0000

U.S. stocks opened the middle week of the second quarter with losses of 1% as worries about Greece’s future within the euro heightened. While fallout from J.P. Morgan’s $2 billion trading loss continued, with the bank’s stock falling another 3% and several senior executives being shown the door, the focus of global investors on Monday was Greece. The country continues to operate without a government a week after parliamentary elections and European finance ministers began to speak openly about Greece leaving the euro monetary union (“Grexit”). Investors sought the safe haven of U.S. Treasury bonds, bidding up the price of the 30-year bond more than a point, which reduced its yield by eight basis points to 2.94%, its lowest closing level since January. The yield on the 10-year T-note fell six bps to 1.78%, its lowest closing yield since early October.

The positive spin on Monday’s market action: losses on this side of the Atlantic were about half those on the other side. The Stoxx Europe 600 fell 1.8%, while most of the major European bourses registered losses around 2%. The euro fell another 0.6% to $1.2840, its lowest level in three months. Meanwhile, worried investors continued to seek safety in German bunds, which soared in price. The 30-year bund jumped another two points, reducing its yield by eight basis points to 2.12%, while the 10-year gained more than ½ point, cutting its yield by six bps to 1.46%. At the same time, Italian and Spanish yield spreads widened more than 20 bps against German paper. Even in Germany, voter displeasure is palpable, with Chancellor Angela Merkel’s CDU party losing big in elections in North Rhine-Westphalia on Sunday.

Oil and gold, which have been in virtual freefall since February, continued to decline today. Nymex crude fell another 2% on Monday to $94.15 late in the day, its lowest level since last December. Gold dropped $27.50 to $1,558 an ounce. Gold has fallen more than $230, or about 13%, since the end of February.

Economic reports may give investors and traders something else to focus on the next couple of days. This week is a fairly busy one in terms of economic reports. Consumer prices and retail sales for April are due out Tuesday, while housing starts and industrial production are set for release on Wednesday, along with the release of the minutes of the most recent Fed meeting. The week also brings regional reports from the New York and Philadelphia Federal Reserve districts.

Reports/dates/facts/links worth paying attention to over the next week:

May 15: Consumer price index for April; retail sales for April; Empire State manufacturing survey for May.
May 16: Housing starts for April; industrial production for April; release of minutes of the Federal Open Market Committee’s April 25 meeting.
May 17: Weekly jobless claims; Philadelphia Fed survey for May.