Thursday, June 28, 2012
Stocks will remain in a wait-and-see mode as the two-day European
summit gets underway in Brussels today. Expectations for something
major coming out of the Brussels gathering remain low, but some
headlines this morning indicate that Germany may be inching towards
a more flexible stance towards the question of shared liabilities
than has been the case thus far.
On the home front, this morning's economic reports didn't produce
any surprises, with the final look at the first quarter GDP coming
in as expected and the weekly Jobless Claims data showing no
improvement. The long-awaited Supreme Court ruling on the
Affordable Care Act ("Obamacare") is expected to come out a little
later, while reports of a widening trading loss at
) will put the banking giant in an unflattering spotlight.
In an interview with the Wall Street Journal, Wolfgang Schauble,
the German Finance Minister, that his country may be willing to
stand behind Euro-zone debt liabilities and support short-term
measures to alleviate pressures in the bond markets. What they want
in return is a mutually agreed roadmap towards centralized budget
The Journal quoted Mr. Schauble as saying "We have to be sure that
a common fiscal policy would be irreversible and well coordinated.
There will be no jointly guaranteed bonds without a common fiscal
This is important as it indicates that Germany will be willing
to deploy its financial clout behind the Euro-zone before treaty
changes that will usher in a fiscal union. As we all know, the
problem is in the present, while treaty changes could take years to
come through. It is unlikely that the current summit will result in
such a 'common fiscal policy,' but it is nevertheless a good sign.
On the home front, Initial Jobless Claims dropped by 6K to 386K
last week. But since the preceding week's tally of 387K was revised
upwards by 5K, we actually have a much more modest drop. The
four-week average, which smooths out the week-to-week volatility,
increased by 750 to 386.8K.
The initial claims level has not budged much from the current
380K-plus level for many weeks now, indicating that the June
non-farm payroll numbers coming out next week will be along the
lines of what we have been seeing in the last three months. This
does not bode well for the outlook for consumer spending in the
second half of the year.
In corporate news, media report indicate J.P. Morgan's admission
last month of a potentially $2 billion trading loss may have
increased to as much as $9 billion. In other news,
) board has approved the company's split into two entities - one
focused on the group's entertainment assets while the other housing
its publishing and newspaper properties. However, Rupert Murdoch
plans to remain in leadership positions in both the firms.
On the earnings front,
) came short of earnings expectations.
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