Tuesday, May 15, 20112
The overall tone of today's news flow, both on the home front as
well as from Europe, is decidedly favorable. This should help
stocks reverse the persistent downtrend of recent sessions, even if
it lacks in staying power.
Today's positive-looking data out of Europe should help offset,
howsoever temporarily, the constant drumbeat of negative
Greece-inspired headlines. It is not often that one would describe
'zero GDP growth' as positive news, but that's exactly what we have
in today's first quarter GDP report for the Euro-zone. The report
defied expectations of a back-to-back second quarter of negative
growth to come in at 'unchanged' or '0%' growth. Italy and Spain
are firmly in a recession, but it was the strength in the German
economy that pulled the Euro-zone above the negative territory.
Economic data on the home front is also reassuring, with an in-line
April Retail Sales reading, a benign looking inflation report, and
a better than expected Empire State regional manufacturing survey.
Growth in Retail Sales decelerated from the preceding month's
strong pace, mostly due to the earlier Easter holiday this year,
but that was expected. Momentum on the Retail Sales front is
important as it serves as proxy for consumer spending, which
accounted for the bulk of growth in the first quarter GDP. Desipite
the lower growth pace, today's Retail Sales report is consistent
with consumer spending growth along the lines of what we saw in the
first quarter GDP.
The April Retail Sales reading is a net positive for the market
today, with both the 'headline' and 'core' readings matching
expectations following the exceptionally strong reading in March.
Retail Sales were up 0.1% in April on a 'headline' basis vs. up
0.7% in March. The 'core' reading, which strips out auto and
gasoline sales, was also up 0.1% in April vs. up 0.8% in March. The
Retail Sales report is admittedly not a perfect proxy for 'real'
consumer spending since this non-inflation adjusted measure only
includes 'goods' sales at retail establishments and leaves out the
much larger consumer outlays on 'services'. But it nevertheless
provides valuable clues to trends in consumer spending, which is
the backbone of the U.S. economy.
The Consumer Price Index (CPI) for April came broadly in-line
with market expectations, 'unchanged' on the 'headline' after
March's 0.3% increase. 'Core' CPI, which strips out food and
energy, also matched expectations, was up 0.2% after March's
increase of the same amount. The year-over-year readings were
broadly in-line with expectations as well. The not-so-hot 'core'
reading will keep hopes of further Fed support alive should
economic growth start disappointing.
On the earnings front,
) matched earnings expectations, but missed the top-line, while
Dick's Sporting Goods
) came out with a solid positive beat.
) handily beat earnings expectations after the close on Monday,
though its top-line came short of expectations.
This is a big news day, with a lot of economic headlines about
the domestic and European economies. But the pick of the day has
got to be the surprising resilience in the German economy which
single-handedly pulled the aggregate Euro-zone economy out of
reporting a negative GDP read.
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