Wednesday, May 15, 2013
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Stocks have plenty of domestic economic data to chew on in
today's trading session, with this morning's wholesale inflation
reading essentially in-line with expectations and the Empire
State manufacturing survey coming out a bit on the soft side. We
will get the Industrial Production and homebuilder sentiment
surveys a bit later, but the market's focus will likely remain on
the weak GDP data out of Europe.
First quarter GDP data for the Euro-zone shows the region is in
recession for the sixth straight quarter, with even Germany
barely in the positive column. The region's combined GDP fell a
bigger than expected -0.9% in annualized terms in the first
quarter after the -2.3% drop in the 2012 Q4.
The rot that started in Greece three years back is now firmly
entrenched in the region's core, with conditions in France, Italy
and Spain showing no signs of improvement. Recent data for
Germany, which alone accounts for almost a third of the Euro-zone
GDP, doesn't inspire much confidence about the current period
The sickly state of the region's economy contrasts with the +2.5%
GDP growth in the U.S. in Q1. Even the Japanese economy is
expected to show a positive growth number. Europe hasn't been a
growth engine for the global economy in recent memory, but it has
never been a drag either. However, a host of companies -- ranging
from consumer-centric names like
) to large-scale manufacturers like
) -- been citing the region as the weakest link in their markets.
Financial conditions in the region have definitely improved, with
the ECB's easy monetary policy helping sovereign debt yields
steadily come down, particularly in Spain and Italy. But these
have yet to show up in improved business conditions.
On earnings front, we got a solid earnings report from
) this morning, while
) will report after the close. Cisco typically doesn't have much
trouble coming out positive earnings surprises, but
management's comments about business conditions will
determine how investors react to the report. John Chambers, the
company's CEO, had cautioned against growing reliance on
government contracts in a constrained fiscal backdrop at the time
of the last quarterly release.
It will be interesting to see if they see any effects from the
budget sequester in today's release; the sequester issue did come
up a few times in rival
) quarterly release and their quarter ended in March (CSCO's
ended in April). The soft GDP data out of Europe this morning
further underscores this unfavorable operating environment.
Director of Research