Expectations remain low for the two-day Euro-zone summit, but
the Brussels gathering getting underway tomorrow is still the most
important item on investors' minds. Plans for using the bailout
funds to directly recapitalize the Spanish banks have been going
the rounds lately, but they will remain nothing more than wishes in
the absence of tangible agreements on some sort of a fiscal or
banking union.
The need for these measures is clear and obvious to all players,
but the politics of getting them done is the complicated part. The
German and French leaders are expected to meet ahead of the summit
at a working dinner in Paris today, and we may get market-moving
headlines out of that event.
Europe is by far the biggest worry for the market, but concerns
have lately been rising about the domestic economic scene as well.
And on that front, this morning's May Durable Goods reading is
relatively on the reassuring aside, though the report's internals
show pockets of weakness. Overall, the Durable Goods report shows
that the factory sector, which has been a strong point of the U.S.
economy since the onset of recovery in mid 2009, remains in decent
shape.
On tap for release a little later are the May Pending Home sales,
which could potentially spotlight a relatively positive slice of
the domestic economic scene. Recent data on the housing front has
generally been on the favorable side, but doubts remain whether the
momentum can be sustained in the absence of a softening labor
market.
The 'headline' Durable Goods Orders number came in better than
expected, but the prior month's 'unchanged' headline reading was
revised downwards to negative 0.2%. This is the first positive
'headline' number after three months of negative readings.
Excluding the volatile transportation segment, which tends to jump
around on a month-to-month basis due to the 'lumpy' nature of
Boeing
(
BA
) aircraft orders, durable goods orders came in lower than
expected. Importantly, the 'core' reading, officially called
'nondefense capital goods orders ex-aircraft,' came in lower than
expected.
The New Orders component of the national manufacturing ISM and the
regional PMI's is considered a proxy for the monthly Durable Goods
reading. The June ISM reading is coming out next week, but the
regional surveys from the Empire State, Philly Fed and Richmond
regions seem to indicate that we may see a significant pullback in
the New Orders component as well as the overall index level. This
morning's May Durable Goods report confirms that assessment.
While the slowdown in the economy's growth momentum is no longer
news -- even the Fed acknowledges it now -- the extent of that
slowdown is far from obvious at this stage. This additional source
of uncertainty, coupled with existing questions about Europe and
China, remains a key headwind for the market.
In quarterly results,
Lennar Corp.
(
LEN
), the homebuilder, and
Monsanto
(
MON
), the agriculture company, handily beat earnings and revenue
expectations.
General Mills
(
GIS
) beat EPS expectations by a penny on inline revenue numbers. This
followed Tuesday's announcement of an 8% increase in the company's
dividend.
BOEING CO (BA): Free Stock Analysis Report
GENL MILLS (GIS): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
Report
MONSANTO CO-NEW (MON): Free Stock Analysis
Report
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