The domestic economic calendar is on the thin side this week,
though the second quarter earnings season gets into the spotlight
) release later this afternoon. Early signs indicate that the
earnings cycle may have run its course, with revenue gains hard to
come by in a slowing global economy and margins already topped out.
We will know for sure in the coming days as the earnings season
gets into high gear, but the initial reports and pre-announcements
seem to indicate that earnings growth may not be available as a
reliable prop for the market anymore. The softening earnings
picture will likely get added to the market's existing worry list
of Europe, China and the questionable domestic economic scene.
With respect to Europe, finance officials are meeting today to
hammer out details of the agreement announced in the last Euro-zone
summit a few days back. The market is getting nervous on lack of
follow-through progress, particularly with respect to the
agreement's banking sector provisions.
Moving towards joint banking supervision is the stated Euro-zone
goal, but hardly anyone expects the path leading there to be
without twists and turns. And the related anxieties have started
showing up in the region's government bond yields, with Spain and
Italy's yields inching back up in the wrong direction.
Europe is not the sole global issue weighing on the equity
markets; the evolving outlook for the Chinese economy is equally if
not more significant. The Chinese prime minister's statement about
the economy over the weekend seems to confirm some of the concerns
raised by last week's surprise rate cut by the central bank, the
second in less than a month. The decline in inflationary pressures,
as confirmed by this morning's inflation reading, indicates that
the Chinese central bank could afford to get more aggressive in its
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We will know the extent of Chinese slowdown later this week -- the
second quarter GDP report comes out on Friday. The current
consensus expectation of 7.6% growth in the second quarter will be
its weakest reading since early 2009. It is perhaps not
unreasonable to see downside risks to Friday's growth number in
light of last week's interest rate cut and the weekend comment from
the prime minister.
On the home front, the market will be keeping a close eye on the
Fed to handicap the odds for further QE following the latest run
of weak economic reports. Minutes of the Fed's June meeting
coming out Wednesday afternoon will be of particular interest in
that respect. The earnings season will get into high gear from next
week onwards, but results from
) after the close on Thursday and
) Friday morning will give us some flavor of things to come.
(This article was originally published as
Ahead of Wall Street - July 9, 2012.)