While we do have some favorable-looking headlines out of Europe
this morning, with the European Central Bank (ECB) injecting
further funds into the region's banking system, the focus today
will likely be on the U.S. economy. On that count, the GDP report
was a positive surprise.
We also have Bernanke's testimony to the House Financial Services
committee and the Chicago PMI reading on the docket for release a
little later. It will be interesting to see if the market can
consolidate its elevated level or if it will give ground.
In its second read on the fourth quarter of 2011, the commerce
department reported that the U.S. economy expanded at a
better-than-expected 3% pace in the last quarter of 2011, up from
the 2.8% in the first read a month ago. This compares to the third
quarter's 1.8% growth rate. The positive revision primarily
reflected increased consumer spending, though contribution from
non-residential fixed investment and net exports also improved.
Personal consumption expenditures (
PCE
), or consumer spending, which accounts for close to 70% of the
economy, increased by 2.1%, up from the first read's 2% estimate.
This was an increase from the 1.7% increase in the third quarter
and the 0.7% growth in the second quarter.
The consumer spending increase is particularly welcome given the
relatively weak internals of the original fourth quarter GDP report
that had substantial contributions from the less-desirable
inventory component. Given the recent improvement in the labor
market, one could reasonably expect favorable momentum on the
household spending front.
Also helpful to the spending picture should be the growing evidence
of increased bank lending. While we don't want another debt-driven
consumption binge in the economy, it is nevertheless an improving
trend.
The ECB injected huge amounts into the Euro-zone banking system
through its second round of Long-Term Refinancing Operation (LTRO).
The central bank paid out €529 billion in three-year loans to 800
banks, up from €489 billion injected through the same program in
December. The program was particularly successful the first time
around as it helped ease liquidity concerns about the banking
system. It also had a positive impact on the government bond
markets of Italy and Spain, where bond yields have been on a
downtrend ever since the December LTRO.
Many in the market view the LTRO program as the ECB's backdoor
quantitative program, though it's not clear the extent of actual
bond purchases that the banks undertook with the extra money.
In corporate news, we have better-than-expected results from
Costco
(
COST
) and
Staples
(
SPLS
) this morning, while
DreamWorks Animation
(
DWA
) and
First Solar
(
FSLR
) came out with weak results after the close on Tuesday.
COSTCO WHOLE CP (
COST
): Free Stock Analysis Report
DREAMWORKS ANIM (
DWA
): Free Stock Analysis Report
FIRST SOLAR INC (
FSLR
): Free Stock Analysis Report
STAPLES INC (
SPLS
): Free Stock Analysis Report
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