All eyes are on the U.S. Federal Reserve and the European
Central Bank, as the two critical central banks hold their regular
scheduled meetings this week. The Fed's two-day meeting starts
today and the official statement comes out Wednesday afternoon,
ahead of Friday's key July jobs report. The consensus expectation
seems to be that the Fed will not announce anything new on
Wednesday, leaving any major policy changes to the September
But pressure will be high on Mario Draghi, the ECB president, to
follow through on his 'whatever it takes' statement from last week.
Mr. Draghi's statement has raised hopes that the ECB will start
purchasing Spanish (and Italian) government bonds whose rising
yields lately have stoked fears that the country may need a bailout
of its own. But Mr. Draghi heads a divided house, where Germany
remains opposed to any such move, making it difficult to reconcile
Germany's concerns with Spain's needs and the market's demands.
???But beyond what the Fed and the ECB may or may not do this
week is the more fundamental question of whether monetary policy
tools are even relevant to the issues facing these two key
economies. The answer is far from clear on that count, particularly
with respect to the Fed, which has done more than any other major
central bank in light of economic headwinds. But with election-year
politics making it difficult to address the core fiscal issues
confronting the U.S economy, the Fed may decide it's preferable to
be seen 'doing something.'
Many serious market watchers remain of the opinion that the
economy's condition is not precarious enough to warrant fresh Fed
support. They point to last week's 1.5% GDP growth rate in the
second quarter and expectations of 100K-plus jobs in Friday's jobs
report as evidence in support of this claim.
This morning's June Personal Income & Outlays reading would
also fall in that category. That may be so, but when you combine
the loss of momentum in the U.S. economy with the problems in
Europe and the issues in China, we have an almost globally
synchronized slowdown that may still have quite some distance to
We are clearly seeing the impact of this global slowdown in
corporate results this earnings season, with companies finding it
difficult to achieve top-line gains. While about two-thirds of the
companies were able to beat earnings expectations -- roughly
in-line with recent quarters -- a far weaker percentage of about
38% are able to come ahead of revenue expectations.
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Even many among these 'revenue beaters' are guiding towards weaker
times ahead. The trend is widespread across different
sectors/industries, and present in this morning's basket of results