Headlines about Europe have been the primary driver of this
market lately, making it difficult to find enduring trends in
market action. Stocks start the day in one direction, but would
shift course during the day to end in a different direction.
This morning's headlines are unsurprisingly on the negative side
again, with unfavorable sentiment on Spain and Italy showing up in
rising bond yields. Italy's auction today of short-term treasury
paper received weak demand and higher yield relative to month-ago
auction. The clouds over Spain and Italy are unlikely to lift
before the Greek vote this Sunday and the crucial Euro-zone summit
meeting later this month.
While Europe is providing all the market-moving headlines, we
have news flow on the home front as well today with a soft May
Retail Sales reading and a benign looking wholesale inflation
report. Market participants have lately been evaluating domestic
economic data from one key perspective - whether the data increases
the odds of further quantitative easing from the Fed or not. Looked
at from that perspective, this morning's weak Retail Sales report
and the absence of any inflationary pressures in the PPI report
will be considered favorable.
This was the second consecutive month of declining Retail Sales,
though the April reading was further revised down. The measure was
weaker still after excluding automobile and gasoline sales, which
can cause unusual swings in this non inflation adjusted measure of
consumer spending. The Retail Sales report is admittedly not a
perfect proxy for 'real' consumer spending since this non-inflation
adjusted measure only includes 'goods' sales at retail
establishments and leaves out the much larger consumer outlays on
'services'. The anemic jobs growth of the last few months is likely
a contributor to this soft spending pattern and many expect the Fed
to play its part by announcing additional support in next
week's FOMC meeting. The absence of inflation, as today's May PPI
report shows, will likely further strengthen those
expectations.
Business Inventories
are scheduled for release today at 10:00 AM EST and are expected to
increase by 0.3% after increasing by 0.3% in March.
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