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 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 the lower than
expected, though the reading reversed last month's decline.
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 as well.
While the slowdown in the economy's growth momentum is no longer
news, even the Fed acknowledges it now, but 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.
Pending Home Sales
is scheduled for release today at 10:00 AM EST, and is expected to
increase by 1.8% after decreasing by 5.5% in May to 95.5.
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