A strong retail sales reading, weak economic growth in
Germany, and reassuring words out of Ben Bernanke Monday evening
provide the backdrop for today's trading action. But the market's
mood is expected to be tentative ahead of big bank earnings
reports the rest of this week and rising rhetoric about the debt
ceiling issue.
The December Retail Sales data this morning came in better
than expected, which confirms what consumer confidence data had
already been indicating: that the 'Fiscal Cliff' debate that
month didn't have any negative effect on household spending
during the holidays. Both the 'headline' and the ex-autos growth
pace came in better than expected, while the prior month's
ex-autos growth number was revised a shade lower.
Retail Sales serve as a proxy for consumer spending, which is the
mainstay of the U.S. economy. While consumer spending has held up
decently in recent quarters, the concern is that the end of the
payroll tax relief as a result of the partial 'Fiscal Cliff'
resolution will bring down spending levels this year.
The fourth quarter GDP report coming out later this month is
expected to show the U.S. economy expanding at less than half of
the third quarter's +3.1% pace. Today's Retail Sales report
should provide some comfort on that front. Elsewhere on the
economic front, the New York Fed's Empire State index for January
remained in the negative territory, indicating that the factory
sector still remains problematic.
While U.S. economic growth has been lackluster, the situation
across the pond has been outright ugly. Today's report shows that
even Germany, the Euro-zone's strongest economy, endured negative
economic growth in the final quarter of 2012. The German GDP
contraction in the fourth quarter was expected, but the extent of
the contraction was not.
The German economy contracted at roughly double the pace of what
consensus was expecting. Many in the market do not expect the
German economy to remain in the negative territory for long, with
consensus estimates for the first quarter of 2013 showing
positive GDP growth.
But the worrying part about Germany is that business confidence
remains low, which is weighing on business investments. In fact,
it was weak business spending that produced the negative GDP read
in the fourth quarter, offsetting positive trade and spending by
consumers and the government. The concern is that Germany may not
be able to stay immune from the weak economic forces swirling all
around them.
In corporate news, we have a solid earnings beat from homebuilder
Lennar
(
LEN
), while
Forest Labs
(
FRX
) came short of expectations. The market will likely be not much
enthusiastic about the guidance that came out
Lululemon Athletica
(
LULU
), the yoga pants maker, after the close on Monday.
FOREST LABS A (FRX): Free Stock Analysis
Report
LENNAR CORP -A (LEN): Free Stock Analysis
Report
LULULEMON ATHLT (LULU): Free Stock Analysis
Report
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