With this morning's mixed economic data on the home front from
the Jobless Claims and Durable Good reports, stocks likely will not
have much to offset the uninspiring picture coming out of Friday.
The overnight summit of European leaders in Brussels failed to come
out with anything new. But even more worrying is the region's
economic outlook, including for the thus far robust German economy.
A preliminary survey of Euro-zone purchasing managers for May,
comparable to the ISM survey in the U.S., shows the region's
factory sector moving deeper into contractionary territory. A
separate survey of German business confidence also shows loss of
momentum.
The Brussels summit meeting reiterated the group's desire to
keep Greece within the currency union, but wants the country to
stay true to its existing austerity commitments under the March
bailout. With the anti-austerity leftwing party gaining momentum in
the run up to the June 17 elections, it is increasingly becoming
obvious that Greece may be heading towards the long-feared exit. On
the positive side, the demand for Eurobonds is steadily gaining
momentum following the change in French leadership, though Germany
continues to oppose the move.
There is not much to feel good about in this morning's domestic
economic data either, with the weekly Jobless Claims numbers
effectively unchanged from the previous week and the April Durable
Goods report raising questions about the outlook for corporate
capital spending.
It is perhaps a bit harsh to characterize the Jobless Claims
data as negative. But the number has been 'stuck' at the 370K level
for weeks now and refusing come further down. This morning's
reading showed a 2K drop to 370K, though the prior week's tally was
revised upwards by 2K. So, in effect, we have another unchanged
reading. The four-week average, which smoothes out the week-to-week
volatility, dropped by 5.5K to 370K. An optimistic take could be
that the current consolidation phase in the claims data is a net
positive. It will be interesting to see what next week's May
non-farm payroll numbers will bring, particularly following the
disappointing releases in preceding two months.
While one could argue that the Jobless Claims report was not
negative, there is no other way to put this morning's April Durable
Goods report. The 'headline' number was roughly in-line with
expectations and the prior month's 'headline' drop was modestly
revised upwards. But the 'core' reading, officially called
nondefense capital goods orders ex-aircraft, came in weaker than
expected and the prior month's number was revised down. The weak
'core' number and the negative revisions to the prior month raise
questions about the health of business spending outlook going
forward and will likely be perceived as another sign of loss of
momentum in the economy. This data does not seem to be in-sync with
what we are seeing from the manufacturing ISM data in recent
months. While not unusual, it is nevertheless a red flag not to
take the manufacturing momentum for granted.
In corporate news,
Hewlett-Packard
(
HPQ
) came out with better than expected results and a credible-looking
restructuring program that includes lay-offs totaling roughly 8% of
its workforce. But irrespective of the quality of the PC and
printing giant's restructuring plan, it is likely faced with a much
softer IT spending environment than it may have been banking on. We
saw some evidence of that in Tuesday's results from
Dell
(
DELL
) and even
Cisco
(
CSCO
) had pointed towards that in its quarterly results. This morning's
soft April Durable Goods report is also along the same lines.
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