Will Market's Momentum Remain Positive? - Economic Highlights
The stock market today will likely find it difficult to build on last week's strong performance, notwithstanding today's positive data out of Japan. The broad stock market indexes finished at new all-time highs on Friday after the strong jobs report. But the momentum will be hard to sustain in today's session.
Japan's first quarter growth turned out to be even stronger than initially estimated. Government figures released Monday show that the country's Q1 GDP growth totaled +6.7%, up from the initial estimate of +5.9%. The consensus expectation was for a negative revision to +5.5%. Q1 was the 6th quarter in a row of positive GDP growth for the Japanese economy, a testament to the success of Abenomics, the expansionist fiscal and monetary policies of Prime Minister Shinzo Abe's government.
The growth spurt in Q1 resulted from a one-time jump in consumer spending ahead of the start of a higher sales tax rate (8% vs. 5%) at the start of April. The positive surprise in the GDP revision was corporate spending, which increased to +34.2% from +21%. Japan's growth in the first quarter of the year contrasted with growth challenges elsewhere in the developed world, with the Euro-zone economy barely in the positive column and the U.S. economy slipping into negative territory. But Japan's economy wouldn't be able to sustain the Q1 growth momentum either, with GDP growth in the current period expected to be down -4%.
The question now is how quickly the Japanese economy can come of out of the Q2 slump. Many in the market will be hoping for the Bank of Japan to ease further, though the country's monetary policy is already extraordinarily loose. With even the European Central Bank adopting an aggressively expansionist posture last week, the pressure will be on BoJ to 'do more' to support the economy. We will see how this monetary policy picture unfolds, but the BoJ and ECB will likely have to continue easing even as the U.S. Fed winds down its QE program. The U.S. economic growth picture in the current picture has materially improved, as Friday's strong May jobs report reconfirmed.
In corporate news, Apple ( AAPL ) shares will start trading on a split-adjusted basis today. Tyson Foods ( TSN ) has turned out be the winner in the bidding war for Hillshire Foods ( HSH ), trumping the competing bid from Pilgrim's Pride ( PPC ) and requiring Hillshire to drop its own bid for Pinnacle Foods ( PF ). We also have a major deal in the pharma sector, with Merck ( MRK ) paying a huge premium to acquire Idenix Pharma ( IDIX ) to strengthen its hepatitis-C drug portfolio.