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6/15/2012 1:40 PM
The Hope is Ending
By WSS Research Team
By Carlos Guillen
In spite of rather unfavorable economic data on consumer sentiment and industrial production poster earlier today, it is encouraging to see that equity markets are holding up remarkably well after spiking nicely at the start of today's trading session. While nice up days like today are always welcomed with open arms, the reason for today's gains do not appear to be based on any fundamental components. The logical conclusion should be that stocks would decline today, but stocks are trading higher today on wishful thinking; that is, on hope that central banks will provide the liquidity necessary if things fail in Europe this weekend. That is a lot of wishful thinking based on not a whole lot.
One reason that investors should really be discouraged about today was that consumer sentiment data failed to meet expectations and fell to the lowest level so far this year. The University of Michigan Consumer Sentiment June preliminary result landed at 74.1, which was lower than the Street's expectation of 77.5, decreasing from the 79.3 reached last month and putting an end to a rather encouraging trend that had been developing for the prior nine months. Up until last month, it appeared that consumers were hanging on to their positive sentiment as they continued sensing that the employment backdrop was improving and that wage prospects were get better; not anymore. The data is just too difficult to ignore, and after four straight months of slowing jobs growth and wage gains under inflation rates, coupled with continuing news flow about the European debt crisis, consumers are beginning to lose hope, raising the risk that consumer spending will stagnate and throw the economy into a tail spin.
Industrial production data was yet another reason to be discouraged today as its level unexpectedly declined, adding to the mounting evidence that the U.S. will experience slowing growth this year, if any. According to the Fed, the output at factories, mines, and utilities decreased 0.1 percent in May after increasing 1 percent in April, landing below economists' estimate calling for a 0.1 gain. While the decline is not very significant in itself, the fact that it went against the slight uptrend and considering the mounting negative economic data in general, the news should be depressing at the very least.
Instead markets are up and holding their ground, with the Dow Jones Industrial Average gaining over 70 points. However, with the Greek elections looming this Sunday and with the Fed meeting next week, anything is possible, and the volatility shall continue.
Circus Market Cheers Depressing Data
By David Urani
The market can be so funny at times, and the past couple of days have seen sessions where bad news is good. With chatter buzzing about potential central banking action around the world, there's nothing like a fresh batch of awful economic data to spur QE hopes. We noted yesterday morning that the jump in initial jobless claims to 386k from 380k was met with an up-tick in market futures. And then later that day there were murmurs from the G-20 that world central banks were discussing coordinated intervention… if necessary; so now investors are primed for action. That means the worse the news is, seemingly the better.
Well, today brought another dose of awful data and as a result the market is psyched. Investors were served up a real prime scoop of disappointment with the release of industrial production numbers for May which fell by 0.1% versus expectations of a 0.1% gain. Production is now down in two of the last three months. The "best" thing about this production report is that it comes from the horse's mouth itself: the Federal Reserve. This report came in conjunction with a poor Empire State manufacturing index (from the New York Fed) that was down to a reading of 2.29 from 13.8.
And then the Dow picked up another 30 points immediately following the release of the University of Michigan Sentiment index, which fell to 74.1 from 79.3, the lowest level since February. Alarmingly, the consensus was looking for 77.5, and this was the biggest miss versus expectations since February 2006. So then, as far as the market is concerned, this means it's time to pop the champagne!
And speaking of central banks, the customary daily afternoon Europe rumor today is saying that the ECB is now open to a zero interest rate policy.
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