Markets Holding in the Face Economic Malaise
Market Commentary
By WSS Research Team

By Carlos Guillen

It is quite remarkable that equity markets aren't further in the red so far during today's trading session despite the fact that economic data continue to show that world economies are decelerating. Today the National Federation of Independent Business (NFIB) revealed that its index declined with virtually no component showing signs of improvement. Also, the Organization for Economic Cooperation and Development (OECD) predicted that the poor jobs backdrop will continue till the end of next year. Perhaps the only bit of somewhat positive news was that Spain will get an extension to meet its deficit targets, but there are still details that need to be nailed down.

It is now quite evident that economies around the world are cooling, from Asia, to Europe, to right here in the U.S. The flow of negative economic indicators continues to signal slower and slower growth. Today data from the NFIB added to the mounting evidence of a troubled economy as small-business owners showed less optimism. Earlier today the Index of Small Business Optimism declined 3 points in June, falling to 91.4 and representing the lowest level since October of last year. In particular, owners are concerned about future sales and earnings growth over the next six months, and hiring conditions also dropped sharply. Only one of the 10 index components improved, that was expected credit conditions. Nearly one-quarter of owners cite weak sales as their most important business problem (23%), followed by taxes (21%) and unreasonable regulations and red tape (19%). And while there was some hiring, about 3/4 of the increase in jobs last month were "part time for economic reasons," so this was not encouraging at all for those looking for full time employment.

The jobs situation is deteriorating by the minute, and no one can see any improvements in the near term. In fact, according to OECD predictions, the unemployment rate in advanced economies (the 34-country OECD area) will remain at approximately 7.7 percent until at least the end of 2013. As it has become evident in all employment reports, temporary employment has picked up sharply. Firms are simply reluctant to hire full time given the uncertain economic outlook. Also quite discouraging was that OECD data showed that long-term unemployment has jumped to 35 percent of the jobless total from 27 percent before the crisis, raising the odds that as skill erode the problem becomes structural.

So, the economic malaise continues with no signs of improvement. But perhaps equity markets are finding some solace in that Spain is likely to get the funding it needs to save its banking industry. In yet another meeting of European economic ministers, it was agreed that Spain will get an extra year until 2014 to reach its deficit reduction targets in exchange for further budget savings. They also set the parameters of an aid package for Spain's ailing banks, but not specific figure was decided. A final loan amount will be set late in July.

China Pullback
By David Urani

Premier Wen warned about it yesterday, and overnight we got more evidence of a Chinese slowdown. Their overall trade surplus actually increased to $31.7 billion from $18.7 billion month to month in June, but it was the way it happened that was discouraging. Primarily, it was a drop in year-over-year import growth to 6.3% from 12.7% in the previous month, indicating the deceleration in their domestic economy. And turning over to exports, the news wasn't great there either. Growth slowed from 15.2% to 11.3%. They cited less demand from the US as a driving factor.

So there you go, more fresh data confirming the breakdown in global activity.

The EU Rumor Mill

Can't go a day without some fresh Europe rumors, and both of the rumors today were negative. Italian PM Monti says that he wouldn't rule out Italy needing to get some emergency funding from either the ESM or the EFSF.

And speaking of those emergency funds, it's becoming a major question as to if or when that money will become available. The German courts are set to rule on whether the ESM is even constitutional by German law and they're now saying it could take as much as three months to get a ruling. Without this ruling, the ESM is dead in the water and in today's markets Spain could have some serious trouble hanging on for three more months. It also brings the issue up again that the Germans could essentially call the whole thing off, which comes at a time when Merkel and other eurosceptics in the country seem to be getting strong support from the public.

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