Despite Thursday’s advance, markets remain wary of the global economic outlook this morning. Chinese export data and a rate hike from South Korea added to the market’s angst after several weeks of disappointing U.S. data and little progress in getting Greece out of the headlines. Key overseas equity indexes were mostly lower, with the exception of Japan. European markets did pare losses, however, after the Bundesbank raised its forecast for German growth. The broad commodities indexes are giving back yesterday’s gains, with only natural gas, cocoa and sugar higher this morning. Crude is down nearly $2 after the Saudis increased production, while a stronger dollar and Chinese growth concerns are weighing on metal prices.
Looking back at Thursday, stocks faded late in the day but still ended higher, breaking a six day losing streak. The data was mildly encouraging, notably better U.S. trade data, but gains in the face of higher jobless claims and a profit warning from a large technology player suggested bargain hunters were simply determined to step in. Materials topped the sector rankings, led by fertilizer stocks which rose after the USDA lowered monthly supply forecasts for corn. Energy also enjoyed solid gains as U.S. crude approached $102, as did Financials on reports that the Consumer Financial Protection Bureau may end up with a more benign leader than Elizabeth Warren. Rising interest rates dragged down equity income sectors. REITS and Telecom moved lower while Utilities ended flat.
Around our financial planning firm this morning, we were discussing three items that we thought would be of particular interest to our readers:
- Next week is a busy one for economic data in the United States. June data on manufacturing conditions in New York and Philadelphia highlight next week’s economic data calendar, which also includes reports on May inflation (PPI, CPI), retail sales, housing starts, leading indicators and industrial production. On balance, the data are likely to show that growth continued to decelerate in May versus April as a result of the earthquake, late Easter and poor weather. The consensus forecasts for the June data all suggest that the market is expecting a reacceleration in activity in June, but it may not become evident in the data until July.
- China’s import and export data for May provide a “look-through” to the progress of Japan’s recovery. China’s trade surplus widened in May, but the $1.5 billion increase fell far short of expectations. The disappointment came mainly on the import side, as imports surged to a 28% year-over-year gain in May, from 22% in April. China imports from Japan in May were 8% higher than a year ago, a sharp acceleration from the 4% year-over-year gain in April. However, China’s exports to Japan slowed in May versus April, and remain well below pre-quake levels. China’s exports can also serve as a proxy for global trade and economic growth. China’s exports hit another all-time high in May 2011, and are now 16% above their pre-recession peak. The 30% year-over-year growth in China’s exports in recent months is in line with the pace of exports seen during the 2002-2007 global economic recovery.
- The World Agriculture Supply and Demand Estimates (WASDE) report came out yesterday. Although the planting season is not yet over, the report stated that inventories were mostly lower with the exception of sugar which rose slightly and cotton which was flat. As flooding in the U.S. and droughts in Europe continue, it appears that inventories will continue to fall and future crop yields will further disappoint. All of this suggests more upward pressure on agriculture prices.
As always, email me here with your questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
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