Jul 9, 201208:00 AMBlog: Alaska's Eye on Wall Street
Week in Review: July 6
Despite easing moves from the BoE, ECB, and China last week, the equity markets worried over lackluster job growth in the U.S. and the evolving Libor scandal in Great Britain. S&P 500 stocks lost -0.5% in a holiday shortened week. Europe's Stoxx 50 lost -4.1%, mainly owing to a sharp -3% decline in the euro to $1.22 (a two year low). Oil ended the week about where it began with WTI at $84, but not before touching $87.50 mid-week. The 10 year U.S. Treasury settled at 1.55%.
Economists were caught by surprise by data indicating that U.S. manufacturing activity in June declined for the first time in three years. The ISM said its manufacturing index fell to 49.7 in June (anything below 50 represents contraction). ISI: History tells us that 49.7 is consistent with +1.6% real GDP growth.
In the US, payroll employment rose a modest 80,000 in June. The unemployment rate remained at 8.2%. Weak and disappointing; especially when compared to the 226,000 per month average job gain in Q1. Meanwhile unemployment climbed to 11.1% in the Eurozone, the highest level since the euro was launched in 1999.
ISI: Eurozone GDP likely to decline -1.5%. Despite encouraging EU Summit results, continued financial strains and the decline in earnings remain significant headwinds for Eurozone equities. Employment data in the U.S. suggest +2% GDP growth or less for Q2 - sluggish.
Car sales were unexpectedly strong. The annual selling rate was a seasonally adjusted 14.1 million in June. Sales over the first six months of the year are up +14.8% versus last year. Falling gas prices have helped, but there is a real need by consumers to replace older vehicles. Sales were postponed owing to the recession. GM/Ford note that sales in the U.S. are needed to offset the increasingly worse results for their European operations.
Libor-gate strikes the banking system. What did they know and when did they know it? Bob Diamond, has fallen on his sword and lost his CEO job at Barclays bank over the evolving libor scandal. It appears that Barclays (and other banks - names soon to follow) manipulated the overnight Libor rate, which is used as the benchmark charged by banks to lend to other banks and customers. This has the makings of a very big scandal.
The more important numbers next week will be consumer confidence (modest improvement expected) and PPI inflation (likely to decline for the 3rd straight month) out on Friday. On Wednesday, the Fed will release its minutes from the last FOMC meeting.
ALCOA, traditionally the first big company to report second quarter earnings, will kick things off this Monday. The calendar will remain sparse until Friday when JPMorgan and Wells Fargo report.
The Alaska Baseball League season is half way finished and it's a dogfight for first place with several teams in the hunt. Kevin Swick (from USC) plays for the Pilots and is a summer intern here at APCM. He has seen several extra innings games last until midnight, but still manages to get in to work at 6AM!