Week in Review: June 29

The markets rallied hard on Friday with the DJIA up 278 points (erasing earlier losses in the week) on news out of Europe of a pact to buttress the banking system. For the week S&P 500 stocks were up +2.0% while the European Stoxx 50 was +3.5% (including a +1% gain in the euro). The 10 year Treasury was down 3 bp and ended the week at 1.65%.

The EU summit in Brussels: the peripheral countries are screaming Armageddon while Germany's Merkel says "over my dead body" to the idea of Eurobonds jointly guaranteed by all nations of the Eurozone. She noted that not even the German federal government and the regional state administrations had mutual liability for their debt, and that neither the US nor Canada did either. Still, initial indications are that leaders have agreed on a TARP-like plan to recapitalize the European banking system directly and to a single banking supervisor under the ECB. Looks promising but there have been so many false starts...

Q2 earnings season is just around the corner. Early indications suggest disappointment.

This tidbit from the FT: Microsoft's sales were 60% higher than Apple's three years ago; now Apple's sales are 125% higher than Microsoft's. This nugget highlights the speed of change in technology.

The NY Times: "For most Europeans, almost nothing is more prized than their four to six weeks of guaranteed annual vacation leave. But it was not clear just how sacrosanct that time off was until Thursday, when Europe's highest court ruled that workers who happened to get sick on vacation were legally entitled to take another vacation." This explains why Europe remains uncompetitive.

Data last week: New home sales rose to a surprising 369,000 pace in May from 343,000 in April. Year-over-year home sales rose +19.8%. Consumer confidence declined to 62.0 from 64.4 in May, the lowest level since January. 1Q real GDP growth stayed at +1.9% upon revision. Durable goods orders jumped +1.1% in May, more than expected. But the three month rate of change was -2.9%. Stone McCarthy notes this is consistent with recent weakness in the regional manufacturing surveys. Personal income in May rose +0.2% (as expected), but consumer spending was unchanged (weaker than expectations and failing to increase for the first time in 6 months). It suggests sluggish growth.

Data this week: ISM manufacturing index and car sales, but watch for the employment numbers on Friday - consensus is only 95,000 new jobs and an unchanged 8.2% unemployment rate. The previous 3-month average job growth was +96,000/month and the 6-month average was +176,000/month. Overseas, the ECB meets this Thursday and will likely ease policy.

Have a wonderful 4th of July everyone. We will be glued to the TV to see if Joey Chestnut can do it again! Last year he downed 62 hot dogs in 10 minutes to win his fifth straight hog dog eating contest on Coney Island. And don't forget the traditional doubleheader between the Pilots and Bucs here at Mulcahy. (It is on Tuesday night, strangely enough!)