EU Makes a Move and Markets Move Up - Tim Bellamy (07/01/12)
The big news of the week caused a big upward movement in equity values. Despite economic announcements pointing toward a further slowdown at home and abroad, it was the announcement by EU leaders of an agreement to allow member countries to relax harsh austerity measures that flavored market moves.
As Cyprus sought a bailout (its requirement lifted from €4 billion last week to a possible €6 billion), Eurozone leaders were meeting for the nineteenth time since the crisis started in attempts to find a solution. In that time, Ireland, Greece, Portugal, and now Spain (with its bank bailouts) have all received cash from the center. One of the caveats on that bailout money has been adherence to strict austerity measures. But not any more: though details have yet to be agreed, what the leaders of Europe have agreed is that, in this tough economic environment, austerity does not work. A relaxation of such measures, together with direct bank recapitalization and €120 billion injected into infrastructure and growth promotion, will be the way forward for the region.
This announcement overshadowed falling German retail sales (where a 0.3% fall in May indicates the German consumer is catching up with the wider European mood), Italian retail sales falling an alarming 6.8% over the year to April, and a more generalized decline in business confidence across the region.
Slowing European demand has filtered through to Japan, where a drop of 11% in auto production was the key component in a fall of 3.1% in industrial production in May.
The US Department of Commerce confirmed the United States economy grew by 1.9% annualized last quarter, though consumer confidence, as measured by the Conference Board index, fell to a five month low. Underlining this mood change, consumer-spending data showed spending unchanged from April to May. Weekly initial jobless claims eased slightly this week, and on a more positive note, and the Standard & Poor’s/ Case Shiller 20 city home price index rose 1.3% between March and April, though it was still 1.9% lower than a year earlier.
On the corporate front, News Corporation (NASDAQ: NWSA) has announced it is to split its operations into two businesses, publishing and general entertainment, as it seeks to distance the bulk of its business from the damaging UK phone hacking debacle amongst its newspaper issues.
Research in Motion (NASDAQ: RIMM), the maker of the Blackberry, announced a larger than expected first quarter loss. Shares, which have fallen from $70 less than to years ago, crashed after the announcement, ending the week at just $7.39.
The Dow Jones Industrial Index put on 3%, at 12880.09, while the S&P 500 increased by a more modest 2%, closing the week at 1362.16. The Nasdaq lagged its cousins, ending the week at 2615.72, a gain of just 1.17%.
This Week’s Economic Releases
Monday 2nd July
PMI Manufactuing Index numbers are released across the Eurozone, as is unemployment data. Analyst expect a weakening on both counts.
Tueasday 3rd July
Factory Orders for May will give an indication of the state of the economy in the United States.
Wednesday 4th July
EU GDP data is revised for the first quarter. In the United States, jobless claims will be released.
Friday 6th July
German monthly industrial production numbers may show a slowing of economic activity as it comes to terms with a broad based weak Europe.
This Week’s Major Company Results Due:
In a week punctuated by Independence Day celebrations, there are no major companies known to be reporting in the United States.
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