Tuesday, June 5, 2012
Investors will be looking for more color on the U.S. economic outlook from today’s Non-anufacturing ISM report coming out a little later, with expectations of a roughly flat reading from the preceding month’s level. Growth questions have taken center stage following the disappointing jobs report last week.
Just like the last two years, the U.S. economy is entering the summer months with a lot less momentum than many thought it had. The Federal Reserve came to the market’s rescue the last two years and expectations are growing again that they will do something similar this time around as well. Many are hoping that the Bernanke Congressional testimony this week and the FOMC meeting later this month will provide some clues in that direction.
But as always, Europe is the more immediate issue for the market, with Spain slowly inching towards the fate of Greece, Ireland, and Portugal. The immediate issue on the Spanish front is the country’s banking sector, which urgently needs to get fresh capital injections. But with yields on Spanish government bonds slowly reaching the 7% level, the country’s capital market access is hardly unfettered.
The Spanish government would like the European Central Bank (:ECB) or the Euro-zone bailout fund to directly recapitalize its banking sector, but existing rules prohibit that. There is a lot of talk of creating Euro-zone wide banking union and an FDIC type arrangement to backstop the region’s banks, but nothing concrete has materialized yet. It will be interesting if today’s Teleconference among the Group of seven (G-7) finance ministers and central bank heads can make any headway on this front. We also have an ECB meeting scheduled for Wednesday.
In corporate news, Starbucks (SBUX) shares will be in the spotlight after the company announced the purchase of San Francisco based privately-owned bakery operator for $100 million, with plans to serve the bakery’s products in its stores. Dollar General’s (DG) announcement of a secondary stock offering of 25 million shares will likely offset the company’s strong quarterly results and positive guidance for the year.
Director of Research