Monday, May 14, 2012
With nothing major on the domestic economic calendar today and the earnings season winding down, the market’s focus will remain on the unsettling developments in Europe, where the Greek political deadlock is increasing the odds that the country may not have a future within the common currency union.
The resulting anxieties are pushing German and U.S. Treasury yields lower and putting an uncomfortable spotlight on the Italian and Spanish government bond markets. Yields on Italian and Spanish government bonds have been trending up in recent days, though they remain below levels that could restrict the countries’ access to capital. Spain’s position is particularly fragile given the country’s hobbled banking sector. The country’s banking regulator asked financial institutions late last week to set aside a combined €30 billion in additional loan-loss reserves. But many, including Moody’s, the rating agency, believe that they will remain vulnerable even after fully complying with the government’s provisioning requirement.
We don’t have much on the economic calendar today, but we do have a number of market-moving economic reports on the docket the rest of this week. These include readings on retail sales, inflation, housing, and the manufacturing sector. Of particular significance would be the April Retail Sales report coming out Tuesday morning and the April Housing Starts numbers Wednesday morning.
Retail Sales are expected to show a flat reading following the very strong gains in March, but would nevertheless be consistent with a roughly 2.5% gain in annualized personal consumer expenditures (or consumer spending) in second quarter GDP. Please recall that PCE in the first quarter increased at a 2.9% annualized pace. On the Housing Starts front, the expectation is for the first meaningful increase since January, with Starts reaching 689K from March’s 654K level. Other major reports this week include CPI, Industrial Production, and the Empire State/Philly Fed regional manufacturing surveys.
The first quarter earnings season is fast winding down, with results from 452 of the S&P 500 already known. Earnings reports have overall been better than expected, with an aggregate earnings growth of 7.9% and 65.5% of companies beating expectations. We have 21 S&P 500 companies on tap to come out with results this week, including a number of bellwether retailers like Wal-Mart (WMT), Target (TGT), Home Depot (HD), and J.C. Penney (JCP). Groupon (GRPN) will report results after the close today.
Director of Research