Headlines about Europe have been the primary driver of this market lately, making it difficult to find enduring trends in market action. Stocks start the day in one direction, but would shift course during the day to end in a different direction.
This morning’s headlines are unsurprisingly on the negative side again, with unfavorable sentiment on Spain and Italy showing up in rising bond yields. Italy’s auction today of short-term treasury paper received weak demand and higher yield relative to month-ago auction. The clouds over Spain and Italy are unlikely to lift before the Greek vote this Sunday and the crucial Euro-zone summit meeting later this month.
While Europe is providing all the market-moving headlines, we have news flow on the home front as well today with a soft May Retail Sales reading and a benign looking wholesale inflation report. Market participants have lately been evaluating domestic economic data from one key perspective – whether the data increases the odds of further quantitative easing from the Fed or not. Looked at from that perspective, this morning’s weak Retail Sales report and the absence of any inflationary pressures in the PPI report will be considered favorable.
This was the second consecutive month of declining Retail Sales, though the April reading was further revised down. The measure was weaker still after excluding automobile and gasoline sales, which can cause unusual swings in this non inflation adjusted measure of consumer spending. The Retail Sales report is admittedly not a perfect proxy for ‘real’ consumer spending since this non-inflation adjusted measure only includes 'goods' sales at retail establishments and leaves out the much larger consumer outlays on 'services'. The anemic jobs growth of the last few months is likely a contributor to this soft spending pattern and many expect the Fed to play its part by announcing additional support in next week’s FOMC meeting. The absence of inflation, as today’s May PPI report shows, will likely further strengthen those expectations.
Business Inventories are scheduled for release today at 10:00 AM EST and are expected to increase by 0.3% after increasing by 0.3% in March.
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