On 4/27/12, Friday, the European bond market reaction to the Spain downgrade is muted since it was not a surprise. Spain unemployment is over 24%, one in four people do not have a job. The Spanish banks are weak. Samsung Galaxy smartphone outsells Apple’s iPhone in Q1. Samsung is the leader in Smartphone sales. Foxconn, Apple’s production arm, plummets 16% this morning stating that demand is weakening. GDP comes in light at 2.2%. After all the Fed easing, Operation Twist, and the LTRO’s from the ECB, a world awash in liquidity and easy money, the GDP could only muster up a paltry 2.2% is a sad commentary on economic health. Markets remain on a sugar high from AAPL earnings, as well as blowout AMZN earnings, however, ignoring any bad news, and punch higher to finish out the week. Besides, bad news is good news in these bizarre markets since traders are now trained to expect more quantitative easing if the news is bad thereby sending markets higher. The party atmosphere, with euphoric bulls very complacent, continues into the weekend. The SPX closes above 1400 for the first time since early April. The broad indexes are up about 2% on the week with the tech sector moving much higher. This week is dubbed the Apple Rally week. Semiconductors and copper are the two most important sectors to watch right now.
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On 4/30/12, Monday, EOM. S&P downgrades 16 Spanish banks which is not a complete surprise since the banks typically follow the after the sovereign downgrade. Spain GDP is negative for a second quarter in a row which qualifies as a technical recession by definition. In fact, including the zero growth last summer, Spain has been in recession about nine months or more already. Eight Eurozone countries are now in recession. Chicago PMI and Dallas Fed Manufacturing data are weak. Juncker (Germany) says ‘France acts as if they are the only country in the group’. Earnings continue. Markets drift lower but the downside is limited since copper remains buoyant.
On 5/1/12, Tuesday, RA (Australia) surprisingly cuts rates by 50 bips. Many major stock markets are closed for holiday today. May Day protests occur in Europe. The Occupation protests in the States resurface. Juncker announces resignation citing that Merkozy (Merkel and Sarkozy) appear to be making all the decisions between themselves. The ISM Manufacturing Index is much better than expected at 10 AM EST and the equities markets catapult skyward in a strong up move. The Dow Industrials print the highest level, at 13338.66, since 2007. Semiconductors refuse to join the party, however, so markets drift lower and close with only modest gains. The RUT (small caps) closes negative. The SPX closes at 1406 after being up over 1415 at lunch time.
On 5/2/12, Wednesday, Eurozone manufacturing data is weak. The Swiss PMI surprises with an under 50 print indicating contraction. Germany unemployment rate surprisingly climbs to 6.8%. Finance ministers meet in Brussels to discuss finance rules for banks. Global worries increase over a European shock coming at any time. Challenger and ADP provide early reads on employment numbers and the news is not encouraging.
On 5/3/12, Thursday, markets fall on copper and semiconductor weakness, the SPX loses important support at 1394. Keystone’s Inflation-Deflation Indicator signals that the U.S. has just fallen into Disinflation. Commodities continue to drift lower indicating low global demand and a weak global recovery while Treasury yields drift lower towards deflation. Markets sell off and finish the day at the lows.
On 5/4/12, Friday, RBA (Australia) lowers growth and inflation projections which jives with the 50 basis point cut move this week and verifies the commodity weakness. Germany yields are at record lows as money seeks perceived safety. The markets hope for a better Jobs Report than the Good Friday trouble last month but at 115K jobs, well below consensus, markets sell off. The troubling aspect is that the work week hours are flat and the average hourly earnings are flat, thus, companies are handling current work loads fine and do not need to hire workers. The unemployment rate dropped a tick to 8.1% but not due to a healthy economic recovery but quite the opposite—workers simply are no longer counted as unemployed since they are out of work for too long a time, they are dropped off the roles. Following the report, both Labor Secretary Hilda Solis and President Obama tout the success of the Administration leaving most of the country to scratch their heads at the absurdity. Even folks with limited knowledge of economics realize that something is wrong with the economy. The financials collapse and volatility spikes sealing the fate of the markets during the first hour of trading. Oil tumbles lower thru 100, 99 and 98. The AAPL grows rotten losing 2.9% today and 6.3% on the week. The 10-year yield fell to near three-month lows printing in the 1.8%’s. The day ends with the SPX down 22 points or 1.5%, the Dow Industrials down 168 points or 1.3% and Nasdaq down 68 points or 2.3%. The markets experience the worst trading week of the year. For the week, the SPX lost 2.4%, the Dow lost 1.4% and the Nasdaq lost 3.7%. Traders now await the France and Greece election results this weekend.
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On 5/6/12, Sunday, the France runoff election occurs and…… The Greece elections also occur and ……….. Watch the margin of victory, if it occurs as projected, between Hollande and Sarkozy, and if Hollande wins by a healthy margin, equities markets should sell off strongly. If the Hollande win is marginal, by a hair, markets may consider the outcome to be priced into the markets, and drift sideways. If Sarkozy comes on strong in the end and retains his position, the markets should rally strongly. Greece elections are important since the government has to pass spending cuts as per loan agreements and austerity promises.
On 5/7/12, Monday, the markets react to the France and Greece election results with the SPX……. Lots of Fed speak again this week with one or more Fed heads talking each day.
On 5/8/12, Tuesday, the….3-Year Note Auction.
On 5/9/12, Wednesday, the ….10-Year Note Auction. Oil Inventories.
On 5/10/12, Thursday, Chairman Bernanke speaks. Jobless Claims. International Trade. 30-Year Bond Auction.
On 5/11/12, Friday, the…PPI. Consumer Sentiment.
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On 5/15/12, Tuesday, CPI. Retail Sales.
On 5/16/12, Wednesday, Housing Starts and FOMC Minutes.
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