From Rodrigo Serrano of RCS Investments [13]
Weekly Bull/Bear Recap: Jul. 2-6, 2012
Bull
+ The U.S. economy continues to grow; recent data is only a pause that refreshens.
- The consumer is resilient in the face of slowing economic conditions abroad. The National Restaurant Association reports [14] that performance and expectations for May are near 2006 levels. Meanwhile, auto sales rebound [15], surprising most analysts.
- U.S. Rail Traffic [16] continues to show an expanding economy and two key sectors of the economy, autos [17] and housing, are poised to lead a re-acceleration of growth.
- Construction spending for May surges the most in 5 months [18], signaling that activity has finally bottomed and will be a job creator [19] in the quarters to come.
- Speaking of job creation, ADP reports a stronger pace [20]. Meanwhile, jobless claims fall under 380K for the first time since mid-May, planned job cuts plunge to a 13-month low [21], and the Monster Employment shows growing labor demand [22]. While the BLS job report is below expectations, wage growth firms up and the average workweek ticks higher.
+ Gas prices have plunged over the past 3 months, while ISM Prices-Paid subcomponents are in deep contraction territory. Conditions are ripe for the Fed to initiate another QE and confirm that central banks are coordinating policy [23], causing a turn in sentiment and a powerful rally.
+ Meanwhile, China has plenty of ammunition [24] for additional stimulus [25]. However, the economy is stabilizing on its own as per China’s non-manufacturing index, which rises to a 3-month high of 56.7. There will be no hardlanding in China [26]. Monetary officials are loosening monetary policy, setting the stage for a strengthening recovery over the 2nd half of the year.
+ German factory orders come in better than expected [27] and is good news for the exporting powerhouse. Global growth has weakened but will stabilize soon.
Bear
- Investors are giving the thumbs down [28] towards solutions presented at the latest European summit . Spanish yields [29] are back within striking distance of 7%, while Italian bonds are above 6% [30]. Core-countries are reneging [31] on providing unconditional help to the periphery. A crisis of confidence is set to fragment the Eurozone. We are at most weeks away from a negative worldwide financial shock, leading to a global recession.
- Merkel is under increasing pressure from officials in her native Germany. The CSU [32], the Constitutional Court [33], and now the President of the Bundesbank [34] are making it clear that political will in Germany has been exhausted. A referendum must take place. Meanwhile, the Greek government is set to collapse again soon [35]. The ECB cut interest rates, but it isn’t enough [36] for the QE-addicted market. Finland says the “unthinkable.” [37]
- U.S. economic data continues to point to increasing sluggishness and ultimately a recession. The ISM June’s manufacturing index turns in its first contraction print [38] in 35 months; important leading indicators — New Orders and Backlogs — are in solid negative territory. While ADP shows an improved labor market, the BLS has a different account [39] of its health. Weekly [40] consumer metrics [41] are showing significant weakness and outlooks in the retail sector are getting slashed [42].
- Global economic data continues to disappoint. Euro-area unemployment climbs to a record [43] 11.1% in May. The bulls were wrong, Germany did not decouple from the rest of Europe, as May’s PMI fell to a 3-year low [44] and weighted on a gloomy Eurozone PMI [45]. Slumping New-Orders [46] for most PMIs signal global recession has arrived. Globally coordinated interest-rate cuts smell of panic.
- “But trust is shattered at the very top of the financial system. [47]”