EmailThe stock market is showing surprising resilience. The gains yesterday occurred despite continued worrisome news out of Europe, and S&P futures suggest only a slightly lower open today.
Italian and Spanish bond yields have eased a bit, but nothing to get excited about. The Spanish 10-year yield is at 6.68%. That is down from a high of 6.78% yesterday, but still up sharply from 6.18% on Friday. The Italian 10-year is at 6.12%, down from a spike to 6.29% yesterday. The bond vigilantes are keeping the pressure on both countries.
These rates matter. Italy is running a fiscal surplus, except for a heavy interest rate burden. Higher rates compound fast and the inability to adequately obtain financing is a major impetus for bailouts.
European stock exchanges are fractionally lower except for Spain's, which is up 1%.
US May retail sales fell 0.2%. That was about in line with expectations, but April was revised to -0.2% from +0.1%. Two straight months of declining retail sales is not what recoveries are supposed to be about. Excluding autos May sales were -0.4% after -0.3% in April. The weakness isn't a temporary fluctuation in auto sales.
May core PPI was up 0.2% and sharply lower energy costs pulled the overall PPI to a -1.0%. Lower gas prices are likely to lead to a decline in May CPI when reported tomorrow. Core rates of inflation are running at 1% to 2% and are not a concern.
Second quarter earnings results will start coming out in about three weeks. Estimates have been coming down and the consensus for aggregate S&P 500 companies is now about 4%. That is not particularly inspiring but not bad given current valuations. The concern will be whether growth will continue in the second half of the year. Second quarter real GDP estimates are also coming down, towards 1%. That isn't inspiring either - with no silver lining whatsoever.
Founder and Chairman
