U.S. stocks staged another late rally on Thursday after the Italian prime minister offered encouraging words about Greece remaining in the euro zone and the possibility of jointly-issued euro bonds. The Dow and the S&P closed with modest gains, while the NASDAQ ended slightly in the red. Stocks had traded in negative territory most of the afternoon but rallied after Mario Monti said in an interview on Italian television that most leaders at Wednesday night’s European Union summit – although not Germany’s – favor issuing eurozone bonds to help support troubled members. He also said Greece is likely to remain in the eurozone. Monti’s comments did nothing for the euro, however, which fell 0.4% to $1.2534 late in the day.
European stock markets recovered about half of what they lost in Wednesday’s rout, but it certainly wasn’t due to the disappointing economic reports that were released Thursday. The Stoxx Europe 600 rose 1% and the CAC 40 rose 1.2%. But the German DAX index rose only 0.5%. That might have been due to the release of the Ifo business climate index for Germany, which fell to 106.9 in May from a previous 109.9. The index had been above 109 in each of the previous three months and is now at its lowest level since November. Other European economic reports were nearly as negative. The Markit PMI composite output index for the eurozone fell to 45.9 in May from 46.7 in April, the steepest rate of decline in nearly three years. Output has now fallen in eight of the past nine months. The index for Germany fell to 49.6 from 50.5 in April, the first drop in six months and only the second time since July 2009. Yet, the 30-year German bund rose in price again, tacking on ½ point to reduce its yield still further to 1.97%, down two basis points.
There were also new concerns about China. According to a report on Bloomberg, China’s biggest banks may fall short of lending targets for the first time in at least seven years due to reduced demand for credit. The European slowdown is reducing demand for Chinese goods. Separately, the HSBC PMI flash estimate for Chinese manufacturing fell to 48.7 in May from 49.3 in April, its seventh consecutive month below 50, which indicates worsening business conditions. Chinese stock prices were mostly in the red Thursday.
U.S. economic reports released Thursday were also on the disappointing side. Durable goods orders for April rose a weak 0.2%, up from March’s 3.7% decline but below the 0.5% increase the Street was expecting. Ex transportation, orders fell an unexpected 0.6% following the 0.8% drop in March, the first back-to-back decline in a year. Forecasts had called for a 0.7% increase. Weekly unemployment claims were basically unchanged at 370,000.
Reports/dates/facts/links worth paying attention to over the next week:
- May 25: University of Michigan consumer sentiment (second reading for May); U.S. bond markets to close at 2 P.M. ET for Memorial Day weekend.
- May 29: S&P/Case-Shiller home price indexes for March; Conference Board consumer confidence index for May.
- May 30: Pending home sales index for April.
- May 31: Q1 GDP first revision; ADP national employment report for May; weekly unemployment claims.
- June 1: Employment situation for May; personal income and outlays for April; motor vehicle sales for May; ISM manufacturing composite index for May.
Copyright © 2012 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.