Battle Cry on Wall Street
Bad data, what bad data? PMI’s weak? Who cares. Consumer confidence falling? That doesn’t matter. Housing still a problem? Come on, that’s clearly old news. Twenty-eight out of thirty-five economic reports in May weaker than expected (yes, I counted)? Don’t look – just keep your eyes on the prize (i.e. the current “trade” on Wall Street) and walk on by.
This appears to be the battle cry on Wall Street at the present time as traders made the obvious choice on Tuesday to simply ignore any and all bad news on the economic front. Yes, I am completely aware of the fact that Greece is an important issue. And yes, there was a solidly positive development on that front yesterday as the word “default” appears to have been taken off the table (well, for now anyway). But, am I the only one that finds it just a little strange that the rally in the Euro, as well as the subsequent decline in the dollar, trumped some pretty crummy data here at home?
I know that I shouldn’t be surprised as I’ve been yammering on about the “correlation trade” for what seems like eons now. But seriously folks, the data we’ve been seeing lately hasn’t been good. And to be sure, the data hasn’t been horrific either. But this is Wall Street we’re talking about here and on the street of dreams, discounting the future is generally the primary game that is played.
So from where I sit, we have a few ways to look at Tuesday’s terrific rally. Option A would be to assume that after hitting a peak on April 29th, the ensuing month-long consolidation has been sufficient to discount the fact that the U.S. economy has clearly hit another “soft patch” as Ben Bernanke likes to call them. Those that find themselves in this camp like to suggest that the current batch of weak data is temporary and that growth will pick up again in the fall.
The second way to view yesterday’s fun in the summer sun is to assume the situation in Greece has captured investors’ complete attention. Word that the Germans would back a new bailout plan (the Greeks failed to meet the requirements for continuing the current bailout) in order to meet the country’s funding shortfall for 2012 and 2013 and that there would be no official talk of restructuring, reprofiling, or rescheduling of the current debt allowed those fearing another credit contagion meltdown to breathe a sigh of relief.
And finally, there is the idea that nothing matters on Wall Street (until it does, of course). So, with the computers busy pumping out trades based on the direction of the Euro and the dollar, the thinking is to just walk on by the current data and keep on keepin’ on. Frankly, I’m not sure how long this can last. However, walking on by seems to be the plan du jour.
Turning to this morning… Somebody somewhere may be sitting up and taking notice of the weak economic data from around the globe as the futures have turned from green to red on a batch of weaker than expected data.
On the Economic front… First, China’s PMI came in at 52.0, which while above the consensus of 51.6 and still in the expansion zone, was the weakest reading in 10 months. Next, the European PMI’s were below the preliminary May reading, lending credence to the global slowdown theory.
Here at home, Challenger reported 37,135 job cuts planned in May, which was modestly above expectations.
Continuing on the Jobs front, ADP reported that private sector jobs rose by just 38K jobs during the month of May, which was well below the consensus expectations for a gain of about 179K.
We will also get reports on Construction Spending and the important ISM Manufacturing Index at 10:00 am.
David Moenning
Editor: The Daily Decision
