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Catch up – news from Wall Street

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by Peter Switzer

For public holiday revellers, there have been two days of Wall Street we need to review to get a feel for what might happen today on our markets.

Friday’s Dow Jones close was a 38.54 rise to 10,211.07 but it lost 20.18 points this morning and you can blame bad news flow and a couple of pests.

Pests? Greece and Moody’s were the culprits that investors used to kill off early rallies. Of course, Greece and its citizens' unwillingness to cop the overdue austerity program has been greeted by the debt ratings agency — Moody’s — downgrading their debt to junk status.

So in calling the ‘debt detective’ a pest, I’m in effect shooting the messenger but this messenger was an accessory before the fact in the whole sub-prime mess failing to identify the risky assets that were built on these mortgages. Now all US debt ratings agencies have suffered a loss of reputation and so it’s galling when they ruin a good rally.

However, I have to admit if they ruined the good rallies of 2006 and 2007 with some more objective news on credit default swaps and the like, we might have avoided the GFC.

The S&P 500 was down close to two points and the Nasdaq was basically flat and so it was not a disastrous response to the Greek news.

Weekend economic news

Let’s focus on the news over the weekend our time.

The best news was a US consumer sentiment reading from the Thomson Reuters/University of Michigan Surveys of Consumer, which offset weaker than expected retail sales.

Last week was good for bulls with the Dow up 2.81 per cent for the week, while the S&P 500 was up 2.51 per cent. Locally, the S&P/ASX 200 was up 1.3 per cent, so we are still lagging and that’s despite the fact that the China growth story remains alive and kicking.

Chinese exports were up 48.5 per cent on an annualised basis and we also learnt that inflation was a tad higher than expected. That’s good for growth now but could bring forth some interest rate rises to slow the growth and inflation down.

On the US consumer sentiment number, the measure went from 73.6 to 75.5 and that was best reading since January 2008. Meanwhile retail sales fell 1.2 per cent in May and this was the biggest fall in eight months. That said, analysts say the headline number was offset by some good overall trends in retail.

Finally, business inventories rose 0.4 per cent in April. A 0.5 per cent rise was tipped but that’s still pretty close to expectations.

For those wondering what is the latest view on the US economic recovery, the Minneapolis Fed President Narayana Kocherlakota was quoted as saying: "The economy is on the way back to recovery and I am optimistic, especially regarding growth prospects and the impact of inflation". (CNBC)

The week ahead

What’s ahead this week?

In the USA

15 June: Empire State survey; credit card default rates
16 June: Housing starts; industrial production
17 June: CPI; weekly jobless claims; leading indicators; Philadelphia Fed survey
18 June: Quadruple witching.

In Australia

15 June: Lending finance, RBA minutes, credit card lending
16 June: Dwelling starts.

The good news

On the US front, I look forward to FedEx’s company earnings news on Wednesday as this company is a great guide for the overall US economy.

Generally, I sense we’re getting more relaxed with the European problems, as evidenced by the market’s reaction today. Of course, much of the world is distracted by the Soccer World Cup in South Africa, but let’s hope the news flow tends towards the positive, unlike the poor old Socceroos’ result over the weekend.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, June 15, 2010