What would you expect China to say about its European debt holdings? Would you anticipate the major Asian lender might put its borrowers in worse position, which would raise the chances of default, by admitting to rumors that it was considering reducing its European debt interests? Well, it was supposedly a Chinese statement of confidence in European debt that lifted stocks Thursday, and so you are banking on false hopes mister market. That's because what China say, China no always do.
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Stocks Rally on Chinese Lip Service
Stocks rallied globally Thursday and into Friday morning in Asia, reportedly on Chinese lip service regarding the country's confidence in its European borrowers. Stocks moved higher in Europe, before US stocks solidified the global deal. Major markets in Europe rallied more than 3%, and the Dow Jones Industrials gained 2.85%. However, China's actions may not perfectly match its lip service. I instead point to Europe's effort to protect its financial system from "too big to fail problems" as the catalyst for the market gains of the past two days. We wrote about this subject in our article "EU Fund for Financial Institutions Helpful." One thing is certain, it was not likely economic data that lifted stocks, since Thursday's reports were soft in our view.
Weekly Jobless Claims
Weekly Jobless Claims declined slightly in the period ended May 22, however, while at 460K, were still unbearable. To make matters worse, the prior week's count was revised 4K higher, to 474K. We reiterate that things are just not getting better for the labor market and it's hard to ignore at this point. This week's measure was 10K higher than economists had forecast (Bloomberg). The four-week moving average moved 2,250 higher, to 456,500. The insured unemployment rate stuck at 3.6%. I see not an ounce of good news in the report, and so it did not likely contribute to Thursday's recovery.
Some Data of Interest
The highest insured unemployment rates in the week ending May 8 were in Puerto Rico (6.2 percent), Alaska (5.9), Oregon (5.4), Nevada (4.9), California (4.8), Pennsylvania (4.7), Wisconsin (4.5), North Carolina (4.4), Montana (4.3), and Connecticut (4.2).
The largest increases in initial claims for the week ending May 15 were in Tennessee (+3,041), Missouri (+2,369), Mississippi (+1,697), Illinois (+1,154), and Arkansas (+851), while the largest decreases were in California (-2,161), Michigan (-2,133), Washington (-1,968), Florida (-1,480), and Oregon (-1,200).
Q1 GDP Revision
When last reported on April 30, first quarter GDP came in at +3.2%, down from Q4's growth rate of 5.6%. In this "preliminary" report, following the "advance" report, GDP was revised lower to +3.0%, versus economists' expectations for an upward revision to 3.5%. Thus, GDP also can not take credit for Thursday's stock surge.
The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, a larger decrease in state and local government spending, and a deceleration in nonresidential fixed investment that were partly offset by an acceleration in PCE and a deceleration in imports.
The Price Index rose 1.1% in the first quarter, excluding food and energy, versus the 0.9% increase expected for Q1 and seen in Q4. Corporate Profits rose 42.7% on a year-to-year basis, versus the 51.8% increase in Q4.
Natural Gas Inventory
For the week ended May 21, the EIA reported natural gas stocks increased by 104 Bcf. Inventory stood 318 Bcf above the five-year average for this time of year, placing it also above the upper limit of the average range.
International & DC News Drivers
Tim Geithner consulted with the Europeans on the debt crisis. Meanwhile, back home, a House Oversight panel hammered Johnson & Johnson's (NYSE: JNJ) on its childrens' Tylenol recall. The issue has been referred to the FDA's crime division.
Corporate News Drivers
Golden Network's High-Frequency Trading Forum took place in New York. Investor meetings took place at Newmont Mining (NYSE: NEM) and Heinz (NYSE: HNZ). Edward's Lifesciences (NYSE: EW) split 2 for 1. Corporate EPS releases arrived from Costco (Nasdaq: COST), Alpha Bank (ATHENS: ALPHA.AT), ATE Bank (ATHENS: ATE.AT), Big Lots (NYSE: BIG), Bio-Reference Labs (Nasdaq: BRLI), Blue Coat Systems (Nasdaq: BCSI), Borders Group (NYSE: BGP), Canadian Imperial Bank of Commerce (NYSE: CM), Columbus McKinnon (Nasdaq: CMCO), Concord Medical Services (NYSE: CCM), Conn's (Nasdaq: CONN), dELiA's Inc. (Nasdaq: DLIA), Diamond Foods (Nasdaq: DMND), Ditech Networks (Nasdaq: DITC), Esterline Tech (NYSE: ESL), FreeSeas (Nasdaq: FREE), Genesco (NYSE: GCO), GigaMedia (Nasdaq: GIGM), Guess (NYSE: GES), H.H. Gregg Appliances (NYSE: HGG), J. Crew (NYSE: JCG), Jackson Hewitt Tax Service (NYSE: JTX), Jade Art (Nasdaq: JADA), Magma Design Automation (Nasdaq: LAVA), Marfin Popular Bank (Frankfurt: JXG.F), Monro Muffler (Nasdaq: MNRO), Movado (NYSE: MOV), Navios Maritime (NYSE: NM), Ninetowns Internet Tech (Nasdaq: NINE), Novell (Nasdaq: NOVL), Omnivision Technologies (Nasdaq: OVTI), QAD (Nasdaq: QADI), Quanex Building Products (NYSE: NX), REX Stores (NYSE: RSC), Royal Bank of Canada (NYSE: RY), SeaChange Int'l (Nasdaq: SEAC), Signet Jewelers (NYSE: SIG), Tate & Lyle (OTC: TATYY), Toronto Dominion Bank (NYSE: TD), Terremark Worldwide (Nasdaq: TMRK), Uroplasty (AMEX: UPI), Versant (Nasdaq: VSNT), XETA Tech (Nasdaq: XETA) and Zarlink Semi (OTC: ZARLF.PK).
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