Stocks today are expected to continue the positive momentum from last week, pushing the major indexes even deeper into record territory. Positive data out of Germany and more follow-through from China’s surprise rate-cut last week should help keep sentiment high. There is no shortage of U.S. data in this holiday-shortened week, with the calendar for the next two days full of market-moving data points.
Germany’s primary business confidence survey for November came in better than expected, likely indicating that the German economic picture may have started to stabilize. The Ifo Institute’s November business confidence survey came in at 104.7 vs. estimates of 103 and the October reading of 103.2, a potential trend reversal in this key metric after six months of back-to-back declines. This follows last week’s better-than-expected ZEW survey for November, which rebounded strongly from that survey’s lowest level in two years. Please note that the Ifo Institute survey tracks business confidence while the ZEW version samples financial professionals like analyst and economists.
The German economy suffered during the spring/summer months, with geopolitical tensions over Ukraine starting to weigh on the country’s prospects. The country’s economy modestly shrank in the second quarter and was barely in the positive in Q3. Growth isn’t expected to materially improve in the December quarter, but these sentiment measures show that the outlook may have started to improve already.
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This is a net positive for the European outlook as Germany accounts for almost a third of the Euro-zone output. Hard to tell, however, how this will play out in the market’s ongoing expectation for greater monetary stimulus from the European Central Bank. We know that Germany has been a holdout in letting the ECB go all the way in meeting investor expectations. Markets liked the ECB President’s comments late last week, but it isn’t clear if Germany would be any more favorably inclined to go with his monetary policy plans if the outlook for their country has started looking up already.
With respect to U.S. data, there is not much on the earnings front, though Hewlett-Packard (HPQ) and Tiffany (TIF) will be reporting results on Tuesday. We have plenty of economic data packed into Tuesday and Wednesday as well, with the second look at Q3 GDP, October Durable Goods and October Personal Income & Spending as the major ones. The GDP report is expected to show a modest negative revision, but that will likely be more than offset by strong consumer and business spending data. Overall, the outlook for the U.S. economy has remained fairly positive and this week’s data is expected to reconfirm that.
