Encouraging data out of China and a mixed economic reading on the home front provide the backdrop for today’s trading action, with the major indexes appearing on track continue with the Greece-inspired momentum.
Chinese stocks bounced back today after last week’s major sell-off on encouraging economic data from the factory sector (Chinese markets were closed on Monday). The June HSBC PMI survey came in at 49.6 on Tuesday, which is still below the reading of 50 but nevertheless an improvement over May’s 49.2 level.
We see some evidence of this improvement in the industrial production data as well, and there are also some signs of life in the real estate market, with property values in some key urban markets starting to rise again. Hard to tell how sustainable this improving trend will prove to be in the coming days, but on balance it’s reassuring to see the negative trend starting to reverse.
Closer to home, the tone of this morning’s data is at best mixed. This morning’s May Durable Goods report was decidedly weak on the ‘headline’ level, largely due to a weak month for Boeing (BA) – Boeing received 11 orders last month vs. 37 the month before. But the report’s internals – the ex-transportation component as well as the piece that is generally considered a proxy for capital spending trends in the economy (known as non-defense capital goods orders excluding aircraft) largely matched estimates. The prior month’s numbers were revised lower.
This report can be notoriously volatile on a month-to-month basis, but the key takeaway from this and other recent monthly Durable Goods readings is that capital spending trends in the economy continue to be on the weak side. The US economy has no doubt started improving in the current quarter after the weak showing in Q1, with housing, consumers and a number of other areas showing pronounced momentum.
But business spending isn’t showing a commensurate increase, likely reflecting issues in the oil sector and the impact of the strong dollar. Today’s mixed showing and the negative revision to the April readings will likely have a negative effect on Q2 GDP growth estimates.
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