Early Market the Epitome of 'Wait & See'

Stocks will remain in a wait-and-see mode as the two-day European summit gets underway in Brussels today. Expectations for something major coming out of the Brussels gathering remain low, but some headlines this morning indicate that Germany may be inching towards a more flexible stance towards the question of shared liabilities than has been the case thus far.

On the home front, this morning’s economic reports didn’t produce any surprises, with the final look at the first quarter GDP coming in as expected and the weekly Jobless Claims data showing no improvement. The long-awaited Supreme Court ruling on the Affordable Care Act ("Obamacare") is expected to come out a little later, while reports of a widening trading loss at J.P. Morgan ( JPM - Analyst Report ) will put the banking giant in an unflattering spotlight.

In an interview with the Wall Street Journal, Wolfgang Schauble, the German Finance Minister, that his country may be willing to stand behind Euro-zone debt liabilities and support short-term measures to alleviate pressures in the bond markets. What they want in return is a mutually agreed roadmap towards centralized budget controls.

The Journal quoted Mr. Schauble as saying “We have to be sure that a common fiscal policy would be irreversible and well coordinated. There will be no jointly guaranteed bonds without a common fiscal policy.”

This is important as it indicates that Germany will be willing to deploy its financial clout behind the Euro-zone before treaty changes that will usher in a fiscal union. As we all know, the problem is in the present, while treaty changes could take years to come through. It is unlikely that the current summit will result in such a ‘common fiscal policy,’ but it is nevertheless a good sign.

On the home front, Initial Jobless Claims dropped by 6K to 386K last week. But since the preceding week’s tally of 387K was revised upwards by 5K, we actually have a much more modest drop. The four-week average, which smooths out the week-to-week volatility, increased by 750 to 386.8K.

The initial claims level has not budged much from the current 380K-plus level for many weeks now, indicating that the June non-farm payroll numbers coming out next week will be along the lines of what we have been seeing in the last three months. This does not bode well for the outlook for consumer spending in the second half of the year.

In corporate news, media report indicate J.P. Morgan’s admission last month of a potentially $2 billion trading loss may have increased to as much as $9 billion. In other news, News Corp’s ( NWSA - Analyst Report ) board has approved the company’s split into two entities – one focused on the group’s entertainment assets while the other housing its publishing and newspaper properties. However, Rupert Murdoch plans to remain in leadership positions in both the firms.

On the earnings front, Family Dollar ( FDO - Analyst Report ) came short of earnings expectations.

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