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Macro View

Sheraz Mian

Will Good Economic News Continue or Falter?

IM BMY

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Better-than-expected manufacturing sector data out of China and Europe should help stocks sustain the positive momentum from Friday’s Europe-inspired gains, at least at the start of today’s trading action. But the gains may not have much staying power should domestic data, particularly the June Manufacturing ISM reading, turn out to be disappointing.

Spain’s spectacular victory over Italy in Sunday’s Euro Cup final may have established the country as the undisputed king of Soccer, but that is no help to the country’s fiscal woes. What will help the country instead will be positive follow-through from Friday’s Euro-zone announcements. Yields on Spanish (and Italian) government bonds are down again today, building on the new emerging trend from Friday.

We will have to wait and see whether this trend will remain in place over the coming days and weeks, but some optimism over the Friday announcement is definitely warranted.

Whether the Euro-zone crisis is the cause of the ongoing global economic slowdown or not, it is nevertheless a net drag on the growth outlook. Today’s PMI readings confirm the impact of the debt crisis on the region’s economy and its impact on China through the trade channel. China’s PMI reading from over the weekend, while better than expected, showed the sharp deceleration in the country’s export machine.

The U.S. economy has been showing a lot more resilience in the face of these headwinds, but the expectations for today’s June Manufacturing ISM report is to show a pullback from last month’s level. We have a number of other major economic reports on the docket this holiday-shortened week as well, but the focus will be on the labor market with the June non-farm payroll report coming out on Friday.

The expectation is for job gains of close to 100K in June, but we will have to wait until Friday to find out if even this lowered expectation can be met.  

In corporate news, Bristol-Myers Squibb (BMY - Analyst Report) is acquiring diabetes drug maker Amylin Pharmaceutical (AMLN) for $5.3 billion in cash. In other deals, Ingram Micro (IM - Analyst Report) is acquiring the wireless equipment maker Brightpoint (CELL) for $622 million.

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