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Economic Highlights

Positive GDP data out of Europe, tepid wholesale inflation numbers on the home front and the earnings miss from Macy’s (M - Analyst Report) provide the backdrop for another day of low-volume summer trading session today. The end to Euro-zone recession was largely expected, but any celebration of that event is justifiably tempered by the region’s still enormous problems. After all, the size of the region’s economy is still below the 2008 level.

The surprise this morning is the top- and bottom-line miss at Macy’s and the underwhelming guidance for the second half of the year. The retailer has been a beneficiary of the travails at rival J.C. Penney (JCP - Analyst Report), but blamed seasonality and pressures on the consumer for its problems. The start of back-to-school has apparently not been very encouraging as pre-announcements from teen retailers like Aeropostale (ARO - Snapshot Report) and American Eagle Outfitters (AEO - Analyst Report) shows. And contrary to expectations, the high end of the market isn’t doing much better either as today’s Macy’s and the earlier Coach (COH - Analyst Report) report showed. The momentum at Michael Kors (KORS - Analyst Report) is likely a testament to that company’s better merchandising and the power of accessories than anything else.

This morning’s positive Q2 GDP reading from the Euro-zone follows six quarters of negative growth prints. Importantly, while the German strength wasn’t unexpected, the positive reports out of France and Portugal came out as pleasant surprises. Today’s data likely has no implications for ECB monetary policy, which is expected to remain accommodative for an extended period.

The end to Euro-zone recession doesn’t mean a new engine of growth for the global economy, but it is a net positive for investment sentiment worldwide. That said, Europe still has a long way to go as many of the structural issues that have been at the core of the currency union’s recent problems still remain unresolved. The positive German growth numbers no doubt will give Angela Merkel a timely boost in her bid for reelection in next month’s polls. 


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