Stocks may not do much in today’s abbreviated trading session as the market closes at 1 PM ET ahead of Independence Day on Wednesday. In economic news, we have the May Factory Orders report coming out a little later, while automakers will be releasing their June sales numbers throughout the day.
No major ‘fireworks’ from the across the pond today either, with Spanish and Italian government bond yields modestly adding to their gains of the last three days following last week’s summit. Expectations remain high that the European Central Bank (ECB) will come through with a rate cut given the recent run of very soft economic readings in the region. Importantly, the expectation is that the ECB now has enough political cover to implement a more accommodative monetary stance.
But it is not just the ECB that the market is looking up to. The market’s response to Monday’s disappointing ISM survey shows that investors will be looking for greater odds of QE from the Fed on signs of fresh economic weakness. The Factory Orders report is not material in that context as it hasn’t been much of a market mover, but the June non-farm payroll report on Friday will be particularly significant.
I would think that if we get a particularly weak jobs report on Friday — say a print of around 50K — the pressure will start building on the Fed to come through. The funny thing is that the Fed doesn’t like to ‘disappoint’ the market and will likely come through with ‘something’ in the days ahead.???
???It is far from clear, however, if any fresh action from the Fed will have any traction in the underlying economy. In fact, there is little evidence to prove that more Fed QE will have any positive impact on economic output, particularly given where interest rates are already. Given the global economic slowdown and the fiscal policy nature of the hurdles facing the economy later this year (fiscal cliff, etc.), one could easily argue that more QE may juice up the market temporarily, but will be largely irrelevant to jobs and the economy.
In corporate news, Microsoft (MSFT) announced taking a $6.2 billion charge to write-off the amount it paid for the Internet advertising company AQuantive, part of the company’s online division. Microsoft’s online division never caught on and has remained a drag on profitability, even as the company has been highlighting some gains lately. Microsoft acquired AQuantive weeks after Google (GOOG) acquired DoubleClick, another online advertising company. The write-down means that the company will be reporting a GAAP loss for the second quarter.
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