What’s the Story?

by CC July 10, 2012 9:19 am • Commentary


European markets were broadly higher, with the Stoxx Europe 600 rallying 1%, after euro-zone finance ministers agreed to make €30 billion ($36.94 billion) in aid available for Spain’s banking industry and gave the country an extra year to meet its deficit targets. Spain’s IBEX-35 stock index rallied 1.4% and yields on 10-year Spanish bonds dropped below 6.80%.

Also boosting sentiment, U.K. industrial production jumped 1% between May and April, the biggest monthly increase in over two years, and much better than expectations of a 0.2% decline.

Meanwhile, Asian markets fell after data showing China’s trade surplus widened in June as import growth slowed more than expected. China’s Shanghai Composite slipped 0.3% to a six-month low and Japan’s Nikkei Stock Average lost 0.4% to suffer its fourth consecutive decline.

Crude-oil futures slipped 0.2% to $85.84 a barrel, while gold futures tacked on 0.3% to $1,593.40 an ounce. The U.S. dollar edged higher against the euro but slipped against the yen.

Shares of Alcoa gained 0.6% in premarket trading after the blue-chip aluminum producer reported adjusted earnings and revenue that topped analyst expectations, according to FactSet Research. Because Alcoa is the first Dow component to reveal results, its report is seen as the unofficial kick-off of earnings reporting season.


China’s June trade data on Tuesday stoked anxiety about the strength of domestic demand in the world’s second biggest economy as imports rose at only half the pace expected, signaling a need for Beijing to do more to bolster growth.

Officials singled out the debt crisis in the European Union – China’s biggest trading partner – as key to Beijing’s ability to meet its 10 percent target for trade growth this year, with softening sales to the EU in the first half of 2012 seeing the United States overtake it as China’s top export destination.

Annual import growth of 6.3 percent in June fell far short of the 12.7 percent forecast by economists and the 12.7 percent achieved in May, indicating both a drop-off in domestic demand and the running down of inventories by exporters worried about the weakness of new order growth.


U.K. factory output rose 1.2 percent from April, the Office for National Statistics said today in London. The median forecast of 26 economists in a Bloomberg News survey called for a decline of 0.1 percent. Overall industrial output increased 1 percent. The statistics office said both May and June data may be distorted by the movement of the public holiday.


Right now, the models I presented in my January 2012 article remain far from suggesting recession, but, I should add, they are also far from full-blown expansion. US economic growth remains tepid and vulnerable to the slightest external shock. Such risks are not negligible, but neither are they inevitable. The track of the co-incident SuperIndex versus the last seven business cycles aptly illustrates the tepid growth situation in which we find ourselves – we are on the verge of printing a new historical low-watermark for growth after 36 months of expansion. One can understand where the bearish sentiment comes from!

But the data don’t show catastrophe. Looking at the Leading SuperIndex, we are a bit worse off than last summer and the summer before that. We just put in a leading SuperIndex peak on April 13 (10 days after the SP-500 peak) that is lower than the prior two peaks. This slowdown, if not checked in time, may well be the one that pushes us into recession. But that even that worst-case scenario is still three to four months away, according to the SuperIndex recession-path projections in our regular weekly report.

So things aren’t exactly looking rosy, but there’s reason to have some patience. Let’s reassess the rush to declare a recession, and consider some ways in which we might take stock of the current situation more objectively.


Advanced Micro Devices lowered its revenue expectations for the recently ended second quarter after smaller-than-expected sales in China and Europe hurt the semiconductor company’s original-manufacturer business. Shares tumbled 8.9% premarket to $5.12.

Shares of U.S. coal producers sank premarket after Patriot Coal Corp. (PCX) filed for Chapter 11 bankruptcy protection. Coal producers have struggled mightily as decade-low natural-gas prices continue to sap demand for power-plant coal. James River Coal was among the biggest decliners premarket, trading 18% lower at $2.35. The New York Stock Exchange, meanwhile, suspended trading in Patriot Coal shares after determining the stock is no longer suitable for listing.

Analysts at Goldman Sachs said they have been “too bullish” on medical device maker Mako Surgical Corp.’s (MAKO) “ability to sell systems outside of large contract orders.” Shares tumbled 40% to $14.89 premarket as the firm lowered the stock to neutral from buy.

MagicJack VocalTec Ltd. (CALL) raised its second-quarter and full-year outlook as the company logged strong sales, in particular for renewals. Shares were up 11% to $20.70 in premarket trading.

Wolverine World Wide Inc.’s (WWW) fiscal second-quarter earnings fell 14% as economic uncertainties in Europe contributed to a soft retail market. Shares slumped 4.5% to $36.60 in premarket trade.

Senior Housing Properties Trust (SNH) will offer 8 million shares as the company looks to pay down debt. The REIT, which owns assisted-living communities, nursing homes and rehabilitation hospitals, had 162.7 million shares outstanding as of May 1. Shares were down 2.9% at $21.87 premarket.

Intel Corp. (INTC) said it will take an ownership stake in semiconductor-equipment maker ASML Holding NV (ASML, ASML.AE) and fund relevant research and development efforts as part of a 3.3 billion-euro ($4.1 billion) deal to accelerate the development of 450-millimeter wafer technology and extreme ultra-violet lithography. ASML shares jumped 9.9% to $53.21 premarket. Intel shares were off 1.2% to $25.85.

BioMimetic Therapeutics Inc. (BMTI) said it has submitted information previously requested by the U.S. Food and Drug Administration related to its application for premarket approval of its bone-graft product.

Coldwater Creek Inc. (CWTR) said it has closed a five-year, $65 million loan provided by private-equity firm Golden Gate Capital, as the women’s apparel retailer looks to turn around its business.

WD-40 Co.’s (WDFC) fiscal third-quarter earnings rose 13% as the maintenance and cleaning-products company’s costs moderated and sales edged up slightly. But the company said U.S. sales declined from the previous year. It expects full-year earnings and revenue at the lower end of its previously announced guidance due to concerns about European markets.