What’s the Story

by CC August 24, 2012 9:05 am • Commentary


U.S. stock futures leaned lower on the back of a mixed report on durable goods and continued concerns about Europe’s debt crisis and slowing economy.

About 45 minutes ahead of the open, Dow Jones Industrial Average futures slipped 19 points, or 0.1%, to 13020. Just prior to the release of the data, Dow futures were up three points.

Standard & Poor’s 500-stock index futures eased three points, or 0.2%, to 1397 and Nasdaq 100 futures lost five points, or 0.2%, to 2756. Changes in stock futures don’t always accurately predict stock moves after the opening bell.

Orders for durable goods in July rose 4.2% amid a surge in demand for aircraft and autos. The median estimate of economists surveyed by Dow Jones Newswires was for a monthly increase of 3%, after rising 1.6% in June.

But orders excluding transportation fell 0.4% to mark the second consecutive month of declines.

European markets slipped, with the Stoxx Europe 600 down 0.3%, with Greece’s meeting with Germany and data confirming contraction in the U.K. economy weighing on sentiment.

German Chancellor Angela Merkel Greece said she wanted to keep Greece in the euro zone, but didn’t commit to granting Greece more time to implement austerity measures required for the country to receive bailout funds.

In the U.K., second-quarter gross domestic product was revised to show it shrank 0.5%, marking a third consecutive quarter of contraction. GDP was previously estimated to have declined 0.7%.

Asian markets fell sharply on the back of Thursday’s U.S. market losses, with China’s Shanghai Composite shedding 1% to close at a 3½-year low and Japan’s Nikkei Stock Average falling 1.2%.

Crude-oil futures lost 0.2% to $96.12 a barrel, while gold futures declined 0.1% to $1,670.70 an ounce. The dollar gained against the euro but lost some ground against the yen.


A gauge of planned spending by businesses fell in July for a second straight month, suggesting a slowing growth trend in the factory sector, even though demand for long lasting manufactured goods surged.

The Commerce Department said on Friday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, declined 3.4 percent after falling 2.7 percent in June.

Economists polled by Reuters had expected a 0.7 percent rise after a previously reported 1.7 percent decline in June.

This category tends to weaken at the start of a quarter, but it was the second straight month of weakness, hinting at a cooler growth pace in manufacturing, a sector that has shouldered the economy’s recovery from the 2007-09 recession.


“What I want is to bring the two realities that have emerged back together into one reality,” Merkel said. “Now it’s the task of those who have political responsibility in Europe to bridge that gap. I want Greece to stay in the euro zone and that’s what I’m working for.”

The German chancellor’s comments, made on Samaras’s first official visit to Berlin since he assumed power two months ago, are the clearest signal yet of a thawing of relations between the two main actors in the sovereign debt crisis that is almost three years old. They are also a rebuke to members of her own coalition and others who question Greece’s willingness to reform and call for it to be kicked out of the 17-nation euro region.


Below is a chart showing the performance of the S&P 500 tracking SPY ETF along with the performance of the emerging markets ETF (EEM) since the bull market began back in March 2009.  As shown, after nearly doubling the performance of the S&P 500 early on during the current bull, emerging markets are now lagging.  As of this morning, SPY was up 107.1% since 3/9/09, while EEM was up 93.9%.

The weakness for emerging markets really began last summer when sovereign debt concerns popped up.  After regaining the lead on SPY earlier this year, EEM once again faltered this spring and hasn’t been able to catch up since.