Last week was fairly depressing — until Friday, of course. On Friday, everyone suddenly decided they were feeling pretty good about things and stocks rallied. A lot. Good news in the form of financial earnings helped out, as well as speculation about China. And it also helped that US economic wasn’t horrible.
US economic data showed signs of slow, but sure, economic recovery. Jobless claims dropped again, albeit modestly, and wholesale prices edged up. Overall, wholesale prices for June were up 0.1%. Without food and energy, they were up 0.2%. The difference is attributed to drops in energy prices. Since there are those that think high energy prices have been one of things stymieing the economy, the fact that energy prices are easing is somewhat encouraging.
On tap for this week is more second quarter earnings news. Stocks reacted favorably to some of the financial stock news at the end of last week. One of the biggest pleasant surprises was JP Morgan Chase. The company posted better than expected earnings — even after the losses caused by the London Whale. Be watching for more earnings data this week, since it could influence the direction of the markets.
Even the recent LIBOR debacle was largely overlooked by the markets as bulls rushed to make up for days of gloom.
Will China Add More Stimulus?
Another consideration is China. There is speculation that China is ready to add more economic stimulus to its economy. The news was greeted with a measure of enthusiasm from those who are hoping that the Chinese can lead us out of the global economic doldrums. There are still concerns about China, though. News that China’s reserves aren’t expanding by as much as some worried. However, the recent interest rate cut by the People’s Bank of China, and expectations that China will do more to prop its economy, are helping the situation.
Europe has managed to move to the back burner for now. The German Constitutional Court is reviewing the latest suggested changes to the European Stability Mechanism (the bailout fund), and trying to decide if they jive with German law. The Court has so far refused to rubber-stamp the changes, and could throw up roadblocks in the efforts to form a tighter banking union in the eurozone.
For now, though, those issues are by the by. However, things could change rapidly. Investor attention has been held by Europe for months now; it’s likely that the recent break from obsessing about Europe is just that — a break. There are plenty of other hurdles to overcome, and the eurozone could easily move back into the spotlight.