Sunday, May 29, 2011

US markets rise despite weak consumer and housing data

US markets rose on Friday despite weaker-than-expected US consumer spending and housing data. Data showed that pending sales of existing US houses fell more than expected in April to hit a 7-month low. It was the latest in a long list of data that shows a very weak US housing market. US consumer spending data showed a less-than-expected increase in April.

On Friday, the S&P 500 rose 5.41 points or 0.41% to 1,331.10. The Dow gained 38.82 points or 0.31% to 12,441.58. For the week, the S&P 500 lost 0.16%, while the Dow fell 0.56%.

US data in focus

Weak US economic data has caused the recent stalling in the stock market. On Thursday, 1st quarter GDP was revised to 1.8%, lower than the 2.2% economists expected. Also on Thursday, initial jobless data showed 424,000 claims last week, which was another week over 400,000, the level below which is needed for job growth.

Euro zone troubles remain

Early this week, Fitch placed Belgium on negative outlook. This followed Italy's new negative outlook on the previous Friday. Meanwhile, European officials continued to discuss a solution for Greece, with default, “restructuring” and Greece leaving the euro zone as ideas being discussed. Greek 10-year bond yields hit a stunning high of 17% this week, showing that markets clearly believe a default is inevitable.

Gold soars

As a result of the euro zone troubles and the US dollar weakening, gold rose $13.9 on Friday to close at $1,537.3/ounce.

Looking ahead to next week

Investors will be focusing on the May ISM manufacturing survey and payroll data. Reuters consensus for the ISM reading is a fall to 58 in May from 60.4 in April, while the Reuters consensus for the jobs data is 185,000 jobs added in May.

Data that match consensus estimates, which are very weak, could reaffirm investor belief of a weakening US economy, which could be negative for stocks. Data that are worst than consensus estimates would definitely send stocks lower. 
Investors will continue to closely watch the situation in the euro zone, as officials discuss terms such as default, “restructuring” and “reprofiling”. If recent history since early 2010 is any indicator, euro zone officials will once again be incapable of preventing the crisis from worsening, leading to an eventual Greek default. 
All in all, investors should expect markets to continue heading lower next week.

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