Stocks appear on track to open on the weak side for today’s session, with the positive U.S. Jobless Claims numbers not enough to offset the negative headlines from abroad. The international headlines that have been weighing on overnight market action in Asia and Europe pertain to soft trade out of China, worries about a Portuguese bank and even machinery orders in Japan.
China’s exports grew a weaker-than-expected +7.2% in June following the +7% gain the month before. Imports data was on the strong side, up a better-than-expected +6% in June after the -1.6% decline in May. The country’s trade data has been unusually volatile this year, with readings earlier this year particularly on the soft side.
A weak start for the year by the U.S. economy, tepid economic growth in Europe and lingering questions about China’s growth picture are all believed to be at play in the country’s underwhelming trade numbers. Some analysts point to the unreliability of last year’s data in year-over-year comparisons due to rampant over-invoicing issues prevalent then. One could debate the source(s) of this year’s weak trade numbers, but all of this has been adding to uncertainty about the country’s growth outlook.
More than China, the region in the spotlight today is Europe, where fresh concerns about the Portuguese banking system added to existing worries about the pace and magnitude of the region’s economic recovery. The bank worry is problematic, particularly if it spreads from this one institution at present as it could potentially raise questions about the financial systems of all peripheral Euro-zone economies where confidence had returned only in the past year.
The growth outlook for the core countries in the region isn’t showing much improvement either, as today’s weak industrial production numbers for France and Italy shows. Even the thus far stronger German economy appears to be losing some momentum.
All in all, a weak set of headlines from abroad coming together in a backdrop when the market felt somewhat unsure to begin with. The key catalyst going forward will be the Q2 earnings season, which ramps up in a big way from next week onwards. This morning’s earnings-related headlines offer a mixed bag, with weak results from Family Dollar (FDO), Lumber Liquidator (LL) and Potbelly (PBPB) and a stronger looking report from Costco (COST).
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