Bernanke Elusive At Congress As Consumer Credit Hits 6 Month Low, June 2012 Jobless Claims Dismal, China Eases:
Ben Bernanke didn’t give many clues as to whether he would like to implement QE3 or continue Operation Twist, as expected, when he spoke to Congress today. Bernanke did speak about the need for Congress to get its house in order but didn’t mention much about adding liquidity. The Fed Chairman isn’t expected to show his cards at such a meeting but he did mention the “fiscal cliff” – a term probably not created by Democrats.
“A severe tightening of fiscal policy at the beginning of next year that is built into current law – the so-called fiscal cliff – would, if allowed to occur, pose a significant threat to the recovery.”
China Surprises Markets With Lower Rates:
China took some by surprise today by lowering their benchmark interest rates. China cut interest rates following Australia’s lead for the first time in four years which suggests global demand is falling. The interest rate cut follows changes to reserve requirements and the second largest economy in the world is sending a clear signal that the “soft landing” may be in question as Europe declines. China cut interest rates by 25 basis points and the move appeared to be coordinated with Australia in terms of timing. We have been expecting more easing from central banks since last week when the U.S. released weak jobs numbers.
Consumer Credit Grew by $6.51 billion
Consumer credit grew by less than expected as shoppers kept spending lower in the face of troubling economic times. Consumer debt increased $6.51 billion for the month of April 2012. The news came late in the day from the Federal Reserve and added more fodder to those who believe the Fed will help keep the economy afloat with a change in policy. Most of April’s credit growth was due to an increase in student lending and not due to expenditures which is negative news for the economy. If the consumer cuts spending, this will put pressure on firms to keep from hiring more workers as consumer spending is two-thirds of the U.S. economy.
Jobless Claims Numbers Dismal Again
June initial jobless claims followed the lackluster trends from the prior month. First-time claims for jobless benefits fell by 12,000 for the week ended June 2, 2012 to 377,000 from a revised 389,000 in the prior week the Labor Department said today. This number was slightly more than many economists were expecting but is too small to move the needle. June 2012 is already off to a bad start in terms of jobs data and it could be the fourth month in a row that unemployment gains remain below 200,000.
What We’re Watching
Stocks paired much of the gains from early in the session with the S&P 500 falling -.14 to 1,314 on a news day filled with negative headlines. We are carefully watching the financials to see if they can help lead the market higher along with small caps and tech. Apple didn’t help market sentiment today by losing some steam after rising most of the session. If these sectors can’t stage a turnaround we would be more likely to stay on the sidelines until we see more strength. Headlines related to Europe still have market participants weary of going long.