Good morning! Here’s what you need to know.
We’re At An All-Time High. The Dow Jones Industrial Average and S&P 500 closed at record highs on Monday. And U.S. futures are signaling more green with Dow futures up 26 points and S&P 500 futures up 2.4 points. Markets in Asia closed higher led by a 1.9% jump in Japan’s Nikkei. In Europe, Britain’s FTSE, France CAC, and Germany’s DAX are all higher.
Euro Tanks After Bundesbank Shocker. “Germany’s central bank is willing to back an array of stimulus measures from the European Central Bank next month, including a negative rate on bank deposits and purchases of packaged bank loans if needed to keep inflation from staying too low, a person familiar with the matter said,” reports the Wall Street Journal’s Brian Blackstone. This would be a major reversal coming from an organisation that is notorious for being very tight about monetary policy.
China’s Slowing. China released three key economic stats overnight and all three missed expectations. Industrial production growth fell to 8.7% year-over-year in April from 8.8% in March; economists were looking for 8.9% growth. Retail sales growth fell to 11.9% from 12.2%; economists were forecasting a 12.2% print. Fixed asset investment growth year-to-date slowed to 17.3% in April from 17.6% in March; economists were looking for 17.7% growth. “By breakdown, we believe the anti-corruption campaign and property downturn are the two major factors behind the moderation in FAI growth,” said Bank of America Merrill Lynch’s Ting Lu. “On a positive note, the 8.7% yoy IP growth reading in April, if sustained in May and June, means GDP growth in 2Q14 could be similar to the 7.4% pace in 1Q14, suggesting a rebound in sequential growth from 1.4% in 1Q14. “
German Economic Confidence Crumbles. Germany’s ZEW Economic Sentiment index plunged to 33.1 in May from 43.2 in April. Economists were forecasting a 40 print. “Growth in Germany is currently strong, but we expect it will lose momentum in the second half of the year,” said Pantheon Macroeconomics’ Ian Shepherdson. “The ZEW sentiment survey generally gets a bad reputation for being too volatile, but we beg to differ. It is the earliest sentiment reading we get for the reference month, and if we look at the smoothed spread between analysts’ views of the current situation and expectations we get a good forward looking indicator for growth. “
US Treasury Secretary In China. Secretary Jack Lew “called on Beijing to “renew” a pledge to overhaul its exchange rate policy, in his first visit to the Chinese capital since the renminbi began to reverse its climb against the dollar earlier this year,” reported the Financial Times’ Tom Mitchell. “It is important that China demonstrate a renewed commitment to move to a more market-determined exchange rate which will help provide for more balanced domestic growth and global trade, while also moving to a more transparent exchange rate policy,” said Lew.
$50 Billion Mega-Merger In The Works. “AT&T Inc. is close to sealing a takeover of DirecTV that could put a value of nearly $US50 billion on the satellite-television provider, people familiar with the matter said,” reports the Wall Street Journal’s Dana Cimilluca, Shalini Ramachandran and Thomas Gryta. “An agreement could be reached in two weeks if not soon, according to the people.”
Pfizer Goes To Parliament. Pfizer CEO Ian Read is getting grilled by a British parliamentary committee over the company’s proposed takeover of UK drugmaker AstraZeneca. The big concern for lawmakers is the magnitude of job cuts and reduction in R&D activity in the country. “We’ll be efficient by some reduction in jobs. What I cannot tell you is how much or how many or where,” said Read. “We’ll look at this as our global combined footprint and then we’ll make decisions.”
Credit Suisse’s Potential $US2 Billion Settlement. “New York state’s banking regulator is seeking hundreds of millions of dollars from Credit Suisse in its probe of potential tax evasion involving the Swiss bank, according to sources close to the matter, which could push an eventual settlement with U.S. authorities over $US2 billion,” reports Reuters’ Karen Freifeld and Aruna Viswanatha.
Retail Sales Check. At 8:30 a.m. ET, we’ll get the April retail sales report. Economists estimate retail sales climbed by 0.4% in April, 0.5% excluding autos and gas. “We expect decent retail sales but more moderate than March’s sharp rebound from winter weakness,” said Credit Suisse economists. “Unit vehicle sales fell slightly on the month. Last month’s 1.9% spike in general merchandise sales looks ripe for a reversal. Income growth has been decent, however, so other components are expected to pick up the slack.”
An Incomplete Fed. Federal Reserve governor Jeremy Stein has previously announced that he would be stepping down from he Fed on May 28. Stein is the chairman and sole member of the “the internal committee that monitors financial markets for signs of trouble and of the committee that watches the way banks treat their customers,” notes the New York Times’ Binyamin Appelbaum. “The dwindling of its board is straining the Fed’s ability to manage its complex responsibilities, which extend well beyond its enormous economic stimulus campaign and its lead role in the overhaul of financial regulation.”
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