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Where To From Here?

July 2, 2012 – 5:02 pm

A rash of merger and acquisitions over the weekend did little to spur the market this morning after Friday’s large one day rally.

Reality set in as Europe reported that manufacturing in the EU is still a struggle. The PMI report came in at 45.1, below the important number of 50 that delineates growth from shrinkage in the economy. The bright spot, if one can concentrate enough and find any good news in the report, is that it was the same as the month before so for at least in the manufacturing sector in Europe it didn’t get worse.

Unfortunately, we can’t say that for the U.S. The PMI number for June came in at 45.1, a fall from well above 50 the month before and below expectations which called for that number to remain above 50.

The market immediately reacted to the U.S. number shrugging off the earlier European number. That is the difference between expectations and surprises. Europe is in a recession. Everyone knows that so a weak manufacturing PMI was already built in to stock prices but a weak U.S. PMI was not.

On the other hand construction spending in the U.S. was way above expectations coming in at .9% growth versus the .2% that was expected. Maybe the market will react to that later in the day.

Being a shortened trading week volume will be light. Maybe traders before they take a strong stand in either direction will wait for the June payroll report on Friday. We may well produce more jobs in June than we did in May. If so, not much more and we only produced 69,000 in May. That is before they make any adjustments. An adjustment ‘up’ would be a nice change but for some reason I don’t think that will be the direction.

Good Trading
Steve Peasley

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