European Bank Worries Burn Stocks Globally

Today's Coffee

Worries about the condition of European banks contributed to increasing concerns about stocks globally.

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European Bank Worries Burn Stocks Globally

The data day started overseas today as expected, but it came from off the schedule of events. While we thought Fed Chairman Bernanke's address in Tokyo on central bank accountability might impact trading, it was instead concern about the European banking system that started stocks lower. Before it was over, Asia and Europe were down about 3% a piece. US stocks are 1% lower at the hour of publishing, and Greece is tied with North Korea 2 - 2 in a mixed effort for the Greek side into the second half.

ICSC Weekly Sales

Our knickers got all up in a bunch due to our excitement about this week's same-store sales data. That's because last week's report out of the International Council of Shopping Centers (ICSC) and Goldman Sachs (NYSE: GS), covering the week ended May 15, showed a sharp downturn in sales that was blamed on the weather. Week-to-week sales fell 2.5% in the period, and year-over-year growth moderated sharply to 2.9%. We were looking for verification this morning, to see whether the drop-off was on a non-recurring factor or whether there is real cause for concern.

Well as it turns out, there's real cause for concern! For the May 22 closing period, sales fell another 0.8% off last week's lower level. Furthermore, year-over-year growth slipped to 1.3%, an importantly slow pace. What gives? Could the market mayhem of the last couple weeks and European chaos be keeping shoppers home and hoarding cans of corn? This marks two weeks of horrible and deteriorating data on shopping activity.

Consumer Confidence

The Conference Board's latest Consumer Confidence Index conflicted with the ICSC data. The measure of consumer sentiment marked its third consecutive monthly gain, as the index reached 63.3, versus the 57.7 mark set in April. The reading also surpassed the economists' consensus forecast, which was looking for 59.0 (based on Bloomberg's survey).

Within the index, the Present Situation Component moved higher to 30.2 from 28.2. However, the big news was found in the Expectations Index, where high hopes took that measure to 85.3, up from 77.4. This is all kind of hard to believe, unless you remember how polarized the US population can be. Well anyway, the Conference Board said Americans feel more positive about business and labor market conditions, if you're buying it.

Home Prices

S&P Case Shiller published its Home Price Index for the month of March today. March's data showed continued year-over-year price appreciation, as the 10-city index saw prices edge higher by 3.1%. The 20-city composite recorded price increase of 2.3%, continuing a trend that has lasted a year now.

Given recent stock market alarms and overseas worries, alongside ongoing unemployment in the States and the end of the First-Time Homebuyers Tax Credit, a second drop-off in home prices seems possible (maybe as much as 10%). That said, continued population growth and reduced inventory levels (ex-shadow inventory of lender occupied foreclosure properties) have our real estate expert looking to the current market as a buying opportunity.

National home prices are back to their spring 2003 levels, according to the data devils, but recent months' activity show an end to trend. The report showed that 13 of 20 MSA's covered posted price declines in March, over February. The National Composite fell 3.2% in Q1, versus Q4 of 2009. Thus, it seems clear to me that without tax incentive, the housing market is going to have a tough time fending for itself.

The FHFA House Price Index showed a 0.3% price increase in March. However, FHFA indicates March prices fell 2.2% compared to prior year sales. I like to pay attention to the National Association of Realtors data, which is more timely than FHFA and S&P. The NAR reported Monday that home prices rose across a majority of its markets. In fact, the median price of an existing home rose 4% in April, matched against the prior year count. FHFA's data only measures homes with mortgages purchased or securitized by Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE); while that was once a big portion of the nation's mortgages, it's still important.

Investor Confidence

State Street (NYSE: STT) posted its Investor Confidence Index for the month of May today. Not surprisingly, May's index slipped sharply to 88.2, from 99.4 in April. The reading was as high as 107.4 in March. It's clear that the concern sparked in Europe has spread well now into North American investors' mindset. However, Asian investor confidence improved 6.8 points, to 101. European confidence declined 3.5 points to 92.2, while North American confidence declined 5 points to 98.3. A measure below 100 signifies a general aversion to risk.

Washington Market Drivers

The US House of Representatives votes today on a plan to raise taxes on investment management companies. This is the kind of thing that makes me miss Ronald Reagan. St. Louis Federal Reserve Bank President James Bullard gives a speech on "The Road to Economic Recovery Following the Financial Crisis," to the European Economics and Financial Centre in London.

International Activity

The trouble started today in Asia, where the NIKKEI 225 fell 3.1% and Hang Seng fell 3.5%. Misery extended into European trading, where the FTSE 100 moved lower 2.5% and the DAX fell 2.3%.

Corporate Drivers

On the corporate slate, share-offering lock-up periods conclude for China Advanced Construction Materials (Nasdaq: CADC), Owens Corning (NYSE: OC) and Penn Virginia (NYSE: PVA). Catch the analyst meetings at Flextronics (Nasdaq: FLEX), McAfee (NYSE: MFE) and Petrobras (NYSE: PZE). The day's earnings schedule includes reports from AutoZone (NYSE: AZO), Convio (Nasdaq: CNVO), Cracker Barrel Old Country Store (Nasdaq: CBRL), DSW, Inc. (NYSE: DSW), Dycom Industries (NYSE: DY), Flowers Foods (NYSE: FLO), HEICO (NYSE: HEI), Israel Chemicals (OTC: ISCHF.PK), Ituran Location & Control (Nasdaq: ITRN), Ixys Corp. (Nasdaq: IXYS), Medtronic (NYSE: MDT), Netezza (NYSE: NZ), Palm Harbor Homes (Nasdaq: PHHM), Partner Communications (Nasdaq: PTNR), Pointer Telocation (Nasdaq: PNTR), Salary.com (Nasdaq: SLRY), Sanderson Farms (Nasdaq: SAFM), Shiloh Industries (Nasdaq: SHLO), Sociedad Quimica y Minera S.A. (NYSE: SQM), TIVO, Inc. (Nasdaq: TIVO), Tivoli (Nasdaq: TVLI), Trina Solar (NYSE: TSL), TTI Telecom (Nasdaq: TTIL) and WSP Holdings (NYSE: WH).



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