For more discussion on the direction of stock markets, also see my recent posts Video-O-Rama: Figuring Out the Lie of the Financial Land, Baltic Dry Index - More Than a Snap-Back Rally, Asian Markets Won’t Retest Lows, Says Chris Wood, Secular Bull in Commodities Remains Intact, How Far Can the Dollar Fall?, Technical Talk: Breaching the 200-Day Line, and Green Shoots Or Smoking Weed?. (Also, Donald Coxe’s webcast has been updated for June 5 and makes for good listening. This can be accessed from the sidebar of the Investment Postcards site.)

Economy

The global economy continues to make its way back from the abyss, and based on the relationship between the US/EU/Japan PMI and global industrial production, better tidings seem to be in the offing. But although stabilization has set in, the PMIs for all the countries besides China are still below 50 and therefore need to do more work before entering the expansion phase.

In line with market expectations, the Bank of England (BoE) Monetary Policy Committee and the European Central Bank (ECB) left their key policy interest rates at 0.5% and 1.0% respectively. The BoE also decided to continue with its current £125 billion asset purchase program which it began in March, whereas the ECB announced a €60 billion plan to buy euro-denominated covered bonds.

Turning to the US, a snapshot of the week’s economic data is provided below.

June 5

Mixed bag of labor-market news - a tad more positive than negative

June 4
 

• Jobless Claims report points to small but noteworthy improvements
• Revisions of output raise productivity estimate - trend needs to improve
   

June 3
 

• Chairman Bernanke's testimony touches on expected issues, emphasizes fiscal balance
• Challenger report points to sharp decline in layoffs
• ISM Non-manufacturing Survey slightly better

June 2
 

• Auto Sales advanced in May
• Pending Home Sales Index surges in April
   

June 1
 

• ISM Manufacturing Survey advances in May, noteworthy jump of New Orders Index
• Increase in Personal Income reflects impact of fiscal stimulus, consumer spending remains weak
• Construction Spending advances in April, reflecting positive contribution from residential sector
   

Fed Chairman Ben Bernanke in his testimony to the House Budget Committee on Wednesday reiterated his view that he was expecting to see growth “later this year." He cautioned as follows:

“Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. We expect the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, and the unemployment rate is likely to rise for a time, even after economic growth resumes.”

Employment losses were far lower than expected in May, with non-farm payrolls declining by 345,000 - well below the expected 520,000. Bespoke prepared a scatter chart that compares the monthly non-farm payrolls data with the difference between the actual number and the estimates. Going back to 1998, this month's report appears to be an outlier. Although still one of the weakest job reports over the last 11 years, it was also the third-best when comparing actual data to estimates.