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Pre-Market Primer: US Economic Growth Slows Down, Amazon and Ford Beat Expectations


The economy slowed by more than expected, but Spain is heading towards a bona fide depression.

MINYANVILLE ORIGINAL Economic growth in the US slowed more than expected in the first quarter, according to the first of three estimates by the Commerce Department. GDP grew at an annual rate of 2.2% in the three months ending March 31. Economists expected growth to have slowed to an annual rate of 2.5% from 3.0% in the previous quarter. The employment cost index for the quarter rose 1.9% on a yearly basis, slightly less than expected.

Equity futures pared already-modest gains after GDP data was released. Dow (^DJI) futures were little changed, up 0.04% at 13,165.00. Futures on the S&P 500 (SPY) were up 0.07% at 1,397.80. Nasdaq (^IXIC) futures rose 0.27% to 2,727.50.

The lame-duck government of the Netherlands successfully passed a budget that will reduce deficits in line with the EU-mandated ceiling of 3%. Earlier this week, the Dutch coalition government failed to do this as the right-wing populist party walked out on talks. The bond market didn't punish the Netherlands for this, and coming to this agreement should help shore up the country's chances of keeping its AAA rating.

Meanwhile, Spain is getting hammered with awful, but ultimately unsurprising news. Standard & Poor's downgraded Spain's credit rating by two notches to BBB+. S&P's assessment is that GDP is likely to continue to contract. A separate report from Spain's National Statistics Institute paints a shocking picture of Spanish unemployment. A total of 5.6 million Spaniards -- about a quarter of the country -- are out of work. 1.5 million of those have been unemployed for at least two years. Spain already has the highest unemployment in the eurozone. In just the first three months of this year, 365,900 more people joined the ranks of the jobless. Retail sales dropped 3.7% in March. Spain's Banco Popular (BPESF) also reported that profit sank 46% in the first quarter of this year.

It almost goes without saying, but Spanish 10-year bond yields have spiked above 6%. Italy's borrowing costs are close behind, hitting 5.84% at an auction this morning. Just a month ago, Italy's yield was 5.24%.

S&P did express faith in Mariano Rajoy's austerity reforms that Spaniards (and a good number of economists) hate so much.

"Despite the unfavorable economic conditions, we believe that the new government has been front-loading and implementing a comprehensive set of structural reforms, which should support economic growth over the longer term," S&P said in a report.

Japan released a trove of economic data today. The Bank of Japan made a statement today saying that it will leave interest rates on the floor, and will expand its asset-purchasing program by at least 10 trillion yen. Consumer prices in Japan rose more than expected in March. Industrial production and retail sales both came in at 10.3% better than March of last year, when the earthquake and tsunami killed thousands and wrecked economic activity. The Japanese unemployment rate stayed unchanged at 4.5% and household spending increased by 3.4% on a yearly basis.

Despite faltering economic growth, China allowed the renminbi to appreciate to a record high of 6.2787 to the dollar. Yesterday, US Treasury Secretary Tim Geithner called on China to do just this. Chinese industrial profits increased by 4.5% in March.

In equities news, Amazon (AMZN) shares shot up 16.47% in the pre-market after reporting a 34% rise in revenue spurred by sales of the Kindle line of e-reader tablets. Amazon's aggressive pursuit of revenue growth weighed on earnings. Profit fell 35%, but still beat analysts' estimates.

Same-store sales at Starbucks (SBUX) fell short of estimates. The coffee chain's profits grew by 18% in the company's second fiscal quarter, but still disappointed, and shares dropped by 5.13%.

Though North American sales were strong, Ford's (F) profit in the quarter dropped 46% over the year before, thanks to low sales in Europe. Nevertheless, Ford beat expectations, and shares are up by 1.1%.

Three days after Nokia (NOK) was downgraded by Fitch, Standard & Poor's also downgraded the Finnish communications giant's debt to junk. Samsung (SSNLF) surpassed Nokia as the largest mobile phone vendor by volume, and re-took its lead on Apple (AAPL) as the top-selling smartphone maker. Samsung's profit jumped by an astounding 81% in Q1 over last year.

Twitter: @vincent_trivett
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