Stocks were indicated to start today’s session modestly in the red even before the mixed durable goods and jobless claims readings. Today’s reports don’t change the narrative of an improving U.S. economic outlook.
The recent run of economic data has been highlighting the growth divergence in the U.S., Europe and China. Readings out of the U.S. have consistently been showing steadily improving growth momentum. As a result, the consensus view has been coming around to expecting the U.S. economy to finally graduate to above-trend growth, in excess of +3% going forward. It is this positive economic outlook that has prompted the Fed to start unwinding the extraordinary monetary policy measures that it was forced to come out with in response to the 2008 crisis.
Unlike the U.S., the economic picture emerging out of Europe, China and Japan lately has been on the weak side. The only silver lining to the recent run of soft data out of Europe is that it effectively guarantees even more monetary policy easing from the European Central Bank (ECB). It has announced a number of measures already, including purchases of some category of asset-backed bonds, but have stopped short of purchasing the member governments’ bonds thus far. Such government bond purchases in an open-ended big way, along the lines of what the U.S. Fed did, are believed to be the next step the ECB will be taking.
It is this policy divergence that has been a big driver in the foreign exchange markets lately, pushing the greenback higher relative to the common currency as well as the Japanese yen. This strengthening U.S. dollar will likely be a recurring theme on the Q3 earnings calls as will likely be references to the weak business conditions out of Europe and China.
In corporate news, Jabil Circuit (JBL - Analyst Report) came out with better-than-expected August quarter results and guided higher for the current quarter on strength in Apple’s (AAPL - Analyst Report) iPhone sales to which it is a supplier. Unlike Jabil Circuit, homebuilder KB Home (KBH - Analyst Report) came short of expectations in its quarterly report.
