Optimism with only a touch of grey, if global

Alcoa and CSX both started Q2 earnings reports on a good note but its what they said about the macro outlook that is most relevant for the broader market. AA’s CEO said “undoubtedly we are not seeing the environment we’ve seen in the past but we see the environment getting better and continuously moving in the right direction.” CSX’s CEO said “while the economy remains dynamic, our markets overall continue to improve and our outlook remains positive.” Sounds like optimism with only a touch of grey. Greece successfully sold 6 month bills at a yield of 4.65% (below the 5% they are paying the EU) at a solid b/c of 3.64 to refinance upcoming maturities. Assuming market faith in the EU bailout, this was an easy sale. Greek 5 yr CDS is at a 5 week low and Spain is at an 8 week low. Moody’s downgraded Portugal’s credit rating by 2 notches to A1 but that is still 2 notches above where S&P has them.

The July German ZEW figure (investor confidence in their economy over the next 6 months) was weaker than expected at 21.2 vs the consensus of 25.3 and is down from 28.7. It’s the lowest since May ’09 but Current Conditions were very strong at 14.6, the highest since July ’08 and compares to the expectations of -1.2 as the weak Euro helps their exports. Chinese stocks took a breather by 1.6% after a reiteration that curbs on property speculation will continue. The NFIB US small business optimism index fell to 89 from 92.2, a 3 month low. While Plans to Hire were unchanged and those that said its a Good Time to Expand rose, there were drops in Capital Spending, Plans to Increase Inventory, Expect Better Economy, Expect Higher Sales, Easing of Credit Conditions and Positive Earnings Trends. In contrast with the more global businesses of AA and CSX, small, more US dependent companies obviously see more challenges.

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