Daily Market Color 05/13/2013

Daily Market Color

05/13/2013

Economic Reports &Headlines

China started off the economic calendar today by giving a read on industrial production and retail sales. Industrial production, in the second largest economy in the world, missed economists’ estimates, 9.3% Vs 9.6%

Retail sales in China for April also missed consensus by a small margin on a year over year basis, 12.8% Vs 12.9%

On the domestic front, retail sales in April surprised analysts with a gain. Economists were forecasting a drop, on a month over month basis, 10bps Vs -30bps

Business inventories missed analysts’ forecast by coming in flat on a month over month basis in March, 0bps Vs 30bps

According to the European Stability Mechanism, Cyprus received its first Euro-aid payment of 2 billion Euros.

IPOs on track for biggest year since 2007, According to a report from the Wall Street Journal

Future Reports

Later on this evening, when the Asian pacific markets open, New Zealand will issue first quarter retail trade figures. Economists’ are expecting a quarter over quarter increase of 1.1%

Over in Japan, we will get a read on corporate goods prices. This report is the equivalent to US’s producer price index. April’s report is expected to show a 10bps rise in corporate good prices on a monthly basis and along with a 20bps drop on a yearly basis.

Tomorrow morning we will get a read on consumer prices in Germany and Italy.

The European Monetary Union will give a read on industrial production in the country.

On the domestic front, market participants will get read on import/export prices in the US for the month of April.  

Over in Japan, speculators and investors will get a read on activity in 13 industries in Japan via the Tertiary Index.

                  

Trade

The bulls are constantly referencing company's low valuations as a reason for this rally to continue. However, I believe the valuation metric holds little to no merit as an indicator to further fuel this rally in US equities. I recommend looking at earnings and revenue growth. If the top and bottom line cease to increase at an increasing rate or at a rate in excess of analysts’ expectations, then I expect stocks to decline. A prime example of this would be Apple. The company had low valuations going all the way up to $700. But the stock fell nearly 50% from $700. And the fall was most definitely not due to the stocks’ valuation. The fall was primarily attributed to the top and bottom line.

Another obstacle that warrants attention as a catalyst to derail or subdue this rally is Europe and China. China is cooling down slightly and Europe has been in the doldrums for quite some time now. Europe economic reports are horrid. And when you couple Europe's poor economic condition with China's self inflicted slow down, that could translate into to poor economic in the US, since the global economy is increasingly interrelated. 

Nevertheless I am long stocks and short Yen. I will continue to keep an eye on the hazards cited above.