First look at U.S. first quarter was disappointing, at 2.2 percent, well below consensus of 2.6 percent. Much of the debate on the U.S. economy could be summed up simply: Do you think growth will be north of 2.5 percent this year, or south of that? More ammunition for the bears.
So S&P 500 futures dropped, right? Well, yes, but only 3 points — and for 5 minutes. Then it went back up. That's because this strengthens the argument that the U.S. Federal Reserve will once again come to the rescue with a third round of quantitative easing .
1) Standard & Poor's plays into the hands of the anti-austerity crowd. Could it get worse for Spain? One in four Spaniards are officially out of work, and then there's a two-notch downgrade of Spain by S&P (with negative outlook). Spain's rating of BBB+ is just one notch above high yield.
The reasoning for the downgrade is that is "Spain's budget trajectory will likely deteriorate against a background of economic contraction..."
This of course plays into the hands of those who are fed up with austerity. It does nothing of the sort: S&P continues to push for fiscal restraint. No matter.
Italian Prime Minister Mario Monti is leading the "growth" charge in Europe, but with a "responsible" twist. He knows that calls for growth are mostly just fig leaves for deficit spending: "We agreed that the revival of growth must come through a relentless focus on improving competitiveness and not through higher levels of debt," he said in a joint statement with European Commission President Jose Manuel Barroso. He called for structural reforms instead.
2) Real estate investment trusts (REITs) shine: I have mentioned all this week that many REITs are the new market leaders, led by 3.5 year highs in the MSCI REIT Index. In the last 24 hours, two of the big kahunas in the space, mall giants Simon Property Group and Taubman Centers, both reported stellar earnings.
It's simple: both reported increases in rent and occupancy. For Simon Property , sales per square foot were up 11 percent. Occupancy rates were up 0.6 percent to 93.6 percent. They are building outlets in Brazil and China. And they're raising their dividend 5 percent. The company raised guidance for funds from operations (FFO, the key metric for REITs) for 2012.
For Taubman Centers , FFO was above consensus by several cents. Operating expenses were down (less snow removal due to a warm winter?). Base rents are rising, increasing 2.6 percent sequentially. Tenant sales (sales per square foot) increased 13.3 percent year over year.
3) A better day for earnings elsewhere, with beats from International Paper, Procter & Gamble, Goodyear Tire & Rubber, and Ford Motor.
4) World indices this week:
S&P 500 up 1.6%
Spain up 1.1%
Germany up 0.3%
Brazil down 0.1%
China down 1.2%
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