A Rough Day for Europe, but D.R. Horton Helps US Housing


The end of austerity in Europe? The news was not good for supporters of austerity:

1) The euro zone Markit PMI fell to 47.9 from 49.2 in March, below expectations as Europe continues to contract, now at a five-month low: Germany's market is down nearly 3 percent and at the lowest level since the end of January.

This is going to strengthen the hand of those calling for more stimulus measures and will increase pressure on the European Central Bank .

The euro has weakened, the dollar has strengthened, commodity stocks are down three to four percent.

2) The French election produced one big surprise, not from the narrow first-round victory of Francois Hollande, the Socialist candidate, but from the 18 percent showing by National Front head Marine Le Pen, the biggest tally a far-right candidate ever got.

And that may be the best news for Nicolas Sarkozy: He is likely to siphon more votes from Le Pen than Hollande will get, giving Sarkozy at least a chance of victory in the second round.

Regardless: A third of French voters cast ballots for far left or far right candidates (18 percent for Le Pen right party, and 11.1 percent for the left Communist party), with smatterings of votes for smaller parties.

3) Another problem for European austerity: A failed budget deal in the Netherlands appears to have caused the Dutch government to resign. The current coalition was a big backer of the European Union fiscal treaty. The coalition, which includes a smaller populist party, fell apart over how to cut 14 billion to 16 billion euros from the budget in order to get the Dutch deficit with EU targets (a deficit of 3 percent of gross domestic product ). No elections will be held before July, which means another three months of uncertainty. There is also worry the Netherlands may lose its triple-A rating because of the failure to make a deal on the budget.

4) The Bank of Spain said the Spanish economy contracted in the first quarter for a second-straight quarter (official recession ).


1) Earnings season continues, of seven major companies reporting, 4 beat (Xerox, D.R. Horton, Eaton, SunTrust Banks, and Kellogg, but Kellogg lowered full year estimates), one matched (Xerox), and two missed (ConocoPhillips, Hasbro).


2) A relief in housing: Choppy numbers recently have called the spring home season into question, but D.R. Horton helped this morning. Earnings beat, but more importantly net orders were up 19.3 percent year over year and 55 percent quarter-over-quarter (!). The cancellation rate dropped to 22 percent, the lowest level since December 2006.

D.R. Horton posted second-quarter earnings per share of $0.13, compared to analysts’ $0.04 estimate. "Our homebuilding and financial-services segments delivered strong operating results in our second quarter, and our strong sales pace has continued through the first half of April," chairman Donald R. Horton said.

3) Eaton is another one of those companies that makes the stuff of the modern industrial world: electrical equipment, pumps, motors, and truck and automotive powertrain systems.

Earnings were good: Higher-than-expected quarterly profit and upped its 2012 guidance for the second time this year. At the midpoint of the guidance ($4.50), 2012 earnings would be up 14 percent. Electrical America — the largest division — was strong, as was aerospace. Auto and truck were a bit weaker than most expected, there seems to have been some weakness in that division in Brazil.

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