1) Whew, that was close. You can hear the sighs of relief across Europe: German first-quarter gross domestic product grew 0.5 percent, much stronger than expected. That single stat appears to have saved the euro zone from recession, for the moment.
Euro zone GDP (the collective GDP of all 17 euro zone members) was flat in the first quarter, versus expectations it would decline 0.2 percent. We have thus avoided two consecutive quarters of GDP decline (the fourth quarter saw a decline of 0.3 percent), therefore no "official" recession.
That is a bit of a hollow victory. The two-speed Europe we have seen last year is very much in evidence. Among the 17 countries in recession : Ireland, Greece, Spain, Italy, Cyprus, the Netherlands, Portugal, and Slovenia.
2) Dollar rally gets historic: The U.S. dollar index is up 12 straight days, a record, to a four-month high.
3) Small pop in futures as the Consumer Price Index (CPI) was unchanged. Year-over-year, CPI is up 2.3 percent, not a huge number, but consider that the 10-year Treasury yields 1.8 percent. The Empire Manufacturing Purchasing Managers Index for May was much stronger than expected. But April retail sales were up only 0.1 percent, in-line with expectations, but the smallest gain since December. In the 12 months to April, retail sales are up 6.4 percent.
4) Speaking of retail sales:
a) Home Depot shares slid 3.8 percent pre-market after the do-it-yourself building supplier matched earnings estimates and provided 2012 earnings per share guidance below the Street’s view ($2.87 a share vs. expectations of $2.92 a share).
This company is in great shape. Sales growth was 6 percent. Earnings have grown 20 percent the last two years, are up 30 percent in the first quarter, and will do 20 percent the rest of the year.
So why is the stock down $2 pre-open? Several problems:
i) expectations were high. Some were expecting a beat of as much as 10 cents;
ii) they didn't change the sales guidance. That implies this is the peak revenue quarter for the year; and
iii) the stock was $40 a few months ago, now it's $50.
Bottom line: Business is fine. It trades at 17 times next year's earnings, if you add 2013 earnings expectations of $3.30, you get $56. The stock is $49 now, but remember the company routinely does better, so $60 is easily achievable.
b) Saks fell 2.5 percent pre-open after the luxury retailer posted better-than-expected first-quarter profit, but said it expects second-quarter gross margins to drop by 1 percentage point or more. Saks reported first-quarter earnings per share of $0.19, slightly above analysts’ $0.18 estimate, as the high-end department chain sold more goods at full price. Saks said it expects same-store sales in the next three quarters to be in the mid-single digit range.
c) TJX Cos. shares rise 1.3 percent after the off-price retailer beat earnings per share expectations by a penny and raised its 2013 outlook. TJX posted first-quarter earnings of $0.55 a share, compared to the Street’s $0.54 a share view. Same-store sales increased 8 percent with the CEO citing strong performance across the board: “We are particularly pleased with our performance … with our U.S., Canadian, and European businesses all delivering outstanding results.” TJX upped its 2013 earnings per share outlook to between $2.27 and $2.37 a share, below analysts’ $2.39 a share view; the company sees second-quarter earnings per share between $0.47 and $0.50, short of the Street’s $0.51 estimate.
d) Reports from Saks and Home Depot follow better-than-expected earnings from Kohl’s and Macy’s last week. However, Kohl’s and Nordstrom provided outlook for the second quarter and 2012, respectively, below estimates. J.C. Penney reports after the bell today, with analysts’ expecting a loss from the retailer of 10 cents per share.