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Tickers in this Article: JCP, CSCO, DELL, JWN
Friday, August 10, 2012 The domestic economic calendar is on the thin side today, but China's international trade data for July out today provides further confirmation of a slowdown in that country's economy. This adds to Thursday's decelerating inflation and industrial production numbers out of that country. All of these data points improve the odds that China's monetary and fiscal authorities will remain in easing mode, but the interest rate cuts and new spending plans announced already have yet to show up in economic data.

China's trade surplus shrank by more than expected in July, with both exports and imports taking a big hit. Exports to Europe were the weakest while sales to the U.S. also decelerated sharply from the month before.  Problems in Europe are no doubt a big driver of the slowdown, but there are other factors at play as well. The prices of China's mostly undifferentiated goods are also becoming less competitive as a result of rising wages and other input costs and the appreciating currency.
The challenge for the Chinese authorities is to offset the weakening international demand backdrop with a favorable domestic scene. The combination of today's soft trade data with Thursday's industrial production numbers almost guarantees that the authorities will be ramping up easing measures in the coming days.
On the earnings front, we got positive guidance from Nordstrom (JWN), after the retailer came out with better than expected earnings on in-line revenues after the close on Thursday. Results from J.C.Penney (JCP) were weaker than expected, raising doubts about the struggling retailer's turnaround plans. The second quarter reporting season is effectively over, with less than 45 of the S&P 500 companies still to report results. Most of the remaining companies are in the retail space, though we do have a number of major (old) technology firms like Cisco (CSCO) and Dell (DELL) also among the still-to-report group. 

Sheraz Mian
Director of Research 

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