Tuesday, July 3, 9:25 a.m.

The dismal economic reports of the last three months continued yesterday as the third quarter got underway.

In the U.S., the ISM Mfg Index dropped into recessionary territory in June. It fell to 49.7, under 50 for the first time in 3 years, down from 53.5 in May, and well under the consensus forecast of 52.3. (The level of 50 marks the change from expansion to recessionary contraction).

But the U.S. market recovered from its early losses on the report to close mixed, apparently on hope that the dismal report will put more pressure on the Fed to come to the rescue.

Globally, it was reported that Germany’s PMI remained in contraction territory, dropping from 45.2 in May to 45.0 in June, a 3-year low. The overall euro-zone’s PMI remained at 45.1 in June, its lowest reading in 3 years. And the unemployment rate in the 17-nation euro-zone rose to another new record high of 11.1% in May.

But stock markets in Europe closed up again yesterday for the second straight day since the surprise euro-zone rescue efforts announcement from the EU summit, even though doubts are mounting about those efforts.

The focus in Europe has apparently moved on to hope that the European Central Bank will follow up with an aggressive interest rate cut on Thursday.

On the intermediate-term charts, the short-term rally has lifted European markets off the lower limit of Bollinger Bands and all the way up to the potential resistance at the 20-week m.a., so just barely still in the usually negative lower half of Bollinger Bands, and close to trendline resistance drawn through the previous tops of April a year ago. And our intermediate-term indicators have improved.

In Asia, China’s official PMI dropped to 50.2 in June from 50.4 in May. But the HSBC PMI, which is based more on medium to smaller size businesses, dropped to 48.2 in June from 48.4 in May, now under the level of 50 that defines expansion versus contraction.

So an interesting juncture.

European markets have lost some of their enthusiasm this morning on warnings from France’s national audit office that now France’s economy is in the “danger zone” and risks following Spain and Italy in a ‘”debt spiral”. And Greece’s warning that it will present “alarming” data on its recession to international debt inspectors this week.

But the reports haven’t alarmed European markets too much. They remain somewhat positive at least at the moment.

Subscribers to Street Smart Report: Although tomorrow is a holiday, there will be an in-depth U.S. Market signals and recommendations update (including gold, bonds, and commodities) in the subscribers’ area of the Street Smart Report website tomorrow.

To read my weekend newspaper column ‘EU Rescues Markets Just in Time – Again!’ click here.

A mixed but mostly positive day. The Dow was down as much as 85 points by mid-day, but then climbed back to close down only 8 points.

The Dow closed down 8 points, or 0.1%. The S&P 500 closed up 0.3%. The NYSE Composite closed up 0.4%. The Nasdaq closed up 0.6%. The Nasdaq 100 closed up 0.4%. The Russell 2000 closed up 1.2%. The DJ Transportation Avg. closed down 0.1%. The DJ Utilities Avg closed up 0.7%.

Gold closed unchanged at $1,597 an ounce.

Oil closed down $1.50 a barrel at $83.47.

The U.S. dollar etf UUP closed up 0.2%.

The U.S. Treasury bond etf TLT closed up 0.8%.

European markets added some to their big spike-up gains of Friday, in spite of the further dismal economic reports. The London FTSE closed up 1.2%. The German DAX closed up 1.2%. And France’s CAC closed up 1.4%.

The DJ Asia-Pacific Index closed up 0.8%, led by Hong Kong which was playing catch-up to world markets after being closed Monday (Sunday night in U.S.) for a holiday.

Among individual markets last night:

Australia closed down 0.2%. China closed up 0.1%. Hong Kong closed up 1.5%. India closed up 0.2%. Indonesia closed up 1.5%. Japan closed up 0.7%. Malaysia closed up 0.4%. New Zealand closed up 0.1%. South Korea closed up 0.9%. Singapore closed up 1.2%. Taiwan closed up 1.0%. Thailand closed up 0.8%.

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European markets are somewhat positive this morning. The London FTSE is up 0.3%. The German DAX is up 0.7%. France’s CAC is up 0.2%.

Oil is up $2.08 a barrel at $85.83

Gold is up $16 an ounce at $1,613 an ounce.

This week is a holiday-shortened week, the U.S. market only open 3 1/2 days, closing early today and all day tomorrow for Independence Day.

But it includes important potential market-moving economic reports, including the ISM Mfg Index, Construction Spending, Factory Orders, and on Friday the Labor Department’s Employment Report for June. To see the full list and times for each release click here, and look at the left side of the page it takes you to.

Yesterday’s reports were that Construction Spending was up 0.9% in May. But by far the more important report was that the ISM Mfg Index dropped into recessionary territory in June for the first time in 3 years. It fell under 50 in June, at 49.7 down from 53.5 in May, and versus the consensus forecast of 52.3.

And globally, it was reported that Germany’s PMI fell slightly further into contraction territory, from 45.2 in May to 45.0 in June, another 3-year low. And that the overall euro-zone’s PMI remained at 45.1 in June, its lowest reading in 3 years. And that the unemployment rate in the 17-nation euro-zone rose to another new record high of 11.1% in May. And in Asia, China’s official PMI dropped to 50.2 in June from 50.4 in May. But the HSBC PMI, which is based more on medium to smaller size businesses, dropped to 48.2 in June from 48.4 in May.

This morning’s report, Factory Orders, will be released at 10 a.m. Auto sales will be released through the morning. So far .

The U.S. stock market and our offices will be closing early at 1 p.m. today, and be closed all day tomorrow.

Our pre-open indicators have been fractionally negative all night and remain so.

Our pre-open indicators are pointing to the Dow being down 15 points or so in the early going, not meaningful as to direction on this low-volume half holiday.

Subscribers to Street Smart Report: Although tomorrow is a holiday, there will be an in-depth U.S. Market signals and recommendations update (including gold, bonds, and commodities) in the subscribers’ area of the Street Smart Report website tomorrow.

To read my weekend newspaper column ‘EU Rescues Markets Just in Time – Again!’ click here.

I’ll be back with the next regular blog post on Thursday morning at 9:25 a.m.

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