EmailThe Greek bailout agreement has been unsigned, unsealed and delivered back to Greece. In a climactic turn of events, EU finance ministers said they still need more from Greece before any bailout disbursement can be made.
In particular, reports indicate they are calling for further spending cuts to the tune of EUR 325 mln and for the Greek parliament to legalize its pledges of reform by ratifying the bailout agreement over the weekend.
The market was provided a sense yesterday that the Greek deal was done. That sense of things has been undone today, so there is some natural fallout from this headline disappointment.
The S&P futures are down 12 points and are trading 0.9% below fair value. That negative disposition is paving the way for a lower start for the cash market.
It isn't just Greece, though, that is weighing on the futures market. China's January trade report raised some eyebrows, with exports declining 0.5% and imports falling a larger 15.3%.
The trade figures out of China have once again stirred worries about a hard economic landing there, although there appears to be some reasonable doubt that China's trade activity isn't as worrisome as it looks on the surface.
Economists are pointing to the earlier Chinese New Year as a viable excuse for the disappointing trade data and seem to be urging market participants to reserve judgment until the February data are released.
China's trade report has provided a convenient excuse to do some selling here, yet it would be remiss not to add that China's stock market ended Friday's session up 0.1%. That resilience can be attributed to one of two factors: a willingness to reserve judgment or an expectation that the trade data bolster the case for some additional easing measures from the People's Bank of China.
Interestingly, the market did not have much reaction to the U.S. trade balance report for December, which showed a $1.2 bln increase in exports (+0.7%) and a $3.0 bln increase in imports (+1.3%) from November levels.
The lack of response is due in part to the realization that the trade deficit of $48.8 bln was nearly in-line with the Briefing.com consensus estimate of -$48.2 bln. There was a positive adjustment to the November trade deficit, which was revised to -$47.1 bln from -$47.8 bln.
The jump in exports was owed mostly to a $1.06 bln increase in exports of fuel oil while the jump in imports was paced by increases in capital goods, except automotive (+$1.03 bln or +2.4%), consumer goods (+940 mln or +2.2%), and crude oil (+$817 mln or +2.9%).
The December trade deficit fit closely to what the Bureau of Economic Analysis estimated in the advance Q4 GDP report. Therefore, today's report is not expected to lead to any substantial revision to the net export component of Q4 GDP.
There will be a notable revision to stock prices at the start of trading, however, with participants fixated on the uncertainty generated overnight by the developments surrounding Greece and China.
The disruption here coincidentally follows on the heels of reports that bullish sentiment among individual investors spiked this week (to 51.6% from 43.8%), hitting its highest level in a year. This contrarian marker would suggest on its own that the equity market might be due for a pullback. Combined with the headlines on Greece and China, though, it is one more excuse for traders to take some money off the table.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
