EmailWednesday's market will make for a good Law & Order episode, because it was essentially ripped from the headlines.
There was political and social unrest in Greece, weak economic data in the U.S., and a surge in the U.S. Dollar Index that encapsulated the market's concerns about potential policy errors the world over.
The end result was a homicide as the bears made a killing with the S&P 500 declining 1.7%.
The images on TV this morning are hard to believe. There are cars burning, stores being looted, and tear gas being fired to quell rioters. Oh, wait, that's Vancouver, where some fans apparently couldn't handle the thought of the Boston Bruins winning the Stanley Cup in much the same way Greek citizens can't handle the thought of working past age 55 and actually paying taxes.
It seems certain that Greece will remain front and center for participants. The prime minister there is attempting to form a new government and will hold a vote of confidence on his leadership in an effort to gain political agreement for necessary austerity plans that will placate the IMF, which is holding back a funding tranche that will enable Greece to make its impending debt payments. Additionally, the new austerity plans are considered necessary by European officials who are in the midst of trying to negotiate a new bailout loan that prevents a credit event.
It is a messy situation in Greece and worst-case scenarios sound ominous. Yet, recent history shows European leaders are experts at 11th hour solutions. It's just pride and prejudice that always forces things to the brink and creates a lot of fear and loathing in the capital markets leading up to that point, as we witnessed last year.
In any event, there is potential for more upset in the market today if the prime minster loses the vote of confidence, as that would feed fears the Greek government won't make the agreements necessary to win funding and avoid defaulting on their debt.
Separately, this is another busy day of economic reporting in the U.S., particularly with respect to two trouble spots -- labor and housing.
Starting with the former, initial claims for the week ending June 11 fell 16,000 to 414,000 (Briefing.com consensus 421,000) while continuing claims for the week ending June 4 were 3.675 mln (Briefing.com consensus 3.690 mln), a decrease of 21,000 from the preceding week. The four-week moving average for both series was little changed at 424,750 and 3.724 mln, respectively.
The good news in the claims data was that it was better than expected. The bad news is that initial claims, which were not influenced by any special factors, stayed above the 400,000 level. The translation for economists is that job growth isn't expected to be robust with initial claims at the level they have been running for many weeks now.
The housing starts and building permits data also checked in better than consensus estimates. Starts in May rose 3.5% to a seasonally adjusted annual rate of 560,000 (Briefing.com consensus 540,000) while building permits jumped 8.7% to a seasonally adjusted annual rate of 612,000 (Briefing.com consensus 548,000). The stronger permits number is expected to create an upside surprise in the Leading Indicators Index for May (Briefing.com consensus +0.4%), which will be released tomorrow.
Housing completions were up 0.4% to a seasonally adjusted annual rate of 544,000. The headlines for the starts report are encouraging, but they don't exactly point to a positive boost to Q2 GDP given that the number of new privately-owned housing units under construction dipped slightly in May to 418,000.
The futures market improved some in the wake of these reports, but not enough to tip the scales in any meaningful fashion. The cash market is expected to start the session slightly higher and will take its next economic cue from the Philadelphia Fed Index at 10:00 a.m. ET (Briefing.com consensus 7.0; prior 3.9).
Slowdown concerns will accelerate if the Philly Fed goes the way of the Empire Manufacturing Index and crosses with a negative number that implies contraction for manufacturing activity in the Philly Fed region. A positive number, on the other hand, could mitigate some of the slowdown concerns that were heightened by the Empire report.
New developments in and around Greece, however, are apt to transcend all else for the time being.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
