EmailMight as well get the main housekeeping item out of the way first. Greece is reportedly moving closer to agreeing to terms on its second bailout package. Nothing official has been announced yet, however, so brace yourself for another batch of bipolar headlines.
All that can really be said about Greece right now is that the market continues to act in a way that suggests it thinks an agreeable deal will ultimately get done and that a chaotic default will be avoided.
That remains our view as well. It should be acknowledged, though, that headline risk is increasing with the market's expectations. In other words, if the deal falls apart, there is apt to be a meaningful, near-term setback in the equity market as worries escalate about counterparty risk and the threat of a credit freeze.
As it stands now, it can be said that the market has been climbing a wall of worry when it comes to Greece. Therefore, one shouldn't be surprised if the announcement of a deal leads to a sell-the-news response since the market has been rallying on the rumor of a likely agreement.
There aren't going to be any rallies today -- at least not at the open. The S&P futures are just 0.1% above fair value.
The more compelling message in the futures indication is that there continues to be a lack of selling interest.
Again, that has to do in part with the expectation a deal will get done in Greece, but it also flows from the bullish bias seen in Asian and European equity markets, better-than-expected earnings from Walt Disney (DIS), Time Warner (TWX), and Polo Ralph Lauren (RL), and a reassuring global sales update for January from McDonald's (MCD).
China (+2.4%) led overnight gains, rallying on reports its central bank instructed banks to provide loans for first-time homebuyers and on expectations that inflation and new loan data will be encouraging.
There aren't any economic releases in the U.S. today, but the Mortgage Bankers Association reported a 7.5% increase in weekly mortgage applications, led by a 9.4% increase in the Refinance Index. Purchase applications were reportedly up a scant 0.1%.
The results from a $24 bln 10-yr Note auction will be announced at 1:00 p.m. ET. There will be added interest in this auction given yesterday's relatively weak 3-yr Note auction and the rally in the equity market that has presumably been aided by some asset reallocation.
With the latter in mind, a disappointing 10-yr auction should weigh on the Treasury market more than the equity market. Currently, the yield on the 10-year Note is bumping up against 2.00% in the secondary market.
--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.
