EmailWhat was shaping up to be a positive week last week devolved into a losing one thanks to a broad-based sell-off on Friday that led to a 1.2% decline in the S&P 500.
The downturn emanated in part from a recognition that a reported agreement last Thursday between Greece and the EU and IMF on a new five-year austerity plan made for a good headline, but ultimately did nothing to resolve Greek default concerns. Accordingly, the rebound effort witnessed late Thursday was unwound and the market stayed depressed on Friday on the added recognition that things had come unwound so quickly and easily.
This morning, the S&P futures are pointing to a slightly higher open. That indication can be taken with a grain of Greek beach sand knowing the Greek parliament's important vote on the austerity measures is set for later this week.
A "yes" vote is an essential step for receiving a 12 bln euro funding tranche that will enable Greece to make impending debt payments. A "no" vote, on the other hand, could be a fateful step into a financial abyss.
With the uncertainty of the Greek vote, trading conditions are apt to be choppy and most likely accented by low volume.
We shall soon see what we will see.
For now, other headlines of interest include a report that global regulators have proposed an extra capital surcharge for systemically important banks in the range of 1.0% to 2.5% that cannot include contingent capital and news out of China that it may not meet its 4% inflation target this year.
There isn't any corporate news of note, although the Personal Income and Spending report for May has made an impression -- and not necessarily a good one as it relates to Q2 GDP forecasts.
According to the Bureau of Economic Analysis, personal income increased 0.3% in May (Briefing.com consensus +0.4%). Personal spending was flat (Briefing.com consensus +0.1%) as a 0.4% increase in services spending offset a 1.5% decline in spending on durable goods and a 0.3% decline in spending on nondurable goods.
Real PCE, however, was down 0.1% for the second straight month, which is the first back-to-back decline for that measure since March-April 2009.
The PCE price index was up 0.2% on top of a 0.3% increase in April. Excluding food and energy, the PCE price index jumped 0.3% on top of a 0.2% increase in April.
Real disposable income was up 0.1% in May and the personal savings rate was 5.0% versus 4.9% in April.
The slight rise in the savings rate could be construed as a sign of insecurity among consumers in the face of falling equity prices and rising initial claims.
The income and spending report has been taken in stride for the most part. The futures dipped a bit shortly after the release, but still point to a slightly higher open.
--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.
