Greece weighs heavily on stocks today, with elections taking place this weekend. Up until a couple of days ago, the market was completely terrified that the disruptive Greek political coalition, Syriza, might win the second time around. Now being taken seriously, after finishing second to New Democracy, it might draw the support of voters who wouldn’t previously vote if they thought they couldn’t make a difference.
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Polls in Greece have shown both parties winning this second time around, but a poll of wagers being placed on the election showed yesterday that New Democracy was garnering the majority of the bets. That news, and some comments by Syriza’s leader, Alexis Tsipras, within which he expressed interest in keeping Greece within the euro-zone, have helped spur a market rally.
I believe New Democracy will win in this wakeup call election, and the current rally will gain more confidence on the great relief of investors. Indeed, the pressure placed on Spanish, Italian and Portuguese borrowing costs should ease as a consequence, and the danger would be averted for now. U.S. futures were higher this morning, after the SPDR S&P 500 (NYSE: SPY) rose 1.1% Thursday. The SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) gained 1.2% and 0.4%, respectively, Thursday. Before the close and ahead of a figuratively long weekend, I expect investors will pull back a bit.
International Markets are in full-blown rally mode Friday on that same hope expressed by U.S. markets Thursday. In the news, the Bank of Japan kept from changing its asset buying program, but central banks globally stand at the ready to act on any disruption produced by the Greek result.
Nikkei 225: +0.01%
Hang Seng: +2.3%
S&P/ASX 200: +0.4%
U.S. Economic Data Schedule:
There’s a lot of data on tap for a Friday today, with the Empire State Manufacturing Survey, Treasury International Capital (TIC), Industrial Production and the Reuters/Michigan Consumer Sentiment Index all due.
June’s reporting of the Empire State Manufacturing Survey showed a sharp decline, and could impact industrial shares within the Industrial Select Sector SPDR (NYSE: XLI) and major manufacturers like General Electric (NYSE: GE) and Caterpillar (NYSE: CAT). The New York area measure of manufacturing showed a 15 point drop in its General Business Conditions Index to 2.3, down from 17.1 in May. Economists were looking for slippage here, but only to 13.8. New Orders fell 6 points while Shipments dropped a steep 19 points, indicating a serious drop-off in activity and offering yet another sign of recession. Be sure to see our upcoming report on recession, or just follow our blog.
The Reuters/University of Michigan Consumer Sentiment Index is due at 9:55 AM ET, and economists are looking for a reading of 77.5, which would mark a drop from the last check at 79.3. Bloomberg’s Consumer Comfort Index was just reported improved again yesterday, to negative 36.4, from minus 37.6. I wouldn’t read anything from the weekly measure though, as it has been less than correlated with the Michigan figure in recent history. Instead, the Comfort measure has better coincided with the Conference Board’s Confidence Index.
In other words, I think this data point might be hard to measure but my bet would be with economists, given the nascent trend of stocks and market panic about Europe. It would prove a net negative for stocks if it marked a significant decline, but the market will most likely focus on Greece and the future, and lay its bets on that. This will affect major discount and nonstore retailers like Wal-Mart (NYSE: WMT), the nation’s retailer, and Amazon.com (Nasdaq: AMZN), but I continue to favor Dollar Tree (Nasdaq: DLTR) over those two for company specific reasons. Distressed retailers like J.C. Penney and Sears (Nasdaq: SHLD) should continue to face penalty if consumers are pulling back, where the fate of Best Buy (NYSE: BBY) may more closely rest with the electronics cycle and product introductions from Apple (Nasdaq: AAPL).
The Treasury International Capital (TIC) Report showed a net outflow of capital in April. Given what happened overseas in May, I would expect the data will prove much different next month, and investors should make note of that before reacting to the capital flight from the States shown here. The net outflow of all net foreign acquisitions of long-term securities, short-term U.S. securities, and banking flows was $20.5 billion. With attention to what I discussed about May, take note that April may prove an important indicator of things to come once trouble overseas quells, should it calm. Still, I wouldn’t expect this news to much impact major bankers Citigroup (NYSE: C), J.P. Morgan Chase (NYSE: JPM) or Goldman Sachs (NYSE: GS) today. I do, however, hear good things about capital flows into Switzerland, so UBS (NYSE: UBS) and Credit Suisse (NYSE: CS) might benefit if not for other factors. UBS has shown some life of late, but perhaps European exposure to CS has it tanking through it all. Be mindful of exposure to the pending catastrophe before laying down chips here.
Industrial Production was reported this morning and showed a contraction for the month of May. Production dropped by 0.1% against economists’ consensus expectation for no change. May also measured poorly against April’s revised lower increase of 1.0%. With regard to the manufacturing sector, production contracted by 0.4%, against the revised higher April rate of +0.7%. Economists were looking for a smaller contraction of 0.3% here, so the news is clearly negative for manufacturing and all others. While the goods sector of our economy is the smaller against services, it still reflects the broader economy, and offers yet another sign of slowing. Capacity Utilization contracted as a result to 79% of capacity, from 79.2% in April. Take note, however, that both production and utilization remain higher than they were in March. That said, change in direction matters critically here.
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