The Nitty Gritty Details:
Some positive news on the Greek debt front has helped provide some support to the markets this morning. However, this is being “countered” somewhat on weaker-than-expected consumer spending and consumer income data for May. Commodities are weak this morning with oil and industrial metals leading the declines. The combination of weak economic data and a stronger U.S. dollar is putting pressure on commodities. In the bond market, the benchmark 10-year U.S. Treasury is hovering around a year-long low of 2.87%.
Looking back at Friday, stocks fell amid ongoing European debt concerns, “locking in” another down week for stocks. The S&P 500 has managed only one positive week since April after losing modest ground last week. News that Greece had agreed to a long-term austerity plan with the EU and IMF failed to put out the latest fire as the market awaits the Greek parliamentary vote and expresses pessimism toward whether Greece’s troubles are fixable without default. Concerns about the credit worthiness of Italian banks also weighed on sentiment, drowning out the impact of a positive durable goods report. Energy and Technology were Friday’s biggest sector losers, while only the defensive Utilities finished the session higher. For the week, led lower by Financials, the S&P 500 lost 0.2% and is now up less than 1% year-to-date.
Around our financial planning services firm this morning, we were discussing four items that we thought would be of particular interest to our readers:
The Markets Broken Down:
1. More on the consumer data due out this week. On the consumer side, reports on personal income and personal spending for May kick off the week (both came in slightly weaker-than-expected this morning), and the week concludes with the nation’s vehicle manufacturers reporting their sales for June. In between, the University of Michigan will report its latest data point on consumer sentiment for June. We continue to expect the consumer to merely “hang in there” over the remainder of 2011.
2. More on the manufacturing data due out this week. Over on the manufacturing side, the earthquake in Japan, the slowdown in Europe, the rate hike-induced slowdowns in emerging market nations in the first half of 2011 and severe weather in the United States have led to a deceleration in manufacturing. This week’s reports on the manufacturing sector for June – Richmond Fed, Dallas Fed, Milwaukee Area Purchasing Managers, Chicago Area Purchasing Managers, and the key Institute for Supply Management (ISM) report on manufacturing – are likely to continue the theme of deceleration.
3. What is the latest on the situation in Greece? The IMF is withholding the current tranche of the existing rescue fund until the Greeks pass some spending cuts. This original rescue package fully funds Greece until mid-2012. Once the Greeks pass some spending cuts (in the next week or two), the discussion will turn to a second rescue package that extends the bailout into 2013. It is widely expected, based on yields and credit default swaps, that holders of Greek debt may suffer a restructuring or technical default at that time. A technical default for Greece in a year appears to be the market’s “base case,” while a bigger European meltdown that would lead to another global financial crisis is not expected.
4. Debt levels continue to “weigh down” the global economy. Around the globe, the inability of governments and households to reduce their debt continues to cast a shadow over Western economies and the financial health of individuals. Today, U.S. consumers have more mortgage and credit-card debt than they did five years ago, and the U.S. budget deficit is worsening. At the same time, European governments are having to throw billions more Euros at Greece to keep it afloat. The repercussions are likely to play out for years to come in the form of patchy economic growth, further government market intervention (like last week’s decision to release oil reserves) and the frequency of financial market swings.
As always, email me here with your questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
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