The turmoil in Greece has obviously hurt the euro. The perception is that the US is one of the recovery leaders among the developed nations, and will increase rates quicker than euro bankers. There, the plight of Greece, and possibly other countries in the Euro community, will have a slow recovery and delay the day when rates will increase. US data to be released next week should provide us with clues about the status of the US recovery.
On Monday we get information about the Federal Budget, which is forecast to be a $155B deficit during the previous month. Since tax revenues lag during an economic recovery, it is doubtful they will help, so the real question will be the rate of government spending. Since the current administration's economic advisers are disciples of Keynes, the large deficit will be viewed as a positive, a stimulant for the economy during a recovery period.
The US trade balance will be issued on Tuesday and is expected to be in the vicinity of $38.4B. Analysts will be closely examining the details of this number. Is the trade deficit caused by a resurgence of consumer spending, or does the number merely reflect the a higher cost for imported petroleum products? The Wednesday reports will give us the CPI estimates, currently anticipated to be up only 0.1%. Many economists are perplexed why there has been such little evidence of inflation despite the massive increase in the money supply. Retail sales is the other report scheduled for Wednesday. The core retail number is expected to show an 0.5% increase.
New unemployment claims are estimated to be 439K, announced on Thursday, along with the TIC Long Term Purchases. The revival of foreign demand for US Treasuries did not occur until the 10 year note approached 4% early in April, however, US equities were attractive investments during the period.
While these reports are interesting, there are some other concerns about the US economy. A commentary in Bloomberg entitled Next 'Big Crisis' is Unfolding in Muni-Bond Market: Joe Mysak touched on some of these problems. In this article he states:
Look to municipal bonds for the next big disaster.
That’s the advice of Richard Bookstaber, a senior policy adviser at the Securities and Exchange Commission.
Writing on his blog this past week, Bookstaber said the next big crisis looked a lot like the last big crisis, in housing and credit.
Conditions in the municipal-bond market match almost exactly the conditions that existed for the blowup that sparked the worst recession since the Great Depression, he said."
We know that smaller tax receipts have caused chaos with the budgets at the state and local levels, and that since tax receipts lag an economic recovery, it may be best to look beyond some of the conventional economic data. Should euro bankers stumble into a solution to the sovereign debt issues in Greece, and if in the US, the possibility of bankruptcy for a municipal entity emerges, will this not seriously alter the psychology of the market?
With open interest in the euro futures market growing, our concern in that there may be too many traders lined up on the short side of the euro versus the USD.
Disclosure: No equity positions
