Greece is weighing 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 that it's 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.
Polls in Greece have shown both parties winning this 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, where he expressed interest in keeping Greece within the eurozone, have helped spur a market rally.
I believe New Democracy will win in this wake-up 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 (SPY) rose 1.1% Thursday. The SPDR Dow Jones Industrial Average (DIA) and the PowerShares QQQ (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 refrained from changing its asset buying program, but central banks globally stand at the ready to act on any disruption produced by the Greek result.
EURO STOXX 50 Price EUR: +1.2%
FTSE 100: +0.3%
CAC 40: +1.5%
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, including the Empire State Manufacturing Survey, Treasury International Capital (TIC), Industrial Production, and the Reuters/Michigan Consumer Sentiment Index.
June's reporting of the Empire State Manufacturing Survey showed a sharp decline, and could impact industrial shares within the Industrial Select Sector SPDR (XLI) and major manufacturers like General Electric (GE) and Caterpillar (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 the recession, or just follow our blog.
The Reuters/University of Michigan Consumer Sentiment Index was felled Friday, to a mark of 74.1, from 79.3 at previous check. Economists had foreseen issues, but not to the degree they found. Bloomberg's survey of economists showed the consensus expectation was set at more than 3 points higher than the result, at a mark of 77.5. Obviously, the most recent falloff has been influenced by the heightening risk tied to Greece and Europe, and also to the resulting decline in U.S. stocks since the start of May. If consumers begin to put their money where their mouths are, then our consumption economy falls into recession.
This will affect major discount and non-store retailers like Wal-Mart (WMT), the nation's largest retailer, and Amazon.com (AMZN), but I continue to favor Dollar Tree (DLTR) over the other two for company-specific reasons. Distressed retailers like J.C. Penney (JCP) and Sears (SHLD) should continue to face penalties if consumers are pulling back, whereas the fate of Best Buy (BBY) may more closely rest with the electronics cycle and product introductions from Apple (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 (C), JPMorgan Chase (JPM) or Goldman Sachs (GS) today. I do, however, hear good things about capital flows into Switzerland, so UBS (UBS) and Credit Suisse might benefit if not for other factors. UBS has shown some life of late, but perhaps European exposure to Credit Suisse 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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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.