Greece is the top concern for the markets this week after the government said it may not pay the IMF without a new deal. Over the weekend, the ruling Syriza party voted internally on their policy and 45 percent of the delegation voted to default, return to the drachma, plus implement labor market reforms and pension cuts. There is rising fear within the party that the government will cave in to creditor demands for more austerity and privatization of assets. Some speculate that Syriza will default on the IMF loan in order to win over domestic support for a deal with creditors.
The euro/U.S. dollar exchange rate is the place to watch for updates on the Greek situation. For now, the dip to $1.09, down from $1.14 last Monday isn’t concerning. The euro fell steadily in 2014 and 2015 before bottoming slightly below $1.05 in March. As long as the euro holds above the low from March, the market is signaling Greece is not a concern. The Greece ETF, Global X FTSE Greece 20 (GREK) is also holding above its lows for the year.
This coming days will be relatively light for economic data. The biggest item is the second estimate of first quarter GDP growth. However, because the Bureau of Economic Analysis is set to revise historical data in July, the current number loses relevance. The forecast is for last quarter GDP to have fallen from the initial estimate of 0.2 percent growth, to negative 1.0 percent, with a rise in imports pulling the figure lower.
Durable goods orders released today fell 0.5 percent in April, although that is from March levels that were revised sharply higher. Stripping out transportation orders shows a negative trend though, with orders in their worst shape since the financial crisis. April new home sales increased and year to date, new home sales are up 23.7 percent over 2014. The median sale price also increased 8.3 percent over last year. The median price for existing homes is up 8.9 percent over last year and less than 2 percent away from exceeding the 2006 peak. The release of this news sent the U.S. dollar higher, as it lends more support to a Fed rate hike.
Earnings are light this week. Autozone (AZO), Costco (COST) and Abercrombie & Fitch (ANF) headline this week’s wave of retail reports. Homebuilder Toll Brothers (TOL) reports on Wednesday.
The Dow Transports broke support in early Tuesday trading, a potential signal that transportation stocks have more room to fall. Oil prices are holding steady and have been in a tight trading range this month, but a stronger U.S. dollar could tip the balance towards lower prices. Guggenheim Solar (TAN) may be one fund to keep an eye on. Last week, shares slumped 8 percent when top holding Hanergy saw its shares cut in half in only a few minutes of trading. The underlying index provider has booted Hanergy out of its index, but trading has been halted, preventing the liquidation of the position. Financials continue to outperform in May and with data supportive of interest rate increases, the sector has a tailwind to start this week.