The Greece debt debacle continues into another week. The stakes are higher with Greece apparently days away from default if it doesn’t reach a deal with creditors. The European Central Bank kicked the can today, extending emergency funding to Greece, but only until the end of the day. The ticking clock didn’t spook investors though; optimism in Europe sent the German and French stock markets up more than 3 percent at one point, but by Monday morning, officials at the negotiations were warning it was unlikely a deal would be reached today.
In the United States, optimism out of Europe helped to push both the Nasdaq and Russell 2000 to new all-time highs in early Monday trading. The S&P 500 and Dow Industrials are still below their all-time highs, though they could hit new records over the coming days.
On Wednesday, the final revision of first quarter GDP will be released, which is forecasted to be negative 0.2 percent. This number will get headlines, but the more important data is from the current quarter: new homes sales in May, the flash PMI for June and consumer spending. Strong data could push up growth forecasts for the current quarter. The Atlanta Fed’s GDP Now model currently forecasts 1.9 percent growth based on data received so far.
Overseas, PMI’s for a number of nations will be closely watched, with China’s being the most important. While the Chinese stock market is closed for a holiday on Monday after shares fell more than 6 percent on Friday and 13 percent last week. The stock market in China doesn’t affect global markets due to capital controls that limit foreign investment, but its stock market is one of the few bright spots in the world’s second largest economy. Investors are cashing in stock winnings to buy real estate and startups are raising capital to fund development. If the market slides, it would be worrisome for an economy that has likely slowed below 7 percent annualized GDP growth and where real estate investment had stalled.
We’re in the lull between earnings seasons, but this week will see several well-known firms report including Blackberry (BBRY), Micron Technology (MU), Nike (NKE), Monsanto (MON) and Carnival (CCL). Homebuilder Lennar (LEN) is also worth keeping an eye on. The homebuilding sector has been hurt by rising interest rates and homebuilder funds such as Fidelity Select Construction & Housing (FSHOX) and iShares US Homebuilders (ITB) are off their highs set in April. KB Home (KBH) shares rallied more than 8 percent on Friday following an earnings beat and were up more than 1 percent again on Monday morning. If Lennar can beat estimates as well, it would bode well for the sector. Given the housing sector’s role in the economy, it would also be good news for GDP.
The U.S. dollar will be a key asset to watch over the coming days. Although investors turned very optimistic about the potential for a deal with Greece, pushing up stock prices across Europe, the euro barely budged. A rally or failure to rally by the euro would be significant here because the U.S. Dollar Index has significant support in the 93 to 94 range. A break lower wouldn’t doom the U.S. dollar bull market, but it would open up the potential for another move lower. If the euro doesn’t rally in the wake of a deal, it would be a significant bearish signal for the euro, and a bullish one for the greenback.