Thursday, June 25, 2015
Positive U.S. economic data and the continued impasse on the Greek issue provide the backdrop for today’s session. Stocks ended yesterday’s session in the red and we will most likely see a repeat performance today as well, even though pre-open sentiment is pointing towards a positive start.
Negotiations between Greece and its creditors has literally gone down to the wire, with substantive disagreements remaining between the two sides over Greek pensions and other spending measures. The market euphoria from earlier in the week following fresh Greek proposals that were primarily geared towards tax increases has all but evaporated.
With time running out ahead of the Tuesday deadline, the logistics of a deal with its required approvals by the Greek and German parliaments seem daunting. The odds of a deal materializing remain high, though a lot will depend on whether the Greek government has the political capital to agree to and implement measures that run counter to their political mandate.
On the data front, we got a better-than-expected read from the May Personal Income & Spending report. Consumer spending was up +0.9% in May versus estimates of +0.7% gains, which is particularly encouraging when viewed in conjunction to the positive revision to the April spending numbers (+0.1% vs. 0% before). Data on the income side also came in better than expected, consistent with the improving trend we have been seeing lately in the labor market. The spending gains indicate that some of the more optimistic GDP growth estimates in the current period could very well be achievable.
Consumer spending, which accounts for more than two-thirds of the U.S. economy, was up +2.1% in Q1 (per the third and final Q1 GDP read that came out on Wednesday), with today’s data indicating that Q2 spending growth would be in excess of +3%. The data calendar moves into high gear next week, even as Greece has only until Tuesday to wrap up its deal, with the June factory sector ISM survey on Wednesday and the monthly non-farm payroll report on Friday. Strong showings on both of these reports will further crystallize the market’s Fed expectations of a September rate increase.
Sheraz Mian
Director of Research
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