Directional Motivations Deflated. Uncertainty Abundant



This is just the last 24 hours.

EU leaders issued their own vote of confidence that Greece would find a way to pass austerity measures in Parliament and avert default. For now…

(Bloomberg) –  European Union leaders vowed to stave off a Greek default as long as Prime Minister George Papandreou pushes through a package of budget cuts next week, pledging to do whatever it takes to stabilize the euro economy. Greece’s next hurdle is to shepherd 78 billion euros ($111 billion) of austerity measures through parliament, after yesterday’s endorsement of the program by experts from the European Commission, the European Central Bank and the International Monetary Fund.  Leaders of the euro area’s six AAA rated countries have said the key ingredient of a second package must be a pledge by banks, insurance companies and asset managers to maintain their holdings of Greek bonds. An EU statement spoke of the need for “informal and voluntary rollovers of existing Greek debt at maturity,” avoiding a coercive exchange that would lead credit-rating companies to declare Greece in default

Greek citizens aren’t happy about the burdens being placed on their lives by new austerity measures. Civil unrest has been a consistent player in this (n)ever-evolving drama. Let’s hope violence is limited…

(CNN) — Greek unions have declared a 48-hour general strike next week to protest new austerity measures set to be voted on by the Greek Parliament, one of Greece’s biggest umbrella unions told CNN on Thursday. The strike will take place Tuesday and Wednesday, the General Confederation of Workers of Greece said. A rally is planned for Tuesday that will end outside the Parliament building. Greece’s Parliament is due to vote Wednesday on a tough five-year package of tax increases and spending cuts, a day later than originally planned. The austerity measures must be passed if Greece is to win the last $17 billion portion of a $156 billion bailout package from other European nations that was granted in 2010, and also to clear the way for another potential bailout package to keep Greece afloat going forward.

While EU leaders have voiced confidence, the Brits don’t want their EFSM funds used in the next installment of the Greek rescue package….

(The Telegraph) – British taxpayers will not have to contribute to a European Union bailout package for Greece, David Cameron has said. At an EU summit in Brussels, Mr Cameron said he won “assurances” from fellow leaders that Britain should not be made to contribute to any new Greek rescue package. Some EU countries want to use money from the European Financial Stability Mechanism (EFSM) to help bail out Greece. Britain is a contributor to the mechanism, and decisions on its use are made by qualified majority voting, meaning there is no UK veto on using its funds, now worth Euro 11.85 (£10.5 billion). Britain’s share of the fund is £1.5 billion. Mr Cameron said he had been promised that the mechanism will not be used. “We were not involved in the first Greek bailout, we haven’t been involved in talks about potential Greek bailouts. So I believe it is absolutely right not to use the European Financial Stability Mechanism for future payments in terms of Greece,” he said.

And now contagion fears are heating up again….

(Bloomberg) – UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP) slumped in Milan after
a review of lenders’ credit ratings spurred concern the European debt
crisis may spread just as banks face scrutiny from regulators over
capital levels. Moody’s Investors Service said yesterday it may downgrade 13 Italian banks because they would be vulnerable to a cut in the government’s credit rating. The firm said last week Italy’s ratings may be cut because of slowing economic growth and the potential for the sovereign crisis to drive the country’s borrowing costs higher. Italian banks are also being stress- tested by European regulators next month to assess whether they have sufficient capital.  UniCredit, Italy’s biggest lender, led the drop, tumbling as much as 8.9 percent. Intesa Sanpaolo, the country’s second- largest bank by assets, slid as much as 7.2 percent. Both stocks were briefly suspended after breaching limits on intraday swings.

We have our own political problems though. Republicans have once again backed-out of bipartisan debt ceiling talks…

(Wall Street Journal) – The drive for a major deficit-reduction deal entered a new phase Thursday when Republican negotiators pulled out of bipartisan talks, leaving it to President Barack Obama and House Speaker John Boehner to resolve the toughest issues. House Majority Leader Eric Cantor (R., Va.) said he was backing out of the talks for now because the group had reached an impasse over the question of whether tax increases should be included in the deal. The only other Republican in the group, Sen. Jon Kyl (R., Ariz.), soon followed suit, agreeing that only the highest levels of leadership could break the logjam between Democrats’ demand that the budget deal include tax increases and Republicans’ adamant opposition to that demand. The talks were aimed at striking a budget deal in hopes of easing the way for Congress to raise the government’s $14.29 trillion debt limit. Treasury Department officials say that without additional borrowing authority, the government will run out of cash to pay its bills by Aug. 2. They warn that defaulting on any U.S. obligations could trigger another financial crisis and recession. The group, led by Vice President Joseph Biden, canceled its scheduled meeting Thursday. The suspension of the group’s work could mark the beginning of the final stage of budget negotiations, which most participants had long assumed would be concluded by the president, the speaker and Senate Majority Leader Harry Reid (D., Nev.)

Onto the U.S. data front, final Q1 GDP was revised higher this morning,  meeting forecasts. Economists expect growth to pick up in the 2nd half of the year after a slow start, which the Fed has already acknowledged…

(Reuters) – Economic growth was revised modestly higher in the first quarter to account for a slightly faster pace of restocking by businesses and a smaller increase in imports, government data showed on Friday, but remained anemic. Gross domestic product growth rose at annual rate of 1.9 percent, the Commerce Department said in its final estimate, up from the previously estimated 1.8 percent. The revision was in line with economists’ expectations. The economy expanded at a 3.1 percent rate in the fourth quarter. Growth has remained tepid so far in the second quarter, but both economists and the Federal Reserve are cautiously hopeful that activity will pick-up in the third quarter. First-quarter growth was supported by stronger than previously estimated accumulation of business inventories, slower imports and a smaller decline in residential construction, while the increase in business spending was revised lower. Business inventories increased $55.7 billion, above last month’s $52.2 billion estimate. The change in inventories added 1.31 percentage points to GDP growth.
Business investment rose at a 2.0 percent rate instead of 3.4 percent as outlays on equipment and software were not as strong as previously estimated. Consumer spending — which accounts for more than two-thirds of U.S. economic activity — grew at an unrevised 2.2 percent rate. The core PCE index closely watched by the Fed advanced at a 1.6 percent rate, the highest since the fourth quarter of 2009, rather than 1.4 percent reported last month. Fed officials would like to see this measure close to 2 percent.

Last but definitely not least, Durable Goods Orders beat estimates. This supports the view for a manufacturing rebound over the summer and better growth in the 2nd half of the year…

(Reuters) – New orders for long-lasting U.S. manufactured goods rose more than expected in May as bookings for transportation equipment rebounded strongly, according to a government report on Friday that could allay fears of a sharp slowdown in factory activity. The Commerce Department said durable goods orders increased 1.9 percent after a revised 2.7 percent drop in April, which was previously reported as a 3.6 percent fall.
Economists polled by Reuters had expected orders to rise 1.5 percent last month. Durable goods orders are a leading indicator of manufacturing and the report, which showed improvement across the board, pointed to underlying strength in a sector that has powered the economic recovery, even though recent regional factory data has shown some signs of fatigue. Orders were a buoyed by a 36.5 percent jump in volatile aircraft bookings. Boeing received 27 aircraft orders, up from just two in April, according to information posted on the plane maker’s website. Motor vehicle orders rose 0.6 percent after plunging 5.3 percent the previous month, suggesting some improvement in auto production, which has been hit by a shortage of parts from Japan. Excluding transportation, durable goods orders increased 0.6 percent after a revised 0.4 percent decline in April, previously reported as a 1.6 percent fall. Economists had expected this category to rise 0.9 percent. Outside of transportation, orders for machinery, primary metals, capital goods, computers and electronic products all rose.

Market Reaction…

Essentially unmoved.  There were modest ups and downs overnight into this morning, but we’re basically flat near important inflection levels.

Treasuries are unchanged near key resistance. Stocks are flat near key support. The Euro is flat near support. 10-yr Greek debt spreads have barely budged since last Sunday.  And mortgages are, pretty much unchanged so far.

The 10yr note is -1/32 at 101-25 yielding 2.916%. Resistance is found at 2.90%. Profit taking has been consistent at this level lately.  The Fannie Mae 4.0 is -1/32 at 101-07. Trading activity has been quiet this morning in TBAs.  SP futures are +0.02% at 1277, just above key support at 1270. There has been no conviction behind rally equities. Trading volume has been poor and short covering has led the charge into higher levels, where buyers go MIA and prices soon deflate back toward 1270. The Euro is -0.32% at 1.4212 vs. the dollar, just above its 23% retracement at 1.417, where its traded all week.  The Greek 10yr note yield is +13.2% over the U.S. 10yr note yield. Greek spreads have gone sideways near resistance at 13.0% wide. We’ve been stuck here all week too…

We’ve been referencing a lack of motivation in the markets lately.
Intraday volatility has kept us on the edge of our seats, but it hasn’t
amounted to much progress.

the beginning of June the benchmark 10-year note has meandered freely
about a 20bp range between 2.90 and 3.10 with technically-based profit
taking and new tactical ploys being the main drivers of directionality.
The Fannie 4.0 has traded in a 1 point price range as mortgages played
followed the leader with Treasuries.  Throughout all the ups and downs,
loan pricing drifted mostly sideways after setting new YTD lows on June
8th. We found those lows again yesterday, but didn’t have to travel far to find ’em.  SEE A CHART

like the market is waiting for a definitive answer to all its questions
all at once. Stocks are teetering on a technical collapse and bonds are
about to breakout bullishly. But no new developments can be reported.
At least nothing definitive. Uncertainty seems to be the main motivation
in the market at the moment (still).  We’re waiting for new
guidance…until then short-term strategery and defensive biases will
dominate directional flows.

The one asset that has moved considerably over the past few days: OIL.

With NYMEX oil prices hovering around $90/barrel, that market is at a tipping point itself. Economic forecasters would certainly paint a positive picture if energy costs were to continue trending lower.

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