Greece-inspired worries continue to dominate the headlines again
this morning, trying hard to divert the market's attention from a
strong Housing Starts reading and better-than-expected results from
). Greek society has endured a lot over the last two years, but the
upcoming election, which will effectively be a referendum on the
country's position in the union, has the potential of pushing them
truly into uncharted territory.
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Contagion fears have spiked as the odds of a Greek exit from the
currency union have increased. Yield on the benchmark 10-year
Spanish government bond has jumped since the Greek election to 6.4%
from 5.7%, reflecting such concerns. In addition to the government
bond market, bank deposits are another direct channel through which
contagion fears are spreading.
We don't have much data on trends in Spanish bank deposits yet, but
Greek banks appear to be losing depositors at a disconcertingly
fast pace. The European Central Bank's announcement that it will
not pull funding from Greek banks is helpful, but may not be enough
to restore confidence at this stage.
I don't think Euro-zone leaders are worrying much about Greece at
this stage. Their goal is protect Spain, and it is far from clear
at this stage if they have the ability to ring-fence that country
from the gathering storm.
If only the market will stop fretting about Europe so much and
start paying more attention to developments on the domestic
economic front, we would have a lot more green arrows on our
screens. This morning's better-than-expected Housing data will
provide it with one such opportunity. We also have Industrial
Production and minutes of the Fed's last meeting on tap for release
a little later.
The April Housing Starts data this morning came in better than
expected, with positive revisions to prior data reversing the weak
reading from the month before. Housing Starts increased by a
better-than-expected 2.5% to 717K annualized pace in April from
March's upwardly revised 699K level (originally reported at 654K).
Housing Permits were down 7% after the strong 8.8% gain March.
The Starts decline was not unexpected, particularly following the
gains in March. But the breadth of improvement on the Starts front
is particularly notable, as the gains were not restricted to the
multi-family segment as had been the case in recent months, but are
also showing up in single-family homes. Perhaps all the talk of a
housing bottom may not be without a basis given these numbers.
On the earnings front, we got solid earnings beats from Target and
Deere & Company this morning.
) was not that lucky in its results after the close on Tuesday, as
it came out with a terrible report. Management suspended the
quarterly dividend and withdrew previous guidance, indicating that
the restructuring effort has failed to show any results.