Surge In Consumer Spending Offsets Greece Tension

Surge In Consumer Spending Offsets Greece Tension

While Greece remains one the key drivers of short-term direction of the financial markets, a clutch of reports released today that paint an upbeat picture of the US economy should provide at least some support to stock prices.  



Surge In Consumer Spending Offsets Greece Tension
Surge In Consumer Spending Offsets Greece Tension

The US labor market has been in fine fettle for some time now and jobless claims data suggest that the trend continued through the end of last week. Initial claims rose 3,000 last week to 271,000, remaining close to historic lows, which sends the four-week moving average down from 277,000 to 273,750, a level that compares favourably to how things were looking month ago.

While the jobs market has been motoring along, we have been waiting for a pick-up in consumer spending and inflation. Data released by the Commerce Department today, though, suggests both areas are starting to gather pace. Personal income rose 0.5% in May, matching the pace seen in April, but whereas in April consumers chose to save that additional income, in May they opted to spend: consumer spending jumped a stronger-than-expected 0.9% (April was revised up to +0.1% from the no change that was originally reported).

There are some signs that inflation was stoked a little in May, with the PCE price index rising 0.3%, but the big picture remains extremely benign — the annual change was just +0.2%, while the annual change in the core rate slowed from 1.3% to 1.2%. So despite some signs of prices pressures at the headline level, the combination of an ambiguous trend at the core level and the annual headline rate remaining massively below the Fed’s target means the outlook for inflation remains in flux. I would say the Fed will need to see further evidence of an upward trend in order to satisfy the requirement stipulated in the last FOMC statement of being ‘reasonably confident that inflation will move back to its 2% objective over the medium term.’

Negotiations between Greece and its creditors have been dragging on in tortuous fashion with few signs of a firm break through. Hopes were boosted at the start of the week when euro zone finance ministers sounded notes of optimism in response to a Greek proposal. The concessions were ultimately deemed to not go far enough though, and there has been no subsequent progress. Greece must make a €1.6 billion debt repayment to the IMF next week, and is widely expected to default unless it can strike an aid-for-reforms agreement with its creditors.  The next swing of the pendulum appears to be a counter-proposal from the creditors.

The strength of today’s economic data has been enough to push stocks a little higher in early trading on Wall Street. Shortly after the open in New York, the Dow Jones was up 27 points or 0.15% at 17,993, though the broader gauge of the S&P 500 Index was barely changed at 2108.9.


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