Stocks Close Out May On a Down Note, Weak Month; ‘Greece. Although Technically Solvent — All But Bankrupt’; Friday, June 5, 2015 Non-Farm Payrolls Consensus Is 227K Net New Jobs For May
Sell in May and Go Away? Well, it might have worked this time. Worries about Greece and weak U.S. and China economic data dominated the hallways of Wall Street last week. “Although technically still solvent, Greece is all but bankrupt,” wrote Landon Thomas in the May 26, 2015 Wall Street Journal. “Absent a last-minute deal with its creditors,” Mr. Thomas noted, “the nation will run out of money early next month (June).” And, investors aren’t very optimistic. Josie Cox and Rob Copeland wrote in this weekends (May 30/31, 2015) edition of The Wall Street Journal, that “[cash] deposits at Greek banks are at their lowest level in more than ten years, amid broad concerns about the country’s economic prospects that have hammered shares in Greek lenders this year. Total deposits fell to 139.36B Euros ($153B), in March, and over 170B Euros just five months ago,” data from the European Central Bank showed.”
Starting June 5, 2015, (Friday), — absent a deal — daily cash deficits will surge from their current level of 100M Euros per day, to 400M Euros per day; and then, double in size by June 8/9. “At this point, it is all over,” said a Greek financial official who spoke on the condition of anonymity to the Wall Street Journal. “In effect, analysts say, Greece is already operating as a bankrupt state,” Mr. Thomas wrote. He adds, “some 89 percent of Greece’s 6.5B Euro investment budget is majority financed by Europe.”
According to the May 31, 2015 edition of Bloomberg.com, talks between Greece and its creditors…”isn’t going well.” this weekend. Greek Prime Minister Alexis Tsipras is reportedly scheduled to hold a conference call sometime this evening with German Chancellor Angela Merkel and French President Francois Hollande. International Monetary Fund Director, D=Christine Lagarde, said in a German newspaper interview on Friday, that “a Greek exit from the Euro was a possibility, contradicting earlier comments from European Central Bank officials,” the Journal reported.
My guess — for what that is worth — is that yet another Greek Band-Aid will be applied; but, the Greek populace and the rest of the Euro Zone has “Greek debt/bailout fatigue,” and at some point, one or, all are going to run out of patience and the lending will all but cease. In the long run, that is probably the only option for Greece — barring major economic reforms with much less regulation and more pro-growth policies.
Chinese stocks also “plunged last week, as brokers tightened margin requirements,” wrote Avi Salsman, in this weekend’s Barron”s. Meanwhile, “the Chicago Business Barometer, known as the Chicago PMI, a survey of Chicago-area purchasing managers that provides insight into companies’ business plans. The decline, which put the index below 50, indicates that manufacturing activity is contracting,” wrote Corrie Driebusch, in this weekend’s Wall Street Journal. Then on Friday, Ms. Driebusch noted, “the Commerce Department said its second reading of the U.S. economic output for first-quarter 2015 GDP output — showed the U.S. economy slowed sharply, growing at just 0.2 percent. Economists surveyed by the Wall Street Journal had expected that to be revised downward to a one percent contraction in Friday’s reading.”
For the week, the DOW dropped 221pts., or -1.2 percent to 18,010; while the S and P 500 fell 19pts,, or -0.9 percent, to 2,107; and, the tech-heavy NASDAQ also lost 19pts., or -0.4 percent, to 5,070. For the year, the DOW is +1.05 percent, while the S and P 500 is +2.36 percent; and, the NASDAQ, as it has done all year, lead the indices, at +7 percent.
This week, besides the Greek drama, we’ll get the all-important Friday Non-Farm Payrolls number on Friday, June 5, 2015 at 0830am — on the number of net new jobs created in the U.S. in the month of May. Consensus forecast is that 227,000 net new jobs were created in the U.S. in the month of May. Traders will be watching the number closely as the Federal Reserve is set to raise rates by .25 basis points — at least that’s the guess — at the end of June or September. If the jobs number is higher than 227K, the market may sell off on the good news — being bad news — and, if the number is too weak — we may get the same thing, as a weak GDP and weak jobs number could raise recession worries. A goldilocks number +/- 10K/15K or so around the 227k forecast — would likely be a net positive — all things being equal. A collapse of the Greek debt talks will likely beget more selling of stocks; but, may be muted as traders figure the Fed could not raise rates at all or very much — with that kind of turmoil going on.
All for now. Have a good week. V/R, RCP