Greece debt saga keeps stocks, commodities on edge

A number of elements factored into this past week's market action, not the least of which was the ongoing saga of the Greece debt crisis. U.S. economic data was mixed, but the handwriting is on the wall that there is no economic recovery, even though May’s leading economic indicators were positive. Market participants viewed the report as a blip and could not offset the ongoing labor situation or the University of Michigan consumer sentiment decline to 71.8 for early June. The confidence index is clearly reflecting the general malaise in the country with more than 17 million people out of work or having taken jobs paying much less than positions lost. The overriding concern is how the economy can improve while so many consumers are out of work and living hand to mouth.

On Friday the International Monetary Fund, in its regular assessment of global economic prospects, issued an ominous report stating that "bigger threats to growth had emerged" since the April report. They cited the Euro Zone debt crisis and warned Washington as well on budget deficit concerns. This week the proposed bailout of Greece will be the dominant factor with the economic data coming in a close second. Also keep a close watch for the anticipated change by Moody’s Advisory service of Italy’s debt, another potential sign that the Euro is in trouble.

Interest Rates: September treasury bonds closed at 12528, down 15/32nds after trading as high as 12615 on concerns over Greece and the statements by France’s Sarkozy and Germany’s Merkel pondering a resolution to the problem. The rally in equities on Friday also prompted the move of money from the relative safety of Trasuries back to equities.. We do not feel any resolution of Greece’s immediate debt problem will solve it and "rumblings" of other EuroZone country problems are emerging i.e. Moodys potential downgrade of Italy’s debt. We expect bonds to remain in a trading range and have programs that could prove beneficial to investors.

Stock Indices: The Dow Jones industrials closed at 12004.38, up 42.84 and posted the first weekly gain since April. The S&P 500 closed at 1271.50, up 3.86 while the tech heavy Nasdaq lost 7.22 points to close at 2616.48 tied mostly to the drop in RIM stock. Volatility increases on a quadruple "witching" day where the June contracts across the board expired. For the week the Dow picked up 52.45 points, the S&P 500 0.52 points but the Nasdaq lost 27.25 points. We continue to warn against "optimistic" expectations for both the U.S. economy and the equity markets and suggest implementing hedging strategies immediately. We can provide assistance in developing hedging programs for holders of large equity and bond portfolios.

Currencies: The September U.S. dollar index closed at 7544.5, down 77.9 after early week gains tied to the Sarkozy-Merkel comments on resolution of Greece debt. That prompted the buying in Euro currencies and profittaking in the dollar. The September Euro gained 173 points to close at 14276, the Swiss Franc 24 points to 11795, the British Pound 71 points to 16158, the Japanese yen 98 points to 12498, the Canadian dollar 65 points to 10177, and the Australian dollar 110 points to 10492. Heavy shortcovering on Friday was the main feature in front of the weekend. The expectation of a resolution of Greece’s debt problem is still uncertain and the riots tied to Greece’s implementation of a severe austerity program remains of concern. We could see a reversal and new dollar strength if the resolution fails to materialize or if the threat of a Moodys downgrade of Italy’s debt also develops. Stay on the sidelines for now but look to buy dollars on any change in the "positive momentum" for the Eurozone situation.

Energies: July crude oil closed at $93.01 per barrel, down another $1.94 tied to reduced expectations for global economic growth and declining demand for energy products. We continue to believe there is no U.S. economic recovery nor is the concern over the eurozone countries debt resolved to any degree. We continue to believe crude oil prices will decline to the $80 per barrel level with some brief corrections in between tied possibly to geopolitical events.

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