July 13th, 2011 7:19 AM by Lehel S.
In early trade, equity futures were down on debt concerns in Greece and the possibility of contagion in Spain, Italy, Portugal, and Ireland. Problems in Greece are still unresolved despite the Band-Aides that been applied. It is now becoming more accepted that there will be some sort of Greek default. Fears over Italian solvency and political stability have now infected European markets and many are questioning the EU’s ability to handle the damage. This put pressure on the euro and US equity futures indicating that stocks would open lower in the US. EU finance ministers promised yesterday that they would offer cheaper loans and make the rescue fund for Greece more palatable but investors are losing confidence that these bigger problems in Greece will be contained.
Treasury yields fell significantly overnight on European fears but recovered somewhat near the 9:30am stock market opening. The 10-year note yield traded as low as 2.80%, the lowest yield since November, and then settled back to the 2.90% level. At the 9:30am opening, the 10-year was trading at 2.91% and the DJIA was lower by only about 5 points.
At 8:30am the trade deficit for May came in bigger than expected -$50.23B versus -$43.63B in April. This is the largest trade deficit since October 2008. The main growth in the deficit is due to petroleum demand. Imports and exports are growing but imports are outpacing exports. The big issue becomes that this negatively affects GDP and makes the advance 2nd quarter GDP report in two weeks possibly revised lower.
There is little for the markets to chew on today so focus will remain on European sovereign debt issues. The debt ceiling issue is essentially accepted as a done deal in that Congress will raise the limit and avoid a downgrading but media pundits will continue to talk about it. The focus will hopefully change to the spending cuts that will be agreed to that will come along with the increase in the debt ceiling limit.
Next on the calendar for today is at 1:00pm when the US Treasury will auction $32B in 3-year notes. We are in the midst of summer trading activity when many top decision makers are on holiday. This may make the markets more volatile with greater swings intraday.