U.S. data, Europe woes to set tone
Fri, May 25 20:23 PM EDT
By Chuck Mikolajczak
NEW YORK (Reuters) - Investors will grapple next week with major U.S.
economic reports and the looming possibility of a Greek exit from the
euro zone, which is likely to keep dragging on equities for weeks to
As contingency plans are made for Greece's possible departure from the
euro zone, investors may not get a clear picture until Greece holds
elections on June 17. As a result, U.S. economic statistics may grab
the spotlight during the holiday-shortened week.
Major releases include consumer confidence, gross domestic product and
on Friday the May non-farm payrolls report, which could provide clues
on whether the economy is running out of steam or has simply hit a soft
U.S. financial markets will be closed on Monday for the Memorial Day holiday.
Corporate news next week is expected to be light, with the
first-quarter earnings season largely in the rear view mirror. Among
S&P 500 (.SPX) companies, only government contractor SAIC Inc
(SAI.N) is scheduled to report next week.
EUROPE STILL A CONCERN
"We are going to continue to worry about Europe no matter what. That is
going to be a concern," said Peter Cardillo, chief market economist at
Rockwell Global Capital in New York.
"But with the two main events in Europe not taking place for several
weeks, the market will probably concentrate more on the domestic
economy and the economic numbers."
But Europe will continue to be closely monitored, with equities
affected by any developments in the fiscally troubled region.
Increasing worries about the region, coupled with tepid U.S. data, have
sent the S&P 500 down more than 5 percent for May.
But stocks rose this week. The Dow Jones industrial average (.DJI)
gained 0.7 percent, the Standard & Poor's 500 (.SPX) was up 1.7
percent and the Nasdaq composite index (.IXIC) rose 2.1 percent.
As the Greek elections draw closer, headlines from Europe could unsettle investors.
Belgian Deputy Prime Minister Didier Reynders said it would be a "grave
professional error" if central banks and companies were not preparing
for a Greek exit from the euro zone.
In addition, French banks, which are among the lenders most exposed to
Greece, have stepped up their efforts on contingency plans for the
debt-laden country leaving the euro zone, sources familiar with the
JUMPING INTO STOCKS
Any U.S. data in the coming week which points to an economy pulling out
of the doldrums could divert attention from Europe and provide
investors an incentive to jump into stocks, which have become cheap
during the recent pullback.
Analysts have pointed to the 1,275 to 1,280 range for the benchmark
S&P index, just below the 200-day moving average, as a key level of
support the market is likely to challenge.
"You are looking at 1,277 on the downside. The market will test it, but
when it gets there it is going to hold because there is a lot of money
on the sideline that needs to be put to work," said Ken Polcari,
managing director at ICAP Equities in New York.
"People are using that number as the entry point, so you will find stability at that level."
Another possible silver lining for investors may be the strengthening
of the dollar, which has been a safe haven during the euro zone's
sovereign debt troubles.
The dollar index .DXY is up nearly 5 percent for the month, and some
analysts feel it could not only help equities stabilize but spur a move
"With sovereign debt default now a possibility, and some form of
dissolution of the euro also possible, the hidden positive may be for
the U.S. dollar, and U.S. dollar-denominated assets," said Brad Lipsig,
vice president of investments and senior portfolio manager at UBS
Financial Services in New York.
"Capital inflows could support U.S. real estate prices, which could
help stabilize U.S. banks," he said. "All of this could help support
U.S. stock prices during a difficult period for Europe's economy. It's
not inconceivable that this dynamic could trigger a rally in the U.S.
(Reporting By Chuck Mikolajczak; Editing by Kenneth Barry)
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