US Shares Mixed Amidst Solid Consumer Data, Greek Negotiations

Kristian Rouz — Wall Street opened mostly in the green on Thursday, however, the wider bag of stock and bond data suggest mixed results with a negative longer-term trend prevailing more clearly. While the talks between the indebted Greece and its IMF and EU creditors have intensified ahead of the nearing deadline for Athens to default, a more favourable macroeconomic outlook for the US initially pushed US stock up. However, as US economic expansion accelerates, the next stage of US monetary tightening is closer.

US consumer spending rose in May, while the labour market's performance improved with jobless claims holding firmly below 300,000 for the 16th week straight, as evidenced by the macro data which arrived early on Thursday. The macro optimism propelled all three major US indices higher at the open in New York, however, the ongoing rally in US stocks, albeit well supported by the expansion in the real economy, is stirring certain concerns — presumably — based on the excessive global money-printing. That said, any significant change in monetary policies overseas might well overthrow the entire US financial market.

Meanwhile, today The S&P 500 Index is just 0.1% up to 2,108.83 points — somewhat of a withdrawal after the initial gains of 0.3% at the open. The Dow Jones Industrial Avg Index rose just below 0.1%, to 17,970.77 points, compared to the initial rise of 0.39%. The Nasdaq Composite is also up 0.1%, well below the initial gains of 0.37%. That means the data optimism and the positive effects of the news of the ongoing constructive discussions over the proposed solutions to the Greek stalemate is wearing thin.

The macro data is solid, and slightly above the expectations somewhat. The US consumer spending posted its greatest rise in nearly six year this past May with the accelerated demand for cars and certain other expensive durable goods leading the build-up. According to the US Department of Commerce, consumer demand added 0.9% (compared to 0.7% previously forecast), the biggest rise since August 2009, while this year's April's figure was revised upward to 0.1%. The indicator suggests a faster economic expansion in Q2 as consumer demand drives some 71% of the US economy.

Meanwhile, the labour situation also improved with official unemployment figures fluctuating between 5.0% and 5.2%, which is close to the magic ‘full employment' formula, last seen in action during WWII. The jobless claims figure, albeit added 3,000 to a total of 271,000 by 20 June, is below the 300,000 threshold. These figures do not reflect, however, the real employment situation, which is hard to estimate given the vast — and mostly employed — class of illegal aliens, on the one hand, and the excessive existence of the lowest-paid jobs, mostly the government-sponsored, non-union, part-time, etc. The scale of the US underemployment is overwhelming, however, no trustworthy estimate of the phenomenon is possible to undertake.

Savings rate of the US households dropped from 5.4% to 5.1% in May, pushing inflation 0.1% higher.

Meanwhile, the financial storm is brewing inside the global financial system. With wide-scale stimulus programmes intact in Japan and the Eurozone, and the US Fed gradually tightening its policies, the overwhelming volumes of artificial monetary liquidity is flooding the US market, naturally pushing the stocks higher. Most US financials thus are heavily dependent on monetary policies of the foreign nations, and risks like the Greek debt stalemate or bursts of bubbles brewing in mainland China, if unravelled, will significantly impair the US stocks performance. That said, the longer-term investment outlook for the US is slowly turning negative, mainly due to the US Fed idling for quite a long time already (last major Fed policy measure came about last autumn).