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Greece Government Tones Things Down and Equity Markets Rally


Today's financial recap and tomorrow's financial outlook.

Equities traded in a very wide band again today. The S&P 500 (SPX) traversed a 40 point range (i.e. 2%) during today's session in what has become a very common occurrence this year. Early weakness due to a poor manufacturing survey was met with buying as the S&P ETF (SPY) traded at 197.86, which had been the exact low on December 16 last year. The finalized 2016 budget from President Obama and more productive news from Greece were major catalysts for the upward movement in equities.

At one point today, the S&P 500's performance over the past six months was exactly flat.

The January ISM survey of manufacturers dropped to an index reading of 53.5, down from 55.1 in the prior month and below the 54.5 expected. This marks the third month of declines after a peak reading of 57.9 in October. Internally in the report, the most economically sensitive components - new orders and order backlog - both continued to decline dramatically, which was worrisome to investors. The poor report marked the low of the day as the 1988 support in the SPX was broken. Personal spending at a nominal level declined by 0.3% in December and was down 0.1% after including the decrease from deflation, which was the worst for a single month since 2009.

It was reported by the Financial Times that Greece's new finance minister had proposed a new plan to its European creditors and the ECB that would swap its existing loans for new bonds linked to the Greece's nominal growth rate in exchange for dropping the new government's call for debt writeoffs. Additionally, it would ask for less aid ($1.9 billion versus $7 billion), run a budget surplus after interest payments each year, and target wealthy tax evaders. However, although this news appeared to juice US equity markets by more than a percent, Reuters reported that no such discussions had taken place.

Tomorrow's Financial Outlook

The major event overnight is the Reserve Bank of Australia (RBA) policy meeting. It is widely expected that they will cut the policy rate by 25bps and indicate they are prepared to make further cuts in the coming months. Currently, the 3yr Australian government bond trades at a yield that is more than 50bps below the RBA's policy rate at 2.5%. The Australian Dollar (AUD) has sold off more than 12% against the US dollar as commodity prices have fallen over the past four months.

In the US, there are two economic reports of note. The first is December factory orders, which are expected to decline by 2.4%. Second is January vehicle sales, which are expected to moderate and remain at relatively the same annualized pace of 16.60 million units in the prior month. Fed Presidents Bullard and Kocherlakota are scheduled to speak.

Earnings include Archer-Danields Midland (ADM), Eaton (ETN), Emerson Electric (EMR), AGCO (AGCO), Wendy's (WEN), National Oilwell Varco (NOV), Arch Coal (ACI), HCA (HCA), Santander USA (SN), Aetna (AET), UPS (UPS), Chipotle Mexican Grill (CMG), Gilead Sciences (GILD), Walt Disney (DIS), Eagle Materials (EXP), Wynn Resorts (WYNN).

Twitter: @Minyanville

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No positions in stocks mentioned.

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