EmailIn case you didn't know it, the circus is in town and it is a three-ring circus.
Ring one features President Obama and House Speaker Boehner driving a VW bug in circles, with both men fighting over who gets to do the steering. When the little car comes to a stop, clowns pop out of the side doors and they just keep coming and coming to everyone's surprise that so many clowns can fit in such a tiny car.
Some clowns are dressed to look like donkeys and they pop out on the left while others are dressed to look like elephants and they pop out on the right. Off to the side, watching the car empty out, are a bunch of clowns having a tea party. The thing about the act in ring one is that it isn't all that entertaining. It's just a bunch of clowns acting silly in an unfunny kind of way because the act has grown tired by the time all of the clowns pop out of the car.
Turning our attention to ring two, we see a high-wire act that features Greek Prime Minister George Papandreou on one side of the wire and Italian Premier Silvio Berlusconi on the other side. In the middle is a cadre of ECB officials and EU finance ministers forming an ever-so-delicate pyramid formation that would make even the Flying Wallendas wince at the thought of it all crashing down because of imperfect balance.
In ring three, we see a juggler and it is none other than Chinese Premier Wen Jiabao who is juggling the balls of growth and inflation while balancing a series of interest rate hikes on his head. It is a riveting act, because the crowd is uncertain as to which ball might drop first.
The price of admission to this circus is free and the circus is in town for several more weeks at least. Who knows, though? This circus could ultimately challenge The Phantom of the Opera in the longest-running show category. We'll hope for everyone's sake that it doesn't.
Right now, however, the lights are low and the show is on.
Many foreign markets are awash in red figures as debt contagion worries have weighed heavily along with the talk that finance ministers are now entertaining a selective default option for Greece. The losses abroad knocked down the S&P futures in a meaningful way, yet they have been battling back all morning and are now trading only slightly below fair value.
The latter indication suggests the show under the big top on Wall Street will start on a relatively flat note.
That isn't all that bad taking into account all of the distractions that also include a worse-than-expected Trade Balance report for May. Specifically, the trade deficit widened to $50.2 bln (Briefing.com consensus -$44.0 bln) from $43.6 bln in April.
The widening was the end result of May exports being $1.0 bln less than April exports and May imports being $5.6 bln more than April imports. The bulk of the import increase was related to an uptick in crude oil imports (+$3.77 bln).
The trade deficit for May will weigh on Q2 GDP forecasts, although with the average real trade deficit for the second quarter still 9.0% below the first quarter average, net exports will still be a positive contributor to Q2 GDP.
We will gets some additional insight on the economic view with the release of the FOMC Minutes from the June 22 meeting at 2:00 p.m. ET today. These minutes should be fairly anti-climactic since the market was already able to glimpse a sense of the committee's thinking at the press conference that followed the FOMC decision. Also, participants are cognizant that Fed Chairman Bernanke will be testifying on the economic outlook tomorrow and Thursday.
Lest we forget, Alcoa (AA) kicked off the earnings reporting season last night. The aluminum maker missed by a penny, but posted better-than-expected revenue and offered a generally reassuring outlook, reaffirming its projection for 12% growth in global aluminum demand.
The market has treated the report as more of a sideshow, choosing instead to fix its concentration on the acts in rings one, two, and three that still have not reached a satisfying end.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
