Durables, housing data on tap but Greece takes center stage

What is next in Greece?
What is next in Greece?   

Durable goods orders and new home sales data Tuesday could help substantiate that the U.S. economy is growing better than economists expected not too long ago.

Traders, however, are most focused on Greece this week and the slow progress being made in its ongoing talks with creditors.

"Greece is trumping everything at the moment, but the whole week is fairly well loaded with economic data," said Mark Luschini, Janney Montgomery chief strategist. European officials attending an emergency summit Monday vowed to continue talking but also cautioned that the two sides are still not in agreement.

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

Even so, stocks rallied with the S&P 500 rising 12 to 2,122, while the Nasdaq and Russell 2000 closed at record highs. The U.S. gains were small compared to the big moves higher in European equities, like Germany's 3.8 percent jump.

All economic data is being watched for the picture it is painting on the U.S. economy, now tracking at 3 percent growth or better for the second quarter. Growth for the second quarter was expected to be closer to 2 percent not long ago, up from the sub-zero growth of the first quarter.

It is also key because the Fed has emphasized that its decision to raise rates will be based on the strength of the economic data. Data has been surprising on the upside for the past several weeks, with jobs, retail sales and housing all doing better.

"I don't expect to see numbers that are so vigorous as to be shockingly good. There's not enough anecdotes for that. I just want to see that the trend that seems to be regained is reinforced. I just don't want to see receding figures," Luschini said.

Read MoreDollar bulls waiting for Greece to subside

Durable goods, a number viewed as volatile by economists, are expected to decline 1 percent, the same as last month.

"Really, in a way, we have two pieces of data that are not top drawer, but they're on two key (parts of the economy) that the dovish side of the Fed thinks aren't doing that well," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi. "I think they think housing isn't bouncing back as much as it should."

Manufacturing has been a weak spot. "We want to know if manufacturing is coming back. It's a little odd that industrial production has fallen for five or six months. It doesn't happen very often … so we're assuming it will turn around here," he said.

Rupkey said he is watching the shipments of nondefense capital goods orders excluding aircraft, since it represents business spending.

Read MoreEurope closes at the highs: 'What? Me, Worry?'

New home sales, reported at 10 a.m. ET, are expected to gain 1 percent, to 522,000, after a 6.8 percent bounce last month. The number follows Monday's existing home sales, which increased a surprisingly strong 5.1 percent in May to 5.35 million.

"A really strong number that was over 550,000 new home sales suggests the housing sector is picking up and that's one less reason to delay normalization of interest rates," said Rupkey.

Markets have been reacting to a more dovish Fed since the Fed last week lowered its interest rate forecasts and Fed Chair Janet Yellen explained the Fed would like to raise rates this year, but so far the economy is not strong enough.

Traders pushed back their bets on the timing of the Fed rate hikes, and now odds for a first hike in the month of September have fallen to 35 to 40 percent from more than 50 percent, according to Arthur Bass of COEX Partners.

Read MoreReal consumption hasn't accelerated

"Right now the market is placing a higher probability of going in December," said Bass, noting the fed funds futures imply a 50 percent chance. "I would put September higher, at 50/50."

Bass said the key number this week is going to be the PCE deflator, the Fed's preferred inflation measure, released Thursday.

"The key deal all week and the key deal for however many weeks is, are they going to solve this Greek thing," Bass said.

Read MoreWhy Fed rate hikes may not hurt stocks—this time

"You didn't have bad (economic) numbers last week but we had an incredible (bond) rally because of Greece. It seems like they're kicking the can again, which is why the market came back today," said Bass. "The next big news is next week when we get the employment data Thursday and ISM before that. Some people might say you could get some quarter-end buying. We had the big risk off trade because of Greece, and if it's resolved we'll have the big risk on again."

What to watch

Besides the data there are earnings reports expected from BlackBerry, Carnival and Darden Restaurants.

Fed Gov. Jerome Powell speaks at 8:30 a.m. ET at a Wall Street Journal breakfast.

Durable goods data is released at 8:30 a.m. ET. New home sales are reported at 10 a.m.

The FHFA home price index is released at 9 a.m.

The Treasury auctions $26 billion in 2-year notes at 1 p.m.