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When markets get past Greece, they'll be watching Yellen

Greece looms large, but markets will still search for clues as to Fed thinking in the week ahead, after June's jobs reports cast doubts on a 2015 rate hike.

A source of fodder for Fed rate hike talk will be the minutes of the last Federal Open Market Committee meeting, released Wednesday afternoon. But there are a few Fed officials talking on the economy, including Fed Chair Janet Yellen, who speaks in Cleveland on Friday.

There are also several important economic reports, like trade and the JOLTS job openings and turnover report Tuesday and ISM service sector data on Monday. Alcoa and Pepsi are among the smattering of companies reporting earnings in the coming week, ahead of the following week's deluge of reports from major banks and others.

Traders work on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Traders work on the floor of the New York Stock Exchange.

Greece promises more fireworks for investors in the post-holiday week, after an emotional Sunday referendum on reforms proposed by lenders.

"I think that the market has come to grips with the real possibility of financial disaster in Greece, and what that means," said Steven Wieiting, global chief investment strategist at Citi Private Bank.

He said Greece could default again, potentially resulting in financial turmoil, or even its exit from the euro. While there could be heightened volatility, ultimately Greece should not be a big factor for U.S. markets, he said. "Greece is small. It's containable from a financial perspective, and thus we see this mild response in markets," he said.

Read MoreThese ETFs could soar on Greek referendum

In the past week, markets were volatile, with the S&P 500 losing 1.24 percent to 2,076, its first weekly move of more than 1 percent in 10 weeks. The dollar was flat against the euro for the week, rising 0.3 percent on Friday, but the yields on peripheral European debt did not move nearly as much as they had in other crisis, indicating less anxiety about contagion.

Marc Chandler, chief currency strategist at Brown Brothers Harriman, said the outcome for Greece is bleak regardless of how the referendum turns out. "Even with a yes vote, I kind of think you still have a political crisis because the government resigns. I think that's a danger," he said. "The banking crisis is going to intensify no matter what. Some people think the banks could reopen on Tuesday. I don't see that."

Chandler said a no vote would mean no more emergency funding for the banks from the European Central Bank. "If they say yes, the capital controls only make the hemorrhaging into a slow bleed. The problem with banks is they're going to go from a liquidity crisis to a solvency crisis." If the banks were insolvent, they would not be eligible for ECB funds, he said.

Read MoreWhat June jobs miss means for Fed rate hike timing

The most important moment for Fed watchers will obviously be when Yellen speaks Friday, but other hints on Fed thinking could be in the minutes of the last Federal Open Market Committee meeting. Important will be Yellen's reaction to events in Greece and comments on the U.S. economy, particularly after the June jobs report showed flat wage growth and a larger number of people leaving the workforce.

"The composition of the FOMC is shifting, and it's a little bit harder to gauge exactly where the consensus is going as a result of the shifts," said Mark Zandi, chief economist at Moody's Analytics. "Maybe they'll provide a little more color around what they're looking at to determine when they'll raise rates. Yellen has been pretty explicit about jobs and wages and inflation and ultimately financial conditions."

Because the jobs report is always important to the Fed, disappointment over the internals of June's employment report sparked speculation that perhaps the Fed will not be able to hike rates in September or December, as economists expect.

Read MoreJobs report by the numbers: 'Goldilocks' or not?

There were 223,000 nonfarm payrolls added in June, but the unemployment rate dropped to 5.3 percent because of a lack of participation in the work force. Average hourly wages were flat but gained just 2 percent year over year, slower than May's 2.3 percent. Revisions to April and May data also ended up erasing 60,000 jobs over those two months.

"Liftoff is still possible (for September), but the risks of a delay are rising quite rapidly," said Diane Swonk, chief economist at Mesirow Financial. "One month does not a trend make. We need a reversal now. We just hit another pothole."

As for markets, Greece could be a major factor. "We'll have our summer wobbles," said Wieting, noting that the lack of market players and light summer volume could result in even more volatile markets.

Read MoreThe jobs report is missing something big

While some strategists expect the upcoming earnings season to pose a headwind for stocks, Wieting does not. "The one thing we consider is U.S. earnings reports in the first quarter were much stronger than expected. Excluding energy, there was 7 or 8 percent growth," he said, noting oil has now fallen and stabilized. "That's a diminishing negative going forward."

According to Thomson Reuters, analysts are forecasting a 3 percent decline in profits for the S&P 500 companies in the second quarter, compared to a 4.9 percent gain when the energy sector is excluded.

Wieting said he favors European stocks over the long term but the U.S. could see some opportunities in the near term, as Europe deals with Greece.

What to watch

Monday

Earnings: A. Schulman

9:45 a.m.: Services PMI

10 a.m.: ISM nonmanufacturing

Tuesday

Earnings: Family Dollar, Helen of Troy, MSC Industrial, The Container Store

8:30 a.m.: International trade

10 a.m.: JOLTS

1 p.m.: $24 billion 3-year note auction

3 p.m.: Consumer credit

Wednesday

Earnings: Alcoa, WD-40

1 p.m.: $21 billion 10-year note auction

2 p.m.: FOMC minutes

2 p.m.: San Francisco Fed President John Williams

Thursday

Earnings: Pepsico, Walgreens Boots Alliance, PriceSmart, Cintas, Barracuda Networks

6:45 a.m.: Minneapolis Fed President Narayana Kocherlakota in Frankfurt

8:30 a.m.: Initial claims

10:15 a.m.: Fed Gov. Lael Brainard

1 p.m.: $13 billion 30-year bond auction

12:30 p.m.: Kansas City Fed President Esther George on economy and policy

Friday

10 a.m.: Wholesale trade

11:35 a.m.: Boston Fed President Eric Rosengren

12:30 p.m.: Fed Chair Janet Yellen on economy