Former Fed Chairman Alan Greenspan dampened stock performance around the world with his warning yesterday that China's red-hot stock market will face a sharp decline some day. European markets are lower this morning and Asian markets closed mostly lower overnight. Yet China's Shanghai index shrugged off the comment, closing just 0.5% lower after managing to also hit a new intraday high in a volatile session.
U.S. stocks are aiming at a lower opening for now and may respond more today to economic news than the bubbling froth from merger activity. Durable goods rose 0.6% in April, less than the 1% rise expected. New home sales will be reported after the start of trading. Stock traders are also keeping a careful eye on inching interest rates.
China has made headlines all week as its officials participate in historic talks in Washington, but it was that comment from Greenspan that got traders' attention. Yesterday's climb into record territory by the S&P 500 and Dow 30 was snuffed out by his comments that the exuberant Chinese stock market will deflate some day. Reuters reported that Greenspan told an audience in Madrid that the rise in Chinese stock prices is "clearly unsustainable" and that the market will have a "dramatic contraction at some point."
The Chinese government, meanwhile, attempted to curb investor euphoria overnight with warnings that investors and securities brokers need to raise the level of investor education and consider the risk in stock speculation, reports the Financail Times.
Senior Economics Correspondent Steve Liesman says the data point to watch today is the durable goods report. "If it's good, it's going to change peoples immediate view on the economy. If it's lackluster, we're going to wonder where the growth in the economy is going to come from," said Liesman.
Rick Santelli, who watches the economy from Chicago's future pits, says he's watching the housing number today and will be paying close attention to Friday's existing home sales.
"I think new home sales has a good chance to be the number of the day. Traders are looking to critique how far into the correction or lack of correction we are in housing," Santelli says. "A lot of traders are going to make these two housing data points important in deciding whether they want to lighten up on their stock holdings and bond positions before the long holiday weekend."
Bond yields continue to rise, with the yield on the 10-year now at levels not seen since January. Yesterday, the yield hit 4.861%. "If we get above five percent on the 10-year and fundamentals for our economic growth don't improve towards the end of the year, then I think interest rates will unravel U.S. stock gains," says our Santelli. "(Higher rates and rising stock prices) coexist as long as the economic picture works."
General Motors stock is getting dented in before-hours trading after the company said it received a document request from the SEC related to derivative trading of foreign exchange and commodities contracts.
Home builder Toll Brothers reported sharply lower net income of$36.7 million, off 79% from last year.
Home Depot and McDonald's hold shareholders meetings today. Our Mary Thompson will report from Home Depot's meeting today.