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Consumer Data, Bond Yields Watched in Pre-Holiday Market

New data on the consumer and housing greet what promise to be thinly traded markets Friday, ahead of the long Memorial Day weekend.

CNBC.com

After a series of weak economic reports, investors are watching personal income and spending data, at 8:30 a.m., and consumer sentiment, at 9:55 a.m. to see if there are further signs of weakening in the consumer. Pending home sales are released at 10 a.m.

Thursday's report of first quarter GDP, unrevised at 1.8 percent, was below the 2.2 percent expected by economists. Consumer spending was one factor that held first quarter growth back, rising just 2.2 percent, below the forecast 2.7 percent rate. Weekly jobless claims were also disappointing, rising to 424,000.

"It wasn't a great quarter. The revisions weren't encouraging," said Mark Zandi, chief economist at Moody's Economy.com.

Zandi said the consumer was impacted by rising gasoline prices. He said the current economic sluggishness also has to do with disruptions in the supply chain, resulting from the Japanese earth quake and tsunami.

Contrary to what usually happens at the start of the summer driving season, gasoline prices at the retail level have been declining in the past two weeks. If that continues, that could help the consumer and business confidence. According to AAA, the national average was $3.81 per gallon, down 17 cents from its year-high two weeks ago.

"That's at the top of my lists of concerns — if prices go back up. Assuming that (gasoline) has peaked, the headwinds will start to fade as we move out through the year. That was a big hit. The fallout of the Japanese quake is more serious, particularly the timing. It disrupted the revival of the auto industry and that's meaningful. it probably shaved a half point of growth in the current quarter," he said. Zandi and other economists expects the economy to regain momentum after the second quarter, which he sees growing at a 3 percent rate.

Flight to Quality

The weak data sent buyers flocking to bonds Thursday, driving the yield on the 10-year to a key technical level, not seen since December. "We're about to go into a long weekend fraught with European headline risk. Tuesday is the last day of the month..Nobody wants to be short," said John Briggs, senior Treasury strategist at RBS.

The 10-year was at 3.06 percent from 3.13 late Wednesday. It had touched 3.05 percent late in the day.

A series of headlines on Greece kept the euro under pressure Thursday, including comments from Eurogroup President Jean-Claude Juncker, who commented about the terms on Greek aid from the IMF. The euro fell to an all-time low against the Swiss franc, at 1.22045. The euro, however, gained slightly against the dollar to 1.4128.

The stock market finished higher, even as bonds rallied. The Dow was up 8 at 12,402, and the S&P was up 5 at 1325. Consumer discretionary and technology shares were among the leaders. NYMEX crude finished the day at $100.23, down 1 percent, on the weaker data.

"Bonds have been putting in a really decent day," said one stock trader. "Everyone's talking about 3.07 on the 10-year yield. Bond bulls are chirping about 2.80 on the 10-year. The stock market is in a malaise here."

What Else to Watch

The G-8 continues its meetings in Deauville, France Friday.

Questions? Comments? Email us at marketinsider@cnbc.com

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