A critical midnight vote in Athens will keep markets tuned to the latest act in Greece's financial drama Tuesday.
The parliamentary vote, at 5 p.m. New York time, is a confidence vote for Prime Minister George Papandreou and his new cabinet. Stocks rallied Monday on optimism European leaders would make a financial package available to Greece, and that the confidence vote would pass and Greece would then adopt required austerity measures within the next two weeks.
Tuesday also marks the beginning of the Fed's two-day meeting, which falls just a week before the June 30 expiration of its quantitative easing (QE2) program.
On Monday, the Dow rose 76 points to 12,080, for its fifth gain in six sessions. The S&P 500 climbed 6 point to 1278, its third straight gain.
"I find it hard to imagine that something changed today in terms of expectations," said Dan Greenhaus, chief global strategist at BTIG, of the market's rally. "This is sort of a pass through day. The confidence vote is going to go a long way toward determining what happens."
"My inclination is that people are sort of hanging on that right now. The next thing becomes the Fed...They have to argue things (the economy) are getting worse but they're going to reinforce the idea that this is a transitory blip in the road," he said.
The Fed meeting comes as the streak of weaker economic data has now extended into June, with last week's disappointing declines in the Philadelphia Fed and Empire State manufacturing surveys. Existing home sales for May are released Tuesday at 10 a.m.
"What you need is data to reinforce the idea that this is transitory. That's what the market is looking for...If you could just see some stabilization, then people can calm down here. If the data can stabilize and begin to improve, the market can get a 5 percent jump pretty quickly," Greenhaus said.
The Fed's meeting ends with a statement at 12:30 p.m. Wednesday. Then Fed Chairman Ben Bernanke holds his second ever press briefing. Greece and the potential implications of a default will be an obvious topic, as will be quantitative easing and the state of the economy. The Fed's QE2 program involved the purchase of $600 billion of Treasury securities, which the Fed will continue to hold on its balance sheet.
"I think he's going to talk a good game and say things are going to turn the corner. I think he's going to talk form a position of strength. I don't think he's going to show weakness because once he does that, it opens up the door for every economist on the street to downgrade their expectations of the second half," said George Goncalves, head of Treasury strategy for Nomura Americas.
In theory, QE was expected to inflate risk assets, and some traders blame the stock market sell off and a drop in commodities prices on the anticipated end of QE. The program also continues to have its critics who do not believe it was necessary nor do they believe it produced any discernible results. Fed watchers expect the Fed to let the program expire as planned, and emphasize it is not entertaining a third round of easing.
"If anything, the stock market should be clinging to every word he says because this is the end of the implementation of QE2," said Goncalves. The Fed will continue to hold the securities.
"The balance sheet is to stay bloated for a long time," said Goncalves. "They're not going to let the monetary base shrink like they did last time."
Treasurys were mostly higher Monday. "The market has been consolidating after a very powerful rally, so you're going to have days like this where there's different parts of the curve at odds with the message of the day. It was only the 10-year that took a little bit of a hit," Goncalves said. The 10-year was yielding 2.953 late Monday.
The euro lost 0.06 percent against the dollar Monday, to finish at 1.4303. Gold rose slightly, up 0.2 percent, to $1541.50 an ounce, and oil was mixed. U.S. crude at the NYMEX was up $0.25 to $93.26 per barrel, while Brent crude slipped on worries about the Greek crisis, losing $1.52 to $111.69 per barrel.
What Else to Watch
Treasury Secretary Tim Geithner participates in a panel on the economy and debt limit at 8 a.m. at a Wall Street Journal event.
Earnings are expected from Carnival, Walgreens, Barnes and Noble, and Jefferies Group, before the bell. After the close, earnings are expected from Adobe, Jabil Circuit and La-Z-Boy.
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