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Friday Look Ahead: Markets Watching Greece, Obama Housing Plan, Rates

Home price data and consumer confidence are two pieces of the economic puzzle expected Tuesday morning, as investors keep a wary eye on rising rates.

A trader at the New York Stock Exchange.
Photo: Oliver Quillia for CNBC.com
A trader at the New York Stock Exchange.

Stocks were firmer Monday, after trading in a tight range, from the opening bell. The Dow was up 45 at 10,895, and the S&P 500 climbed 6 to 1173. Energy was the best performer, up 1.8 percent, as crude gained 2.7 percent to $82.78 per barrel.

Treasurys saw another bout of selling, particularly at the long end. Yields move in the opposite direction of prices, and the 10-year was yielding 3.864 and the 30-year was at 4.770 percent.

"We have great fear that Friday's (jobs) number is going to be a strong one, and then next week we have to buy 10s and 30s at the auction," said David Ader, Treasury strategist at CRT Capital.

The S&P/Case-Shiller home price index is released at 9 a.m. Tuesday, and consumer confidence is reported at 10 a.m. Consumer confidence was disappointing in February, dipping to 49. "I think it probably bounces," said Steve Stanley, chief economist at Pierpont Securities. Stanley expects consumer confidence at 53.

But he is watching to see if there will be a slide in the home price data, as there was in a recent FHFA home price report. "If it does, it's not clear what it means," he said, adding it will be important to see more data from the Spring selling season.

"But there's still a pretty broad contingent of folks that expect a double dip in housing and that would be gasoline for the fire if we get a decline in that number," Stanley said.

Dollar Dilemma

The dollar Monday waffled as risk assets - stocks and commodities - rose. The euro made gains after Greece successfully floated $6.7 billion in 7-year notes.

"In general, the dollar is lower in the aftermath of the rescue package from the EU summit last week, but all things considered it's not that much lower, and I think people will still have ongoing concerns about Greece," said David Gilmore of Foreign Exchange Analytics.

"The Greek financing situation is tenuous. It relies on a backstop from the euro zone members, along with a role form the IMF..They need money upfront. Greece can issue debt at 5.9 to 6 percent and higher yields. It's just not possible that they can carry on doing that and service the debt with the economy contracting. For markets to really back off of the issue and for the restoration of confidence in the euro, there needs to be upfront money and debt guaranteed, and that needs to happen mainly from Europe, not the IMF," he said.

Gilmore expects the euro to resume its downhill slide. "I think the dollar continues to rally. I think by Friday, we'll have a strong employment report. There won't be too many people to trade it, but people will start to price in Fed tightening. you have two things - Greek debt and sovereign credit risk and a stronger U.S. economy," he said.

Gilmore said the euro could head to $1.30 and ultimately fall to the $1.20 range and that would take a toll on stocks and other risk assets that have rallied as the dollar sank and euro gained.

Housing Complex

The Fed this week ends its mortgage purchase program, in a widely anticipated step away from its quantitative easing program. Wall Street has been divided on what impact the end of that program will have on markets and mortgage rates.

"Not buying more mortgages means higher mortgage rates..and I think that's a reflection of tighter monetary conditions and not a great longer term affect on the housing market," Gilmore said. "Housing sort of got us into this situation and it doesn't seem too strong or robust to survive without a heavy role of the government. I wouldn't be surprised if the government doesn't come back in and resume a role in the MBS (mortgage-backed securities) market," he said.

Stanley said he doesn't expect much reaction. "Mortgage spreads have not blown out too much. The widening in mortgage spreads has been very modest," he said. He also does not expect the Fed to restart the purchase program after it ends Wednesday.

"The latter part of March, early part of April was always going to be about the Fed holding their breath, hoping everything would be ok," he said. "I think they've become more comfortable with the idea everything would be ok.. From the Fed standpoint, they are clearly in a 'Don't rock the boat' mode until they're comfortable that the mortgage market is holding up fine without the Fed buying. Until we get beyond that hurdle, the Fed is trying to be as friendly and as non threatening as they can be."

What Else to Watch

Stanley also expects to see the Fed move to remove assets from its balance sheet some time in the next quarter if the mortgage program ends well.

Ader said the impact of the Fed exit may already be showing up in the markets. While mortgage spreads are still tight relative to Treasurys, rates could still rise in tandem. Last week, traders blamed the overhang of the government's hefty debt issuance for the selling in Treasurys. They also pointed to the health care bill as a sign the government is willing to take on more debt, even before it crafts a plan to reduce its already swelling deficits.

Ader said the end of the mortgage program may have also had a part in the rise in rates. He said Wall Street institutions are underweight mortgages. As a result, they could have been clearing the decks of Treasurys ahead of adding to their mortgage holdings once the Fed moves out of the market.

He said the 10-year's yield could move higher, above 4 percent and possibly as high as 4.25 percent. "Those housing numbers we saw last week.. They're not going to be getting better soon.....None of this is really saying with higher interest rates, mortgage rates or Treasury rates..it's not that it's warranted from an economic standpoint. The reason we're going to get getting these higher rates is not an economic story, but one of supply."

What Else to Watch

Oil ministers from top producing nations gather in Cancun, Mexico for the International Energy Forum.

President Obama signs the Health Care and Education Reconciliation Act. He meets with President Sarkozy of France later in the day, and the two hold a joint press briefing at 4:45 p.m..

Stocks to Watch

A report that Apple is developing a CDMA compatible iphone for Verizon pushed both companies' shares higher after the bell.

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