The Day Ahead: Jobless Claims, Housing Starts, Philly Fed

The Eurodebt crisis continued to create chaos in overnight trading. Here's the headlines that moved the needle...

(Reuters) - ECB's Wellink calls for doubling euro bailout fund :  The European bail-out fund should be doubled to 1.5 trillion euros ($2.15 trillion) if politicians want private sector investors to participate in a second bail-out package for Greece, a European Central Bank governing council member said.

(Reuters) - IMF seen releasing Greek funds despite EU delay:  The IMF will release crucial loans to save Greece from default despite a likely delay by the European Union in agreeing a second bailout for the heavily indebted state, euro zone sources said on Thursday. "I am confident that next Sunday, the Eurogroup will be able to decide on the disbursement of the fifth tranche of loans for Greece in early July. And I trust that we will be able to conclude the pending review in agreement with the IMF," Economic and Monetary Affairs Commissioner Olli Rehn said in a statement issued to try to calm markets. Rehn also said he expected euro zone finance ministers to take decisions on a successor program for Greece on July 11. But two sources briefed by the German government said Berlin wanted to postpone until September an EU agreement on a new 120 billion euro program, including 30 billion in privatization proceeds, due to disputes over how to involve private investors.

A flight to safety continued to pour into dollar denominated assets in heavy overnight activity. The benchmark 10 year note yield dipped as low as 2.895% and is +19/32 at 101-28 yielding 2.906% before 830 am data. The 2s/10s yield curve is another 5bps flatter at 255bps wide. And the Fannie Mae 4.0 MBS coupon is +5/32 at 100-27.

While global equities played catch up after U.S. stocks tumbled on Wednesday, S&P futures are mostly sideways, hovering around yesterday's worst levels. Before 830am data S&P futures are -5.00 at 1260.50.

Thursday:

8:30 - After a near-11% drop in Housing Starts in April, economists think it's time for some pickup. The April report left the construction sector "stuck near the bottom nationally, regionally, and in nearly every state," according to IHS Global Insight. The consensus call looks for the annual pace of starts to climb to 540k from 523k (+3.3%), a relatively modest gain - and not a hopeful sign as credit remains tight - but at least it's in the right direction.

"We look for a small rebound of 3.6% in housing starts in May to an annual rate of 542k, which would still be lower than the six-month average of 557k," said economists at Nomura. "Based on tough seasonal comparisons and a slow start to the building season, we expect building permits to fall again, by another 1.1% in May to an annual rate of 557k. There is some upside risk to building permit activity in May if builders applied to start replacing the housing stock in tornado-stricken areas."

8:30 - Initial Jobless Claims have been stuck in the 425k to 430k range for the past three weeks, adding further disappointment to a spate of weak data. Weekly claims have also been above the 400k in the past nine readings. The only encouraging sign was that continuing claims - a tally of people still receiving benefits - fell to 3.68 million from 3.75 million.

Economists at Citigroup expect weekly filing to rise and the four-week average to hit a three-week high.

"Unadjusted claims are expected to spike following the Memorial Day holiday week, posing the risk of a higher print," they wrote. "Separately, the number of beneficiaries probably rebounded after the prior week's tumble, pushing the insured rate back up to 3.0%."

10:00 - At 3.9 in May, the Philadelphia Fed Manufacturing Survey was precariously close to a negative read. Economists are predicting some upswing in June though, with the consensus forecast at 9; forecasts range from flat to 19.8. But don't call it a comeback - in March this index was soaring at 43.4. Why the massive slowdown? Rising inflation pressures, slow recovery, and perhaps some impact from the Japanese earthquake.

"Manufacturers are still smarting from supply disruptions and high input costs that are expected to linger through the summer," said economists at Nomura. They predict "a slight rebound" to 7. 

 1:10 -Richard Fisher, president of the Dallas Fed, speaks at the Dallas Fed conference on Hispanic Economic Experience in Dallas.