The Day Ahead: Digesting Greek Bailout Raincheck Amid Active Econ Calendar

Relatively late in the domestic session yesterday, a few details finally emerged from the conference call between Greece and the Eurogroup.  They were rather lackluster and underwhelming, including a generic vote of confidence that Eurogroup will be able to render a decision on the Greek bailout on Monday Feb 20th, and that Greece has done what it needed to do in order for such decisions to be deliberated.  So really, what we're left with is that yesterday's conference call amounted to a "delivery receipt" by the Eurogroup, acknowledging that they've received "the message" from Greece and the Troika, but that's it.  No reply.  No action.  No vote.  Just a "yeah, we hear ya!  We'll talk about it and get back to you." 

Incidentally, that "get back to you" day--Feb 20th--is a domestic bank holiday and bond markets will be closed.  As a result the two remaining domestic sessions could be influenced by a need for traders to get in position for potentially significant market-moving news following a 3-day weekend and with an eye on the week's Treasury auctions (2's, 5's, and 7's).  Whether this position is bullish (skeptical that the bailout will be approved) or bearish (not as skeptical) may depend less on what logic dictates and more on where momentum takes us.  For the record, we'd prefer the popular "fetal position" ahead of such events, neither bearish or bullish--just waiting for the unpleasantness to pass. 

Whatever the case, the "if's/then's" of the following week are fairly simple.  If the bailout is approved with less-than-anticipated drama (and we can imagine a lot!), then we'd expect bond markets, including MBS to have a tough go of it next week, depending on how much they decide to discount it ahead of time.  If a normal (which is a lot!) or greater-than-expected amount of drama (which is nigh on unbearable!) precedes or accompanies any tangible results (or lack thereof in the case of unbearable drama), then we don't see much of a reason for bond markets to be in any weaker territory, except to a nominal extent by way of discounting the auction cycle and any incidentally bullish economic data, but such discounts could be limited if market sentiment is particularly soured by further failures in the current bailout endeavors.

But most of these considerations are at least a day premature as we have some more economic data to get through (although the afternoon could easily give way to the inception of the scenario discussed above).  The Thursday-standard weekly Jobless Claims print at 8:30am and are expected to have risen from 358k last week to 365k this week.  The once highly-regarded Producer Price Index hits at the same time, and is expected to show tame inflation at the producer level with the "core" (which excludes food and energy) down from 0.3% to 0.2% Month/Month and down from 3.0% to 2.7% Year/Year.  Deviations from these expectations would have to be pretty massive in order to elicit much of a response from markets in this age of extremely-well-controlled-and-uncannily-stable inflation.  One more report in the 8:30am time slot, Housing Starts is expected to show a modest improvement from a 657k annual rate to 675k.  Bernanke speaks at 9am, and Philly Fed rounds out the busy morning at 10:00am, seen rising from 7.3 to 9.5.