Weekly Market Highlights

Greek Negotiations Break Down, Setting Stage for Volatile Week Across Global Markets

  • Greece shuts banks and imposes capital controls ahead of July 5th referendum
  • Chinese equities declined sharply again last week; the Shanghai Composite has now pulled back -19% in just two weeks
  • The Institute for Supply Management indices and U.S. employment report headline the U.S. economic releases in a holiday-shortened week

Last Week’s Highlights

  • U.S. Existing Home Sales: +5.1% to SAAR of 5.35 million units in May.
  • U.S. Durable Goods Orders: ‑1.8% in May (excluding transportation, durable goods orders increased 0.5%).
  • U.S. New Home Sales: +2.2% to SAAR of 546,000 units in May.
  • U.S. 1Q 2015 GDP (third estimate): -0.2% annualized rate - revised higher from previous estimate of -0.7%.
  • U.S. Personal Income and Outlays: Personal spending increased 0.9%, incomes increased 0.5%, and the savings rate decreased to 5.1% in May.
  • Oil:  $59.63 ($0.02)
  • Gold:  $1,173.20 ($28.70)
  • U.S. 10-year Treasury:  2.49% (0.23%)
  • Dollar:  Euro--$1.10, Yen--122.94 (strengthened against Euro and Yen)
  • VIX:  14.02 (0.06)

What to Watch for

  • Tuesday 6/30:  Case-Shiller Home Prices
  • Tuesday 6/30:  U.S. Consumer Confidence
  • Wednesday 7/1:  ISM Manufacturing Index
  • Thursday 7/2:  U.S. Employment Report
  • Friday 7/3:  ISM Non-Manufacturing Index

Negotiations between Greece and its creditors turned sour over the weekend after Prime Minister Alexis Tsipras pulled out of discussions, opting instead to hold a referendum on July 5 to decide the country’s future in the Eurozone. In so doing, Greece is likely to miss its €1.6 billion payment to the International Monetary Fund on Tuesday. Complicating the situation for Greece was the European Central Bank’s decision on Sunday to maintain its Emergency Liquidity Assistance (ELA) at current levels. By not increasing their support to Greece’s banks, deposit withdrawals have accelerated and the prospect of capital controls quickly became reality. Greece’s banks are expected to remain closed this week and there will be a daily 60 euro limit on withdrawals from cash machines.

Risks of Grexit Increasing

As we have stated previously, we believed negotiations would go right down to the wire with the possibility of extending beyond the June 30 deadline. Aside from the uncertainty surrounding a yes/no vote on July 5, questions are likely to abound this week in relation to Greece defaulting on its payment to the IMF and the solvency of their banks. While the possibility of a Grexit cannot be dismissed, opinion polls suggest a majority of Greeks still want to stay in the Eurozone. If a referendum is held next Sunday and that message is reflected in the polling, we believe Greece (potentially under new leadership) and its creditors can craft a solution that maintains the unity of the currency bloc.

Bracing for a Tense Ride

From an investor perspective, we unfortunately may be in for a wild ride given the substantial uncertainty that is likely to persist this week. For markets, the saving grace could be the European Central Bank’s resolve to contain any potential fallout from the Greek situation. Although the ECB will be unable to offer much aid to Greece in the event they do not pay back the IMF, they issued a press release over the weekend stating that the Governing Council is determined to use all instruments available within its mandate (including increasing pace/length of QE purchases and programs such as the OMT). Overall, we anticipate a heightened level of volatility across global financial markets in the near term, but we believe Europe is also better equipped to absorb a shock related to Greece in comparison to previous years as a result of the support mechanisms that have been implemented. That being said, the prospect of a Greek debt default and exit from the Eurozone is a substantial risk that we will be monitoring closely.

Statistics on the Current State of the Market

S&P 500 Index -0.4% -0.1% 3.1%
Russell 1000 Index -0.4% -0.1% 3.6%
Russell 1000 Growth Index -0.4% 0.0% 5.8%
Russell 1000 Value Index -0.4% -0.2% 1.2%
Russell Midcap Index -0.8% -0.2% 4.3%
Russell 2000 Index -0.3% 2.8% 6.9%
DJ Industrial Average Index -0.4% -0.3% 1.9%
NASDAQ-100 Index -0.6% -0.5% 5.9%
MSCI EAFE Index 0.9% 0.2% 9.1%
MSCI Emerging Markets Index 0.9% -1.9% 3.8%
Alerian MLP Index -1.8% -6.0% -8.8%
Cash & Fixed Income      
Citigroup 10-Year Treasury Index -1.8% -3.2% -1.8%
Barclays US Aggregate Index -0.9% -1.7% -0.7%
Barclays Municipal Bond Index -0.2% -0.3% -0.1%
BofA Merrill Lynch U.S. High Yield Index -0.2% -1.1% 2.9%
Real & Alternative Assets      
FTSE EPRA/NAREIT North America Index -2.6% -2.8% -4.7%
FTSE EPRA/NAREIT Global Index -1.2% -2.6% -0.5%
Bloomberg Commodity Index 1.3% 0.2% -3.1%
Gold (NYM $/ozt) Continuous Future -2.4% -1.4% -0.9%
Crude Oil (NYM $/bbl) Continuous Future 0.0% -1.1% 11.9%

Data Source: FactSet and RIMES

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