Overall, most risk assets lacked a clear trend, yet there’s too much risk this week to trust the recent trading range. So now what?PRIOR WEEK: Greece, Bernanke, Slowing Growth
Some volatility, but in the end, stocks were overall flat to lower, the USD and other safe haven assets were up, gold and oil fell. Here are the prime market drivers last week and their likely lessons for the coming week.Greece
The major stock indexes advanced Monday and Tuesday in correct anticipation that the current Greek government would survive a no confidence vote and thus keep hopes alive that the austerity measures required by the Troika (EU/IMF/ECB) for Greece to get its next tranche of cash needed to avoid default next month. That alone was good enough for risk asset markets to ignore very bad results on German and EU ZEW Sentiment, as well as US existing home sales
Late Thursday there were reports that Greece reached an agreement with the EU and IMF on a new five-year austerity plan. The news came in time to boost US markets. However most commentators noticed that this was no big surprise, and that the real question was whether the Greek parliament would ratify this plan. That won’t be answered until Wednesday June 29th. We suspect that the minor rally Thursday was as much due to the technical support of the nearby 200 day moving average on the S&P 500 and other major indexes. The news also helped Asian risk asset markets close higher Friday.
However news later that same Friday that the majority for the Greek austerity vote may have shrunk to just 3 votes, along with fears of Italian bank credit downgrades due to their exposure to a Greek default, sent European and US markets sharply lower Friday, wiping outBernanke Comments
Markets had been quiet Wednesday, but rolled over after bearish comments by Fed Chairman Bernanke about reduced US growth prospects in 2011-12 and lack of any plans for QE 3. Perhaps equally unsettling was his admission that the Fed is not clear on why growth remains so slow. This news, along with poor weekly US jobs data, pressured European risk asset markets lower Wednesday and both Asian and European markets Thursday.Building Consensus of Global Economic Slowdown
The above occurred in the context of continued indications of slowing growth throughout the major economies while emerging market nations like India continue to raise interest rates in order to slow their own growth.
German & EU ZEW Economic Sentiment both missed consensus estimates by a wide margin, as did German, French, EU, and Chinese PMIs
US first time unemployment claims, and durable goods both missed forecasts also, though not by as wide margins as the above data out of Europe.
Oil Falls On Short Term Market Intervention By Governments.
On Wednesday the IEA reported that the US and other nations were releasing strategic oil stockpiles to lower oil prices. Asian nations did the same the next day, showing a coordinated effort to knock down oil prices that have weighed on growth. Why do this now? The move may have been meant as a warning shot to OPEC after its failure in prior weeks to agree on increasing supply.COMING WEEK MARKET DRIVERS: Neither A Reliable Trend Nor Trading RangeFUNDAMENTAL FACTORSGreece
Events related to the ongoing Greek default threat remain the likely big market mover.Austerity Plan Debate, Riots, Vote June 27-30
The Greek parliament is scheduled to debate and vote on whether to approve the EUR28 billion austerity program. Theoretically, this is next big challenge for Greece and the EU to avoid a Greek default and the very likely financial crisis that would follow.
As we’ve been arguing for weeks, it’s in fact probably irrelevant. Given that the risks of utter global financial collapse are quite real, in the end, no matter what Greece votes, it will get the needed cash until governments can get plans and funding lined up to keep confidence in global banking stable and prevent a said global financial crisis. For details on the contagion risks and ramifications for both markets and investors, see A BRIEF, UPDATED GUIDE TO GREEK CONTAGION RISK, INVESTOR RAMIFICATIONS.
While Parliamentarians debate, tens of thousands are likely to be loudly, possibly violently demonstrating against austerity. It’s unclear what kind of impact the two days of general strikes and protests may have, but they’re unlikely to inspire confidence in Greece’s ability to endure years of austerity demanded by the EU.July 3rd EU Finance Ministers’ Meeting – Dramatic If Greek Parliament Rejects Austerity
Based upon the statement released after the 7 hour Euro-zone Finance Ministers meeting from June 23-4th, European officials have effectively given Greece until July 3rd to approve demanded .....
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