06/07/2015: Market Update – Positives in EU & US, whilst Chinese stock continue to slide and Greek tragedy rumbles on
The main (and continuing) news of the last week was the uncertainty surrounding the Greek future in the Eurozone. The Greek people have voted “no” to accepting the most recent proposals made by their main creditors, the ECB, IMF and the EU. Many in Europe believe that this vote was for the future of Greece in the Eurozone, however, the Greek people and their Prime Minister, Alexis Tsipras, believe that the outcome will give him more power to negotiate going forward.
For financial markets the vote means that there will be further uncertainty over the coming weeks as the negotiations continue. The initial reaction to this ambiguity has been further weakness, with stock exchanges around the world falling further today. The Euro weakened today against the pound, an additional 0.28% to €1.4.
Surprisingly, some positive news did come out of the EU last week. The Eurozone combined PMI for June came in at 54.2 (above 50 indicates growth) pointing to second quarter economic growth of 0.4%. The on-going, €1tn bond buying programme being undertaken by the ECB, which started in March, appears to be working to some extent. Real economic growth in the Eurozone is also being assisted by consistently low inflation.
Elsewhere, the US reported softer than expected non-farm payrolls for June at 223,000, including downward revisions totalling 60,000 from the two prior months. Both US unemployment and employment participation fell to 5.3% and 62.6% respectively.
In China, major brokerages have stepped in to try and slow the continuing decline and volatility of the Chinese Stock market. They have agreed to use their own funds to buy blue-chip index trackers as a vote of confidence. In early trading today, the index started up 8%, however, these gains were quickly reduced to 2.4% by the close of play. The Shanghai Composite Index has lost over 30% of its value YTD.
(All data is at time of writing on Monday 6th July)
The US PMI will be released tomorrow, the Federal Open Market Committee meeting minutes are released on Wednesday. However, the main market influence will be the development of the Greek negotiations with the Eurozone. With Greek banks due to run out of cash within days the next week will be critical.
Finally, George Osbourne is due to release the first budget of the new Conservative Majority Government on Wednesday. He is expected to outline new welfare spending cuts in addition to changes in the IHT allowance which will allow couples to pass on homes worth under £1m free from inheritance tax.