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Beyond the Numbers

Greece Crisis May Intensify Risk Aversion
6/29/2015 9:18 AM

The major U.S. index futures are pointing to a sharply lower opening on Monday, with early indications suggesting that stocks may open sharply lower amid Greek worries. The global markets experienced a rout as fears that Greece may default on its loan to the IMF and eventually exit the eurozone is gaining ground. The euro is retreating but the dollar is mixed against its major counterparts. Safe haven gold is advancing, while crude oil futures are lower. The Greek crisis could sap risk appetite even as the pending home sales data due after the open may also impact sentiment.

U.S. stocks retreated in the week ended June 26th, as the Greek drama played out without any hints of a resolution.

Last Monday, the major averages advanced amid hopes of clinching a Greek debt deal and the release of positive domestic existing home sales data. The major averages built on their gains on Tuesday, although the gains were modest, as hope concerning a Greek deal persisted.

The failure of Greece to reach an agreement with its creditors over reform proposals pressured stocks on Wednesday, sending the averages notably lower on Wednesday. The retreat came despite an upward revision to first quarter GDP data. Greek woes continued to weigh on the markets on Thursday. With the Greek talks scheduled for Saturday, the major averages took divergent routes on Friday before ending mixed and closing the week lower.

For the week ended June 26th, the Dow Industrials, the S&P 500 Index and the Nasdaq Composite Index lost 0.38 percent, 0.40 percent and 0.71 percent, respectively.



Among the sectors, the Philadelphia Semiconductor Index slumped 3.46 percent for the week and the Dow Jones Transportation Average, the Dow Jones Utility and the NYSE Arca Gold Bugs Index all lost over 2 percent.

Currency, Commodity Markets

Crude oil futures are sliding $0.90 to $58.73 a barrel after ending little changed at $59.63 a barrel in the week ended June 26th.

Gold futures, which rallied $28.70 or 2.39 percent to $1,173.20 an ounce in the previous week, are currently rising $9 to $1,182.20 an ounce.

Among currencies, the dollar advanced against most currencies in the week ended June 26th on the back of some positive domestic economic data, including existing home sales, first quarter GDP, jobless claims and personal spending. The rise in risk aversion in the wake of the Greek impasse also added strength to the safe haven dollar.

The buck rallied 0.93 percent against the yen before ending the week at 123.85 yen and was 1.63 percent higher against the euro to $1.1167. The U.S. dollar is currently trading at 122.82 yen and is valued at $1.1124 versus the euro.

Asia

Risk aversion ruled the roost in the Asian markets, as the Greek crisis took a turn for the worse. The Chinese stock market fell into bear territory, having tumbled over 20 percent from its recent highs.

Japanese stocks declined as the yen rose on the increase in risk aversion. Mixed domestic economic data released during the session did not help matters any further. The Nikkei 225 Index opened notably lower and was moving sideways in the morning before moving steadily lower in the afternoon. The index closed 596.20 points or 2.88 percent lower at 20,110.

Australia’s All Ordinaries Index languished below the unchanged line throughout the session before ending down 119.50 points or 2.16 percent at 5,417. The market witnessed broad based weakness, with consumer discretionary, energy, financial, healthcare and telecom stocks posting notable losses..

Hong Kong’s Hang Seng Index ended at 25,967, down 696.98 points or 2.61 percent, and China’s Shanghai Composite lost 139.84 points or 3.34 percent before ending at 4,053.

The losses came despite a weekend move by the People’s Bank of China to lower rates for the fourth time in a bid to boost sagging growth. The one-year lending rate was cut by 0.25 percentage points to 4.85 percent and the interest rate on a 1-year deposit was lowered by 0.25 percentage points to 2 percent.

On the economic front, a report released by Japan’s Ministry of Economy, Trade and Industry showed that industrial output fell 2.2 percent month-over-month in May, reversing the 1.2 percent increase in April. The annual performance of a 4 percent drop was also bigger than expected.

At the same time, a separate report showed that Japanese retail sales rose a better than expected 3 percent year-over-year in May.

Europe

European stocks are also witnessing a sell-off, as Greek woes abound. After the talks between Greece and its creditors broke down, Greek Prime Minister Alexis Tsipras called for a referendum to be held on July 5th on the bailout proposals by the creditors. The country is due to make a repayment of 1.6 billion euros to the IMF on June 30th and the Greek Prime Minister is seeking to get an extension until the referendum.

With the European Central Bank opting to freeze the emergency liquidity assistance for Greek banks in the wake of the referendum call, Greece decided to close its banks until July 5th and imposed capital controls that restrict the withdrawal of cash from the ATMs to 60 euros per day.

Data released by the European Commission showed that economic confidence among eurozone nations unexpectedly weakened in June, with the corresponding indicator dropping to 103.5 in June from 103.8 in May. Economists expected an unchanged reading. Confidence among retail traders and industries also worsened. The consumer confidence index was unchanged at –5.6.

U.S. Economic Reports

The unfolding holiday-shortened week’s economic calendar is weighty in terms of the importance of the data due to be released. The noteworthy economic reports due for the week include the Labor Department’s non-farm payrolls report for June, ADP’s private payrolls report for June, the National Association of Realtors’ pending home sales report for May, the Conference Board’s consumer confidence index for June, the results of the Institute for Supply Management’s national manufacturing survey and MNI’s Chicago-area manufacturing activity data, both for June, the weekly jobless claims data and auto sales for June.

S&P/Case-Shiller’s house price index for April, Markit’s final U.S. manufacturing index for June, the Commerce Department’s construction spending and factory orders data, both for May, and announcements concerning next week’s Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.

The National Association of Realtors is due to release its pending home sales index for May at 10 am ET. Economists expect pending home sales to have risen by 0.6 percent month-over-month in May following a 3.4 percent rise in April.



Pending home sales rose for a fourth straight month in April, rising 3.4 percent month-over-month following a 1.2 percent increase in March. April’s growth exceeded expectations. All four geographical regions witnessed sales growth, with notable increases in the Northeast and the Midwest.

The Dallas Federal Reserve will release its regional general activity index for June at 10:30 am ET. The consensus estimate calls for an improvement in the index to –13.5 in June from –20.8 in May.

Stocks in Focus

General Electric (GE) announced an agreement to sell its U.S., Mexico, Australia and New Zealand fleet businesses to Element Financial Corp. for $6.9 billion. General Electric also announced a separate agreement for the potential sales of its European fleet businesses to Arval.

Integra LifeSciences (IART) announced an agreement to buy all outstanding shares of TEI Biosciences and TEI Medical for $312 million in cash. The deal is expected to close in the third quarter of 2015.

Standard & Poor’s announced that J.B. Hunt (JBHT) will replace Integrys Energy in the S&P 500 Index and S&P SmallCap 600 constituent Molina Healthcare will replace J.B. Hunt in the S&P MidCap 400 Index. MYR Group (MYRG) will replace Molina in the S&P SmallCap 600 Index. The changes will take effect from the close of trading on June 30th.

Majesco and Cover-All Technologies announced the completion of their merger and that the combined entity will operate under the Majesco brand and its shares will be listed on the NYSE under the ticker MCJO.
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