So there were a ton of holidays last week, Independence Day, Canada Day, and of course there was the Greek 4 day Bank Holiday, yes, they called it a holiday…
Last week Greece announced that they would put the EU conditions surrounding a bailout package to a public vote. They also closed the banks to prevent assets from leaving the country. They called it a holiday… which is still in effect as of this blog. ATM withdrawals have daily withdrawal limits of €60; that is the equivalent of $66.
By sending the issue to a vote on 7/05 and defaulting effective 6/30, Greece has made the vote irrelevant. Their negotiating posture has been completely compromised. As their banks remain closed and their economy remains in a choke hold their need for capital trumps the EU’s need to keep the 19th member country on-board. The long-term fear is that other countries that have had to undergo austerity measures may get encouraged by Greek success… €60 withdrawal limits definitely signal success… Or maybe it is the 6 business day bank holiday they will see as a success…
Domestic
The impending default of Greek debt cause US markets to shed 2% on Monday. After default the markets were little changed, in fact they responded favorably to positive domestic data. Consumer confidence jumped to 101.4 in June, from 94.6. ISM Manufacturing PMI increased to 53.5 in June, from 52.8[1].
Thursday’s unemployment report brought a contradictory response. The Markets fell even though the unemployment rate went from 5.5% to 5.3% in June. Much of this came as the result of 2 key factors.
- The participation rate fell to 62.6%, the lowest level since 1977[2] – This made people fear that workers were becoming discouraged… Not likely. A better explanation from T Rowe Price is that the timing of surveys caught teen workers before school was out accounting for the short fall in participation. Another possibility would be a summer break from job hunts…
- Stagnant wage growth. Wage growth is expected to lead to future inflation. With flat wage growth, future inflationary conditions look unlikely.
International
Enough about Greece. China’s equity markets have been getting routed even though Manufacturing and Services have been improving. Regardless their equity markets surged unchecked for about a year and a half. This pull back could be deep and still represent gains over the last 2 years. No end appears to be in sight as China attempts to implement 1929 style measures to stymie flows.
Not quite international, concerns are mounting about Puerto Rico’s ability to make debt payments. No default to date, however their governor does admit the weak fiscal position.
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[1] www.investing.com – economic calendar
[2] www.mfs.com – week in review