Heavy gains on Wednesday led to weekly gains for the week. What drove the hefty gains on Wednesday and is it sustainable???
International
Greece… There were speculations on Wednesday that Greece’s issues with the International Monetary Fund (IMF) and the European Union (EU) were progressing to a resolution. Speculations on legislative progress is a dangerous game. On Wednesday it appeared that Germany was willing to compromise to help Greece meet its obligations. By Thursday morning that optimism dissolved as it appeared that Greece was being more resistant to IMF and EU terms.
China’s economy continues to struggle as imports dropped 17.6% in May and 16.2% in April[2]. Exports also slipped in May. The import data reflects what should be weak consumption in the 2nd quarter. As these issues persist additional monetary easing will be necessary to stimulate the Chinese economy.
Domestic
Data for the US was strong for the week. A good amount of that data came on Thursday, but it was fairly apparent that after the rise on Wednesday the markets had no appetite to advance the markets further. On Thursday retail sales reported in with growth at 1.2% month over month in May. Thursday also brought news that business inventories expanded 0.4% in April. On the jobs front initial jobless claims came in at 279,000. This marked the 14th straight week under 300,000 new claims[3].
In addition to the strong data on Thursday, Friday’s data did not disappoint as expectations and sentiment both rose. Unfortunately this data fell on deaf ears as the Greece/IMF divide seemed to grow wider.
Conclusion
There will likely continue to be market volatility until a Greek default occurs or is avoided. The volatility will persist as the market prices in the likelihood of a Greek default. Unlike 5 years ago the majority of Greek debt is held by Hedge fund managers as a risk play as opposed to periphery banks. This should prevent a Greek default from becoming the contagion that was feared 5 years ago.
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[1] “Flag of Greece” by (of code) cs:User:-xfi- (talk) – own code. Licensed under Public Domain via Wikimedia Commons – https://commons.wikimedia.org/wiki/File:Flag_of_Greece.svg#/media/File:Flag_of_Greece.svg
[2] www.mfs.com – week in review
[3] www.investing.com – economic calendar