03.07.15 Friday Morning

Eurozone
With Alexis Tsipras announcing a Greek referendum on whether the country should accept the current deal stipulations (even if that deal isn’t technically on the table anymore), the $1.6 billion IMF non-repayment default passed with less fanfare than one would expect.

The focus is now firmly on Sunday’s referendum, something that only intensified after a mid-week surge of optimism fizzled out. The optimism was based on reports that Tsipras was willing to sign a deal with minor amendments, but the decision by the country’s creditors, led by Wolfgang Schauble in a Eurogroup teleconference, to refuse further talks until after the vote had been held sapped away the market positivity and left Sunday as the latest in a long line of Greek crunch days. This itself had followed an attempt by Greece to request a 3rd bailout, a 2-year deal supported by the ESM, before its last bailout deal expired on Tuesday.

The battle lines remains clear: Jean-Claude Juncker urged the Greek people to vote ‘yes’ in a dramatic plea at the start of the week, whilst Alexis Tsipras and Yanis Vaorufakis both reaffirmed their belief in the ‘no’ vote in various television interviews and speeches. In fact, the Greek finance minister stated he would ‘rather cut off his arm’ than sign a deal lacking debt-relief provision, claiming he could resign if the ‘yes’ vote prevailed. In regard to the debt-relief issue, the IMF released a report that will no doubt be an irritant to the majority of Greece’s creditors, stating that the country needs an extra €60 billion relief program alongside debt relief in any new deal and a 20 year grace period for any repayments, labelling the Greek debt ‘unsustainable’.

The polls, for what they are worth (and following the UK election that is potentially very little), show the ‘yes’ and ‘no’ votes almost neck and neck, with nearly 12% of the country undecided. With the first exit polls of the referendum coming on Sunday evening, the Greek issue is going to show no signs of relinquishing its stranglehold on the markets next week. If the ‘yes’ vote wins we could see a surge in the markets as some kind of short term end to the situation appears on the horizon, alongside the likely resignation of Alexis Tsipras. If the ‘no’ vote wins then, who knows? Tsipras has been adamant that the referendum isn’t on Greece’s position in the euro, but a rejection of a deal by the Greek people puts the creditors in an unprecedented situation, and could finally set in motion the long-discussed Grexit.

US
Whilst the Eurozone thrashed out the latest twists and turns in the interminable Greek saga, the US markets had a long line of data to deal with this week. A post-100 consumer confidence figure, strong manufacturing PMIs and a better than expected ADP non-farm number all set up hawkish vibes going into Thursday’s super-charged afternoon of data.

With the government released non-farm figure brought forward due to the 4th July weekend, the number had a tough task in matching last month’s impressive 280k. It was a task it couldn’t manage, posting 223k, the lower end of estimates, whilst seeing that muscular 280k revised down to a less spectacular, if still solid, 254k. The unemployment rate fell to 5.3% but following issues with labour market participation figures (which fell to levels not seen since 1977) and stagnant wage growth, reactions were decidedly mixed.

Those numbers, especially non-farm, are still solid and aren’t the rate hike squashing figures that some quarters suggested. However, it shows there is still room for improvement in the jobs sector; whether too much improvement is needed to make the much rumoured September lift off feasible is up for debate. Whilst next week’s lack of data, with only JOLTS job openings, trade balance figures and the regular unemployment claims, won’t provide much more clarity on this issue, Wednesday’s FOMC meeting minutes should yield a bit more insight into the ongoing rate hike debate.

UK
The FTSE largely had one of its trademark quiet weeks, with only a trickle of PMIs for some non-Greek sustenance. The manufacturing PMI saw its worst figure for over 2 years; however, luckily for the FTSE it was too preoccupied with misplaced Greek optimism to notice. Thursday’s construction PMI was better, beating expectations and helping the UK index to post Eurozone-decoupled gains in the process, whilst Friday then saw a similarly strong services PMI. This has helped lift the index away from its 5 months lows from Tuesday, but still leaves it a long way from its post 7000 peak.

Next week should bring with it a bit more of a focus on British issues, as George Osborne reveals his summer Budget on Wednesday July 8th. This should, in theory, bring clarity on many of the Conservatives’ pre-election promises, and will be of great interest to investors. Either side of this Budget sits fairly little: manufacturing and industrial production on Tuesday, the (assumedly unchanged) official bank rate on Thursday and the trade balance numbers on Friday.

Commodities
The first non-negative US crude inventories figure in 2 months helped dragged Brent Crude down this week, with nearly 2% taken off on Wednesday alone. This meant by Friday the commodity was circling the mid-$61s per barrel after finally slipping away from the $64 per barrel level that had been its benchmark for the past few weeks.

Over in the land of metal, copper had a rather dull week, stabilising around $2.63 per pound; gold, on the other hand, struggled. Given the market uncertainty at the moment, the precious metal really should be doing better than it is; however, the overall strength of the dollar is still harming gold, which shed around $15 as the week went on.

Stock of the week: Serco Group PLC
It’s been a quiet week in the equity markets, with the indices dominating discussion due to the ongoing Greek situation. However, there were still some big movers, with one of the main attractions being Serco Group. The outsourcing company has had a terrible time of it since mid-2013, with all-time lows at the start of the week. However, Wednesday saw Serco post a £90 million full year operating profit, a vast, vast improvement on last year’s £1.3 billion in losses. This helped the company surge over 10% in the 48 hours following the news to £1.32, and whilst it has begun to fall away on Friday its full year reports suggests there is life in the old dog yet.

(Source: IT-Finance.com 03/07/2015)

Economic Diary, 6^th to 10^th July

 

Monday 6^th July

7.00am – EUR German Factory Orders m/m

3.00pm – USD ISM Non-Manufacturing PMI

3.00pm – USD Labour Market Conditions m/m

 

Tuesday 7^th July

7.00am – EUR German Industrial Production m/m

9.30am – GBP Manufacturing Production m/m

9.30am – GBP Industrial Production m/m

1.30pm – USD Trade Balance

3.00pm – GBP NIESR GDP Estimate

3.00pm – USD JOLTS Job Openings

 

Wednesday 8^th July

10.30am – GBP FPC Meeting Minutes

1.30pm – GBP Annual Budget Release

3.30pm – USD Crude Oil Inventories

7.00pm – USD FOMC Meeting Minutes

 

Thursday 9^th July

2.30am – CNY CPI y/y

2.30am – CNY PPI y/y

1.30pm – USD Unemployment Claims

3.00pm – USD FOMC Member Brainard Speaks

 

Friday 10^th July

9.30am – GBP Trade Balance

 

Earnings releases, 6^th to 10^th July

 

Monday 6^th July

N/A

 

Tuesday 7^th July

Marks & Spencer Group PLC – Q1 2015/16 Interim Management Statement

 

Wednesday 8^th July

Booker Group PLC – Q1 2015 Trading Statement

Galliford Try PLC – Full Year 2015 Trading Statement

Unite Group PLC – Pre-Close Trading Statement

Great Portland Estates PLC – Q3 2015 Trading Statement

 

Thursday 9^th July

SuperGroup PLC – Full Year 2015 Earnings Release

Walgreen Boots Alliance Inc – Q3 2015 Earnings Release

PepsiCo Inc – Q2 2015 Earnings Release

 

Friday 10^th July

N/A