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Week in Review: Greek standoff leaves markets unsettled

For the week ended 2 July 2015

  • Greece to hold bailout referendum Sunday
  • US jobless rate falls to 5.3%, labor force shrinks
  • US pending home sales at 9-year high
  • US consumer confidence soars
  • UK grows faster than expected

Greece’s uncertain status continued to weigh on global financial markets this week as the country edged closer to debt default and a possible eurozone exit. Much rests on the results of a public referendum on Sunday. Greek banks were closed for the week, and citizens were limited to €60 daily withdrawals.

Robust US economic data countered unease about Greece and slower growth in China. Global stocks were mixed, with most major indices range-bound after a sharp drop on Monday, although Chinese equities continued to fall for the week. The yield on the US 10-year Treasury note stood near 2.37% on Friday. Oil prices slid, weighed down by oversupply concerns. On Friday, Brent and US WTI crude oil futures stood just above $63 and $57 per barrel, respectively.

US and global economic news

Greeks to vote on creditors’ bailout terms
Greece is now in arrears on a €1.54 billion debt repayment due to the International Monetary Fund on 30 June. Last weekend, Prime Minister Tsipras called a public referendum this Sunday for Greek citizens to vote on creditors’ terms for a bailout extension.

  • A “no” vote, backing the Tsipras government in rejecting creditors’ terms, could lead to Greece leaving the eurozone, which would heighten concerns over Portugal, Spain or Italy following suit.
  • A “yes” vote, accepting creditors’ terms, could be seen as a vote of no confidence in the current political leadership that would likely lead to new elections or renewed efforts to strike a deal.

US payrolls add 223,000; jobless rate falls to 5.3%
The US economy added 223,000 jobs in June, slightly below expectations for 230,000. The unemployment rate fell to a seven-year low of 5.3% as labor force participation dropped from 62.9% to 62.6%, the lowest since October 1977. Average hourly earnings were flat. April and May’s previously reported job gains were trimmed by 60,000.

Pending home sales rise to nine-year high
The National Association of Realtors’ index of US pending home sales rose 0.9% to a seasonally adjusted 112.6, the highest level since April 2006. It is the latest sign the housing market has regained momentum after a slow start this year. According to the S&P/Case-Shiller 20-city index, US home prices rose 4.9% for the year ended in April, down slightly from 5.0% in March.

Manufacturing gauges split again
US manufacturing indices continued to diverge. The Institute for Supply Management index of national factory activity climbed from 52.8 in May to 53.5 in June, the highest level since January. Over the same period, however, Markit’s final US manufacturing purchasing managers’ index fell from 54.0 to 53.6, the lowest reading since October 2013.

Conference Board’s consumer confidence gauge rises
The Conference Board’s consumer confidence index rose to 101.4 in June, up sharply from 94.2 in May and the consensus estimate of 97.3.

US initial jobless claims rise by 10,000
Initial jobless claims rose 10,000 to 281,000 for the week ended 27 June, the 17th straight week below 300,000. The four-week moving average inched up 1,000 to 274,750. Continuing claims rose 15,000 to 2.3 million for the week ended 20 June.

European manufacturing holds firm overall
The final Markit eurozone manufacturing PMI edged up to 52.5 in June from 52.2 in May. Greece’s manufacturing PMI fell to 46.9, however. The European Commission’s Economic Sentiment Indicator, covering businesses and consumers, fell to 103.3 from 103.8, near a four-year high.

Chinese service sector activity improves slightly
China’s official manufacturing PMI was unchanged at 50.2 in June, while its services PMI rose to 53.8 from 53.2 in May. As China’s equity market continued to retrench, the Shanghai Composite Index’s 10-day volatility reading rose to 61, the highest since November 2008.

UK growth exceeds forecasts; consumer confidence soars
The UK economy grew more than expected in the first quarter, with GDP expanding at an annualized 2.9%. Real household disposable income grew 4.5% year over year, the fastest pace since 2001. A separate report found that British consumers are more optimistic about their own financial situations and the overall economy than they have been since January 2000. However, UK manufacturing growth slowed in June to its slowest pace in more than two years.

US and global corporate news

ACE to buy Chubb in insurance megadeal
Insurer ACE agreed to buy Chubb for $28.3 billion in the insurance industry’s largest-ever acquisition. Chubb operates in the high-net-worth niche of the property-and-casualty business. The cash-and-stock deal is priced at a 30% premium over Chubb’s closing price Tuesday.

GE to sell international business to Canadian, French, Japanese firms
Conglomerate General Electric is continuing to divest financial assets, announcing deals to sell fleet financing business units in the United States, Mexico, Australia and New Zealand to Canada’s Element Financial Corp for $6.9 billion. GE also signed a memorandum of understanding to sell its European fleet franchise to a division of France’s BNP Paribas for €2.4 billion. And the company plans to sell its European private equity-financing business to a unit of Japan’s Sumitomo Mitsui Banking Company for $2.2 billion.

The week ahead

  • The US Services PMI and the ISM non-manufacturing index are released on Monday, 6 July.
  • The US Department of Labor releases the JOLTS report on Tuesday, 7 July.
  • The US Federal Reserve releases the minutes of its mid-June policy meeting on Wednesday, 8 July.
  • China reports consumer and producer price indices on Wednesday, 8 July.
  • The US weekly jobless claims are released on Thursday, 9 July.

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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com.

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