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Week in Review: Uneasy global markets assess Greek impasse

For the week ended 26 June 2015

  • Greek debt crisis remains unresolved
  • US GDP contracted just 0.2% in first quarter
  • US home sales healthy
  • US consumer spending robust
  • Supreme Court ruling a plus for health insurers

Financial markets were unsettled, but volatility was somewhat contained this week as investors seemed optimistic that Greek debt negotiations would reach a last-minute deal before 30 June to avert default. Economic data on US consumer spending and the housing market were strong in May, and the US GDP contracted less than previously estimated in the first quarter.

Global stocks were mixed overall, with major US indices falling and European stocks choppy but range-bound. The yield on the US 10-year Treasury note rose above 2.45%.

US and global economic news

Negotiations with Greek creditors reach 11th hour
After months of talks, negotiations on extending the Greek bailout will continue this weekend in the hopes of reaching a last-minute deal. A 30 June deadline looms for a critical €1.54 billion debt repayment to the International Monetary Fund.

US GDP shrank just 0.2% in first quarter
The US economy contracted at a 0.2% annual pace in the first quarter, less than the previously estimated 0.7%. Consumer spending was revised upward, though growth in imports offset rising exports. The resulting trade deficit subtracted two percentage points from GDP in the first quarter. The consensus estimate for annualized second-quarter GDP growth is more than 2%.

US home sales surge in May
Sales of existing US homes rose 5.1% in May to an annual rate of 5.35 million, the highest since November 2009. New US single-family home sales rose 2.2% in May to a seasonally adjusted 546,000 pace, the most since February 2008.

Consumers spend more, but US inflation tame
US consumer spending grew 0.9% in May, the highest pace in almost six years, while personal income was up 0.5% for a second straight month. Both reflect job market gains. The personal consumption expenditures price index rose 0.3% for the month and 0.2% for the year. Core PCE inflation, excluding food and energy prices, rose 1.2% year-over-year in May.

Core durable goods orders rise
US nondefense capital goods orders excluding aircraft, a key indicator of business investment plans, rose 0.4% in May after declining 0.3% in April. Overall orders for durable goods fell 1.8% in May, affected by a 6.4% drop in orders for transportation equipment. Durable goods inventories declined in May for the first time in two years.

US manufacturing gauge dips
Markit’s US manufacturing purchasing managers’ index fell from 54.0 in May to 53.4 in June, the lowest level since October 2013.

Consumer sentiment jumps
The University of Michigan’s consumer sentiment index jumped to 96.1 in June from 90.7 in May. The reading was the highest since January.

US initial jobless claims rise, but four-week average falls
Initial jobless claims climbed 3,000 to 271,000 for the week ended 20 June. However, the four-week moving average fell 3,250 to 273,750. Continuing claims rose 22,000 to 2.25 million for the week ended 13 June.

China’s manufacturing contracts less in June
The preliminary HSBC China Manufacturing PMI rose to 49.6 in June from 49.2 in May, just shy of the 50 level that separates expansion from contraction. Output and purchasing activity improved, but manufacturers sharply cut payrolls.

Japan’s household spending rises
Household spending in Japan rose 4.8% year-over-year through May, the first annual increase since March 2014, before the country’s sales tax increased from 5% to 8%. Japan’s second-quarter GDP growth is forecast to be 0%.

US and global corporate news

Supreme Court Obamacare ruling boosts health insurers, hospitals
The US Supreme Court’s decision to uphold subsidies for millions of uninsured Americans is a major boost for health insurers and hospitals. After the ruling was announced Thursday, shares of hospital chain Tenet Healthcare jumped 12%, while shares of UnitedHealth Group, the nation’s largest health insurer, were up 3%. Uncertainty over the case was seen as a major obstacle to health care industry mergers and acquisitions. Aetna is reportedly close to a deal to buy rival health insurer Humana.

Cigna rejects rival Anthem’s $47 billion offer
Health insurer Cigna rejected rival Anthem’s $47 billion takeover bid, citing the lack of growth strategies and a major data breach in February as reasons that Anthem’s offer is not in the best interests of shareholders. Large US health insurance firms have sought acquisitions to improve pricing power and expand their presence in government-paid health care plans.

Valeant could buy animal health firm
Valeant Pharmaceuticals has made a preliminary offer to buy Zoetis, the largest seller of animal vaccines and medicines. Zoetis had a market capitalization of nearly $25 billion before its shares rose 11% when news of the possible deal became public.

European supermarket merger to grow US presence
Dutch supermarket giant Ahold, owner of the US chains Stop & Shop and Giant, announced plans to merge with Belgium’s Delhaize Group, owner of Food Lion and Hannaford. The European-based firm Ahold Delhaize would be worth about $29 billion, generate 60% of its sales in the US, employ 375,000 and serve up to 50 million customers weekly.

The week ahead

  • The UK’s GDP is released on Tuesday, 30 June.
  • The European Union reports its unemployment rate on Tuesday, 30 June.
  • Manufacturing PMIs for Japan and China are reported on Tuesday, 30 June.
  • ISM reports its US manufacturing PMI on Wednesday, 1 July.
  • The US employment situation is released on Thursday, 2 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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