After a tumultuous week on global markets, buffeted by ructions in China and Greece, this week looks set to open with some clarity on China even if Greece remains unresolved.
Chinese markets saw prices crash, then rebound, after a huge number of stocks were suspended, authorities effectively banned any substantial stock holders from selling, cancelled IPOs and threatened to prosecute ‘malicious’ sellers. It was certainly unorthodox by Western market standards, but Thursday and Friday proved the measures were somewhat effective in turning sentiment and driving stocks higher in Shanghai. So at least on this front traders will start the week with more confidence that Chinese authorities have their market under control.
There is little likelihood that markets will have the same confidence over the fate of Greece’s Euro future and the bailout package after talks broke up at midnight Saturday with no agreement. The Germans pushing for some kind of non-Grexit ‘time out’ for Greece. It’s just the latest in a weird few weeks after the ‘No’ vote, , then Greece returning to the table with the same deal that prompted the referendum and now this latest move, proposed by German finance minister Wolfgang Schaeuble.
A decision could still be made before or during Monday Asian trade as a result of Sunday’s full EU membership meeting. But, with the Germans pushing for a ‘sustainable solution’ at the same time as they demand Athens transfer state assets worth 50 billion euros into a trust fund to pay down debt, and take this 5 year time out, when some of its debt could be written off, implies further delays. Indeed, it suggests Grexit is officially on the table as Myles Udland from Business Insider US highlighted this morning.
That will leave bond, stock and currency traders a little edgy given stocks rallied so hard at week’s end while bonds sold off sharply into the close. US 10s made a low of 2.175% on Tuesday before closing the week at 2.40%, just 10 points below the 3-month high. Australian 10s bottomed at 2.71% before ending the week with futures implying an open Monday of 3.02%
Certainly a large part of the global bond sell-off was based on hopes for a Greek resolution and moves in Shanghai. Bond traders also took notice when FOMC Chair Janet Yellen said she still sees this year as the start of the tightening cycle. That makes Yellen’s semi-annual testimony to Congress on Wednesday night, Australian time, very important both for US interest rates and global markets more broadly.
Turning to events in Australia this week, the key events are the NAB monthly Business Survey and the Westpac consumer sentiment index. Both are important indicators of where the two juggernaut sectors of the economy, business and consumption, are now and where they are headed.
The NAB summarised last month’s survey saying the “Federal Budget and May interest rate cut supported business confidence in May, moving up significantly from +3 to +7 index points. This was the highest level of confidence since August 2014 and has helped turn the trend more positive.” It will be important to see if business has retained this renewed outlook.
That’s certainly the case because after a big drop last month it doesn’t appear Westpac is confident of any snap back this month for consumer sentiment. On Friday, in their preview of Wednesday’s release they said “the July survey is in the field from July 6-12. Offshore events are likely to have a major impact with renewed turmoil in Greece and China’s sharemarket collapse front and centre.”
Also out in Australia this week is the ANZ weekly consumer confidence number on Tuesday morning, otherwise it’s a very quiet week in Australia for news and data.
Globally, Greece and the sustainability of the Chinese stock market rally will attract the most attention but China also has a huge week of data that will help inform traders and investors about just how fragile the Chinese economy might have become. Trade data on Monday will be dissected for clues on growth before retail sales, production and Q2 GDP take centre stage on Wednesday. Westpac expects no change to the 7% year-on-year growth rate recorded in Q1, but say the risk is to the downside.
Elsewhere Tuesday sees the release of German and UK CPI along with US retail sales for June.
Wednesday, Janet Yellen heads up to Capitol Hill to speak before Congress. PPI, industrial production and the Empire manufacturing index are also out. On Thursday the ECB has a policy meeting and they may be called on to act if Greece is still deadlocked and we get the usual jobless claims release in the US. The week ends on a big note for US markets with the release of housing starts, building permits, CPI, consumer confidence and a speech by Janet Yellen’s deputy Stanley Fischer.
Here is Westpac’s excellent diary of all the key events and data for the week ahead.
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