For the week ending June 19, 2015, the markets rallied on the FOMC meeting announcement and Fed Chairperson Janet Yellen’s quarterly press conference, only to pull back partially on Friday over the Greek debt crisis. The Dow ended the week up 0.65 percent and the S&P 500 up 0.76 percent. In other news: the Fed kept its fed funds rate unchanged, while reiterating that a rate hike will be based on the outcome of economic data; the ECB increased its emergency funds to support Greek lenders; and Russia poses solidarity with Greece. Below is a recap of the markets for each day of the week.
The markets were down on Monday on mixed economic news: manufacturing is very weak (Empire State manufacturing survey; industrial production) while housing is strong (housing market index). Oil edged lower to $59.50. The Dow dropped -0.6 percent to 17,791; the S&P 500 dropped -0.46 percent to 2,084.
On Tuesday the markets rose on continued strength in the new home market (housing starts and permits report); but there is increasing risk of a Greek default. Oil edged higher to $60. The Dow rose 0.6 percent to 17,904; the S&P 500 rose 0.57 percent to 2,096.
On Wednesday the markets initially rallied on the FOMC news, ending modestly higher as Greek debt crisis concerns offset gains. Chair Janet Yellen, at her press conference, feels further improvement in the labor market is needed before a rate hike can be justified. Oil dropped slightly to $59.50. The Dow rose 0.2 percent to 17,935; the S&P 500 rose 0.2 percent to 2,100.
The markets rallied on Thursday due to the dovish FOMC and strong economic news (jobless claims at record low levels; Philly Fed report showing strength in manufacturing). Oil rose $1 to $60.50. The Dow rose 1.0 percent to 18,115; the S&P 500 rose 0.99 percent to 2,121.
On Friday the markets dropped on escalating concerns over Greece with emergency meetings scheduled for next week. Oil dropped slightly to $60. The Dow dropped -0.60 percent to 18,014; the S&P 500 dropped -0.53 percent to 2,110.
The FOMC meeting announcement and Chair Janet Yellen’s press conference on Wednesday made it clear that a rate hike is not likely to occur in September unless economic data supports it; and when it occurs, the Fed plans to raise rates even more slowly than last indicated. Currently, the Fed is forecasting GDP to grow this year by 1.8 to 2.0 percent (that’s down from the prior forecast of 2.3 to 2.7 percent). Nearly all of the 17 Fed officials expect to raise rates this year, but 7 expect only one rate hike (compared to 3 from the last report); it is now considered that the rate hike will occur in December.
The European Central Bank (ECB) increased its emergency funding on Friday for Greece’s financial system after the government failed to broker a deal. Concerns about the Greek banking system had risen sharply as large outflows of cash (about 3 billion euros) from the banks occurred this past week. Funds appear to be flowing out of the banks faster than the ECB can provide them (the ECB increased its emergency funding by 2 billion euros on Friday). So far, withdrawals have not escalated to the level of a full-blown bank run. Over the last five years, Greece’s creditors (IMF, ECB, and other eurozone countries) have committed 240 billion euros in bailout loans. President of the European Council, Donald Tusk, warned Greece not to expect leniency from the lenders on Monday, saying “The game of chicken needs to end, and so does the blame game. There is no time for any games. It is reality with real possible consequences, first and foremost for the Greek people.”
Russia and Greece flaunt solidarity at a business forum. This is not the first time that Russia has hinted a helping Greece, and is simply a way for Russia to thumb its nose at Europe. There are a number of bonds uniting the two leaders: Russia and Greece share the Orthodox Christian faith; Prime Minister Alexis Tsipras in his youth was a staunch Communist; Tsipras has long been critical of the U.S.; and he has opposed the economic sanctions imposed by the West over Ukraine. Bottom line: economists do not believe Russia will lend funds to Greece. What is possible is that Greece will cast a vote against renewing the sanctions against Russia, and all 28 EU member states must cast a vote in favor for sanctions to continue.
The bottom line: considering the dovish FOMC meeting announcement and statement made by Fed Chair Janet Yellen, it is now more likely a rate hike will occur in December; however, if economic news does continue to improve for the labor force and inflation gets above 2 percent, then September is possible. The markets will continue to follow the Greek crisis with increasing interest as June 30 nears.
The focus next week in the U.S. will be the housing (existing home sales; new home sales), manufacturing (durable goods orders; Richmond and Kansas City Fed reports), and consumer (personal income and outlays; consumer sentiment) sectors. In addition, GDP will be watched for signs of further strength in the economy. Globally the focus will be on the Greek debt crisis (a special summit will meet on Monday for all Eurozone presidents and prime ministers). In addition, the focus will be on the following: UK (nothing); eurozone (manufacturing services & composite PMI; M3 money supply); Germany (manufacturing services & composite PMI; ifo business survey); China (PMI manufacturing); and Japan (CPI; unemployment; household spending).
Year-to-date the markets are up: Dow 1.1%; S&P500 2.5%; Nasdaq 8.0%.
The Markets for the past week were: DJIA up 0.6%; S&P500 up 0.7%; Nasdaq COMP up 1.3%.
Commodities (ETFs) for the past week were: Gold (GLD) up 1.67%; Silver (SLV) up 1.11%; Oil (OIH) down -3.63%; Dollar (UUP) down -0.84%; 30-year Bonds (TYX) dropped 4 basis points to 3.06%.
The VIX this past week (a measure of market sentiment and volatility) rose to 13.96% due to growing concerns over the Greek debt crisis.
To see what’s on the calendar for next week, go to the Econoday calendar.
The economic calendar for next week is moderate:
- o Monday – Existing Home Sales
- o Tuesday – Durable Goods Orders, PMI Manufacturing Index Flash, New Home Sales
- o Wednesday – EIA Petroleum Status Report, GDP
- o Thursday – Weekly Jobless Claims, Personal Income and Outlays
- o Friday – Consumer Sentiment, Fed Speak
If you’re trading options, it is suggested trading Put Credit spreads for next week at 2.0 standard deviations or greater. Expect the price of the SPX to fall within 2029 and 2193 (2 standard deviations).
For more information about options, see the ‘Suggested Links’ below.