For the week ending July 10, 2015, the markets yo-yoed on news of the evolving Greek debt crisis and China’s equity market turmoil. The Dow ended the week slightly up at 0.2 percent while the S&P 500 ended flat. In other news: Greece submits new plan which capitulates to its creditors’ demands; China’s stock market in a freefall responds to government action; the IMF revises its global outlook; and Fed Chair Janet Yellen still considering a rate hike in 2015 despite Greece and China. Below is a recap of the markets for each day of the week.

 

The markets were down on Monday as the Greek referendum vote on Sunday was ‘no’ to the austerity terms of its creditors. Oil reacted sharply to the news falling nearly $4 to $52.75. The Dow dropped -0.3 percent to 17,683; the S&P 500 dropped -0.39 percent to 2,069.

 

On Tuesday the markets rose after a very choppy day in which the markets were down as much as -1 percent in the morning. Economic news for the day was weak: exports fell -0.8 percent; imports down -0.1 percent. Oil remained flat at $52.75. The Dow rose 0.5 percent to 17,776; the S&P 500 rose 0.61 percent to 2,081.

 

On Wednesday the markets dropped significantly as China’s markets were in freefall and trading on the NYSE was halted nearly 4 hours due to a technical glitch. Oil dropped $1 to just below $51.75. The Dow dropped -1.5 percent to 17,515; the S&P 500 dropped -1.67 percent to 2,047.

 

The markets rose on Thursday as the Chinese markets ended their freefall making a modest gain, and Greece met its deadline to submit a new reform proposal. Oil rose $1 to $52.75. The Dow rose 0.2 percent to 17,548; the S&P 500 rose 0.23 percent to 2,051.

 

On Friday the markets rose dramatically as the Greek proposal was in-line with the requirements of its creditors, raising hopes for a bailout agreement. Oil was little changed near $52.75. The Dow rose 1.2 percent to 17,760; the S&P 500 rose 1.23 percent to 2,077.

 

The markets ended a volatile week little changed. The Dow eked out a 0.2 percent gain for the week after gaining 212 points (1.2%) on Friday; the S&P 500 ended nearly flat after gaining 25 points (1.2%) on Friday. The news that drove the markets was: the expectation that a bailout deal for Greece is very close; and the markets in China staged a nice rally.

 

The proposal submitted by Greece shows the Syriza government has agreed to the austerity terms of its creditors. This has occurred just five days after a landslide referendum vote rejected the terms. Prime Minister Alexis Tsipras, putting the best face on a failed outcome, said “We are confronted with crucial decisions. We got a mandate to bring a better deal than the ultimatum that the Eurogroup gave us, but we weren’t given a mandate to take Greece out of the eurozone”. The proposal will be discussed on Sunday, and any deal will likely lift the ECB’s freeze on emergency funds for the Greek financial system. The ECB freeze has been controversial given its mandate to uphold financial stability, and there is some question as to its legality. The saga is not over, and there is some concern that the creditors will want further stringent austerity measures.

 

China’s stock market, which has been dropping sharply over the last few weeks, has responded to emergency measures implemented by the government. The emergency measures were a barrage of support measures designed to have an immediate short-term impact: a cut in interest rates; suspension of IPOs; reduction in margin requirements and collateral rules; and the enlisting of brokerages to buy back stocks using cash from the PBOC (China’s central bank). Additional measures are expected from the PBOC over the next few weeks. During the stock market slide, the two key Chinese markets lost over 30 percent from their mid-June peak; the turmoil became a greater concern than the Greek debt crisis.

 

The IMF cuts global growth projection for 2015. The new global growth projection is 3.3 percent (down from 3.5 percent) citing weaker-than-expected growth in North America; the projection for 2016 remains unchanged at 3.8 percent. Other factors cited were: a rebound in oil prices; rising bond yields; and weak inflation. The report also stated “The underlying drivers for a gradual acceleration in economic activity in advanced economies—easy financial conditions, more neutral fiscal policy in the euro area, lower fuel prices, and improving confidence and labor market conditions—remain intact”. With regard to Greece, the report stated “As dramatic as the events in Greece are, Greece accounts for less than two percent of the euro zone GDP, and less than one half of one percent of world GDP,” he said. “There is little question that Greece is suffering and may suffer even more under the scenario of a disorderly exit from the euro zone. But the effects on the rest of the world economy are likely to be limited.”

 

Fed Chair Janet Yellen maintains her call for a rate hike in 2015. Speaking Friday after weeks of market turmoil due to Greece and China, Yellen states “I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy”. She continues to remain cautious, adding “the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step.” Economic expansion has entered its seventh year with unemployment falling; yet the job market “still has not fully recovered.” Yellen remains optimistic that economic growth will pickup in the coming years.

 

The bottom line: despite weakness in exports and minimal strength in the labor market, the services sector remains strong and should keep the economy moving forward. If GDP maintains a 2.5 percent growth rate, the Fed is likely to initiate a rate hike.

 

The focus next week in the U.S. will be retail sales (Tuesday), industrial production (Wednesday), housing market index (Thursday), and housing starts, consumer price index and sentiment (Friday). Globally the focus will be on Greece and China, and Fed Chair Janet Yellen’s testimony in front of Congress. In addition, the focus will be on the following: UK (CPI, PPI, labor market report); eurozone (ECB monetary policy meeting, industrial production); Germany (ZEW survey); China (merchandise trade, GDP, industrial production, retail sales); and Japan (BOJ monetary policy meeting).

 

Year-to-date the markets are mixed: Dow -0.4%; S&P500 0.9%; Nasdaq 5.5%.

 

The Markets for the past week were: DJIA up 0.2%; S&P500 flat; Nasdaq COMP down -0.2%.

 

Commodities (ETFs) for the past week were: Gold (GLD) down -0.24%; Silver (SLV) down -0.47%; Oil (OIH) down -2.66%; Dollar (UUP) down -0.28%; 30-year Bonds (TYX) rose 2 basis points to 3.21%.

 

The VIX this past week (a measure of market sentiment and volatility) rose to 16.83% due to growing concerns over China and Greece.

 

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 – Treasury Budget

o Tuesday – Retail Sales

o Wednesday – EIA Petroleum Status Report, PPI-FD, Empire State Mfg Survey, Industrial Production, Beige Book, Fed Speak (Janet Yellen)

o Thursday – Weekly Jobless Claims, Philadelphia Fed Business Outlook Survey, Housing Market Index, Janet Yellen speaks

o Friday – Janet Yellen speaks

 

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 1987 and 2170 (2 standard deviations).