Market Recap: Week of July 13th 2015

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Market Recap

Global equity markets were mixed last week. There were strong gains in Europe on the prospect of a deal being reached between Greece and its creditors, as the Greek government appeared ready to concede to save their position in the single currency. The German DAX index was the best performing index, up 2.33%. US equity markets were relatively unchanged while the major indices in Asia were more mixed as the volatility in the Chinese equity market dominated the headlines.

Core government bond yields moved higher on the news about Greece while peripheral bond yields moved lower as the risk of a Eurozone departure subsided. The German 10-Year government bond yield closed at 0.90% after hitting a low of 0.64% earlier in the week while the 30-year jumped 17bps on Friday to close at 1.64%. 30 year government bond yields in Italy, Spain and Portugal, closed 13bps, 16bps and 32bps lower respectively over the week, at yields of 3.15%, 3.22% and 3.70%.

Mainland Chinese equity market driven higher by authorities

China’s Shanghai Composite Index of mainland shares rallied on Thursday and Friday to recoup early week losses and end the week 5.18% higher, as the Chinese authorities continued to exert their influence on the ‘free market’. The authorities are keen to push the market higher to rescue the millions of small investors who borrowed to invest and are now deep underwater. With trading in more than half of all listed equities suspended, this still remains a very dangerous market to play in. The illusion of a free market in China has been destroyed. Still, even in the Western world the omnipotence of central banks and governments, particularly since the last financial crisis, does raise the question, how free is the free market?

Week Ahead

European equity markets have opened higher this morning following the news that an “aGreekment” has been reached, this latest pun, in a long list of puns on Greece, coming from European Council President Donald Tusk in the press conference announcement.

Key macro data this week includes industrial production and inflation data from around the globe. The official data release from China on Wednesday will cover the full spectrum of the economy, with GDP expected to have expanded by 6.8% in the second quarter.

On the central bank front it is a busy week, with Mario Draghi’s press conference following the ECB’s monetary policy meeting on Thursday taking centre stage. The order of the day will no doubt be Greece and the provision of liquidity to the Greek banking system. The Bank of Japan meets on Tuesday and are expected to make no change to monetary policy, as is the case with the Bank of Canada on Wednesday. Also in focus will be US Fed Chair Janet Yellen’s semi-annual monetary policy report to Congress and Bank of England Governor Mark Carney’s speech on Thursday, for further insight into the timing of any interest rate hikes.

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