Market Recap: Week of July 20th 2015

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Market Recap

Global equity markets recorded strong gains last week, buoyed by the perceived end to the Greek crisis, as the Greek government conceded to the demands of their creditors to remain in the single currency. In Europe, the FTSE Eurofirst 300 closed up 4.25% for the week.

In the US, the NASDAQ Composite Index closed at a record high on Friday, largely driven by the weekly gain of 26% in the share price of Google, after a 16% jump on Friday following a better than expected earnings call. In Asia, Japan’s Nikkei 225 index closed up 4.01% while authorities in China appeared to have arrested the decline in mainland Chinese equities, with the Shanghai Composite Index up 2.05% last week.

The German 10-Year government bond yield closed down 10bps at 0.80%. On the currency front it was a difficult week for the Euro, falling 2.8% against the US dollar to $1.0845, down from $1.35 a year ago.

European equity and bond markets rally on Greek relief…..

Their Prime Minister, Alexis Tsipras, doesn’t believe in the deal and the IMF have also said that it is unsustainable without some debt relief for the Greeks. Still, equity and bond markets moved higher as investors expressed relief that the risk of a Greek departure and the fear that it might have sparked contagion across the financial system, has been removed. However, it seems likely that there will be more twists and turns in the Greek drama, an exit from the Euro being the inevitable conclusion under strict austerity and an increasing debt burden.

Central Bank Watch: Fed on course for rate hike this year….

On the central bank front, US Fed Chair Janet Yellen’s semi-annual monetary policy report to Congress offered few surprises in terms of the outlook for monetary policy. The Fed will likely test the waters on a rate hike before the end of the year, unless we deviate from the current path in terms of the economic data. Further strength in the US dollar could be an inhibiting factor domestically while abroad they will be particularly focused on events in China. As always, Yellen will continue to reiterate that the Fed funds rate will remain below normal levels for a considerable time after the first rate hike.

Week Ahead

European equity markets have opened higher after a mixed session in Asia overnight. The Greek banks have finally reopened today, after the ECB agreed to increase support last week.

Key macro data this week includes the flash global PMI data, a useful leading indicator on the outlook for the global economy. The Bank of England will release the minutes of their most recent monetary policy meeting with investors searching for any clues on the timing of the first interest rate increase and their plan for normalising monetary policy. UK retail sales for June will be eyed on Thursday. In the US, we will get an update on the housing market with reports on new and existing home sales. Earnings season continues.

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