Friday, July 3, 2015

Greece, China Weigh On Markets Despite Strong U.S. Data

QUICK READ: Given Greece’s debt quagmire and China’s equity bubble seemingly popping, the global markets tried to negotiate through a wave of negative momentum this week. U.S. markets were buoyed by encouraging employment and housing data, while the precious metals diverged, with platinum and silver advancing while gold and palladium slipped lower.

The fallout from the deteriorating negotiations between Greece and its creditors led global equities significantly lower to open the week on Monday. Wall Street closed down more than 2% to cap the worst trading day of the year for U.S. indices. This left both the S&P 500 and the DJIA in the negative for the calendar year, though the former remained right at its 200-day moving average, heading for its 10th consecutive winning quarter—the best such streak for the S&P since 1998. The slump for U.S. shares may have been worse if not for pending home sales hitting a 9­-year high during May, marking the fifth straight month of gains.

Global stock indices were hit even harder on Monday, with the Nikkei 225 losing 2.9%, the DAX sliding 3.6%, and the EURO STOXX 50 giving up more than 4%. Meantime, global bonds rose, with sinking yields for Treasuries, Bunds, and Gilts. Conversely, in the preceding year, Greece's 10-­year bond yield had nearly doubled to 10.8%; on Monday, it jumped a staggering 390 basis points to 14.74% before trading was suspended. The yen strengthened below 123 per dollar while euro volatility reached its highest levels since 2008. The common currency initially fell to $1.10 in a panic before regaining its footing around $1.125 by mid-day. Both crude oil benchmarks lost more than 1%, sinking to 3-­week lows. Spot gold added $5 to $1,180/oz while silver lost 5¢ to fall to $15.80/oz. Palladium lagged behind, $12 lower at $670/oz, while platinum was unchanged at $1,185/oz.

Though Tuesday marked the quarterly options expiry, markets were more subdued Tuesday while the Greek situation continued to worsen. U.S. indices rose early in the day after the S&P Case-­Shiller home price index gained 0.3% in April. The HPI is up 4.9% year-­over­-year, though this comes in below analysts expectations. Moreover, 20 of the country's biggest cities actually saw slower home price growth during April. Wall St ended up trickling back throughout the day to close barely positive, with the Nasdaq outperforming the other two major indices of late.

European markets were mostly in the red as Greek PM Alexis Tsipras oddly requested a new 2­-year bailout from the European Commission, which was summarily rejected. The euro settled around $1.115, while the DXY dollar spot index moved back up to 95.5. Shanghai bounced back to gain more than 5%, likely with the aid and support of the Chinese government. The precious metals crept lower as 10­-year Treasuries continued to yield 2.33%.

European markets opened as much as 2% in the green on Wednesday with Athens leading the way, as (for a fleeting moment) hopes improved that a deal on Greece's debt may be reached soon. European Commission VP Valdis Dombrovskis even expressed optimism over the chances of a deal. Wall St traded between 0.5% and 0.8% higher thanks to June posting the biggest gains in private sector employment in 6 months; small businesses accounted for roughly half of the 237,000 jobs added. Construction spending rose 0.8% during May, and factory activity picked up, with the ISM manufacturing index beating estimates in June. The dollar gained 0.8% against its major peers to 96.25 on the DXY, dropping the euro below $1.11 and the sterling to just above $1.56. 10­-year T­-note yields jumped to 2.42% as Shanghai promptly lost more than 5%. Nearby in Australia, business investment plunged 4.4% during Q1, the largest quarterly drop in 6 years.

With shaky signs around the global economy, it's little surprise the U.S. Mint announced that sales of its flagship American Gold Eagle coins were the highest in June since the seasonally strong showing in January. Many investors and collectors are also greatly anticipating the debut of the mint's new$100 Liberty gold coin, the country's first­-ever $100 gold coin, which is due for release at the end of this month. More evidence of gold's safe haven status came with Gold Sovereign sales through Greek banks doubling in June. The precious metals were mixed again Wednesday, as gold slipped near a 4­-week low at $1,169/oz and silver lost 12¢; meantime, platinum added $4 and palladium surged some $22 (+3.2%) to close at $700/oz.

U.S. stocks again opened higher, saw some volatility, and returned to about unchanged during Thursday's trading. This was despite jobless claims holding under 300,000 for the 17th straight week, non-farm payrolls coming in above 200,000 jobs added for the 15th month out of 16, and U3 unemployment dropping to 5.3%. The last two months' payrolls, however, were revised lower, and the “gains” in unemployment actually pushed the labor participation rate to its lowest level since 1977. After opening about 1.5% higher, each of the crude oil benchmarks tumbled into the red by the day's end. WTI crude sat at $56.50/bbl and Brent crude closed at $61.80/bbl, suffering even amid the seasonally high energy demand that accompanies the summer months (in the Northern Hemisphere). 

Thursday saw mixed results for European equities, as some markets made modest gains while two of the continent's largest indices, the EURO STOXX 50 and France's CAC 40, both lost nearly 1%. The DXY dropped to 96.0, helping silver and palladium gain at gold's expense. 10-­year Treasuries absorbed some demand, sending yields back lower to 2.38%, though some analysts expect 10-­year yields to spike as high as 3% when the Fed finally lifts rates.

U.S. markets were closed on Friday ahead of the July 4 Independence Day holiday on Saturday. Amid lower volumes, shares were down about 0.4% in Europe, the euro settled near $1.11, crude oil traded 1% lower, and the metals moved slightly higher. Meantime, the Shanghai Composite slumped another 5.8% on Friday after losing 3.5% on Thursday, marking the worst 3­-week stretch the index has seen since 1992.

M&A News 

• Sysco drops plans to merge with U.S. Foods over concerns from the FTC.

• Aetna confirms its acquisition of rival Humana for $37 billion, creating the country's second-largest health insurer.

• Centene buys Health Net for $6.3 billion in cash and stocks to become the biggest private provider of Medicaid.

• Drug developer Celgene buys Juno Therapeutics for $1 billion in cash and stock, sending shares of the latter 19% higher.

• Willis Group and Towers Watson merge in an $8.7­billion deal.

• ACE Insurance buys Chubb for $28.3 billion to diversify its portfolio in a cash­ and ­stock deal.

• The DoJ sues to block Electrolux from acquiring GE’s line of appliances for $3.3 billion, fearing that the merged firm would dominate huge segments of the home appliances market.

• International entertainment company MTG purchases ESL, the largest eSports organization in the world, for €78 million ($86.4 million) for a majority stake (74%) in ESL's holding company, Turtle Entertainment GmbH.

• K+S, the German potash supplier, rejects an $8.6­billion takeover bid from Canada’s Potash Corp. Before the bid, K+S shares were up 27% on the year, beating the DAX index (+17% YTD).


Monday is a rather full day of economic indicators: abroad, new manufacturing numbers in Germany, Swiss CPI, and Canadian PMI come out; in the U.S., the ISM non- manufacturing index, the services PMI index, and labor market conditions index will be released, as well as global PMI data from JPMorgan and the latest consumer spending measure from Gallup. The FOMC June meeting minutes come out on Wednesday at 2 pm. Fed Chair Janet Yellen will speak in Cleveland on Friday afternoon to close out the week.

Image Credit: Wikimedia Commons 
By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.