Equities ended the month in a rather dull way; a combination of mixed economic data and the ongoing uncertainties over Greece continue to dominate the headlines. A lack of volume probably added to the volatility in equities. The weak end to the month did not prevent equities making modest gains during May; the S&P 500 gained just over 1%, the FTSE euro first 300 gaining 0.7%. Global equities have risen circa 6% year to date, in dollar terms according to Merrill Lynch; bonds on the other hand are down around 3%.
Asset flow saw inflows into equities of just over $4bn this week, in contrast bonds saw modest outflows. US equities continue to see outflows, making it 9 out of the past 10 weeks. In The Chinese equity market, which has been on a strong run this year despite the weak data, China equity funds attracted $4.5bn of inflows in the past week. The VIX closed the week just below 14, a rise of just under 2 points on the week. Retail iInvestor sentiment as recorded by the AAII survey indicates retail investor’s stick to the view that equity prices will mark time in the coming months.
Greece will remain in the headlines at the start of the first week of June, Christine Lagarde, the IMF president, once again raised the stakes on Friday by suggesting in a German press interview that a Grexit was a potential event. Not many would disagree that it is a potential, the question is how much of a potential? One also has to ask how much was she pandering to her audience in Germany, in the interview? On June the 5th Greece are expected to pay back a loan of 300 million euro’s to the IMF, the likelihood will once again be that the loan is effectively rolled over in a similar manner to the repayment of 750m euros a couple of weeks ago.
Looking at the economic reports coming out in the coming week, the US will be dominated by employment reports and manufacturing data. On Friday we get the latest unemployment rate for May as well as average hourly earnings month on month. Another fall in the unemployment rate along with a rise in earnings could spook bond investors, this could well knock over into equity prices. On Wednesday we get the latest Federal Beige Book report. Each Federal Reserve bank gathers anecdotal information on current economic conditions in its district, an overall summary is then prepared by a designated Federal Reserve Bank.
In Europe this week on Monday we get the preliminary inflation report for Germany, and on Tuesday the latest German unemployment rate. Also on Tuesday we get the flash inflation rate for May for the whole of the euro area. Looking later into the week, on Wednesday the latest results of the Markit purchasing managers surveys, as well as the latest interest rate decision, we expect the subsequent press conference may well be dominated by the ongoing Greek negotiations. It’s a quietter week in the UK for macro data, on Tuesday the latest mortgage lending data and on Thursday the monthly rate setting meeting, no change in interest rates is expected.