A volatile week leaves asset prices largely unchanged

Developed equity markets finished the week approximately where they started them, after a weak ending on Friday. Renewed fears for Greece once again putting the skids under risk assets as no agreement was found. Historically agreements between Greece and its creditors go to the wire, and this time appears to be no different. 

 

The FT reported on Sunday that talks between the parties would continue over the weekend, after Greek government officials were told to submit a final list of economic reforms to secure the seven billion euros of aid needed. It seems hard to fathom that the future of the euro will be brought into question by the failure of the Greek government to secure seven billion euros from its creditors. The current bailout plan expires at the end of the month.

 

The movement in fixed income prices, particularly those in the US has been cause for much debate. Ten year treasury yields rose in the middle of the week, but rather like equity prices fell back to finish the week approximately where they started, at around 2.4%. UK gilts finished the week with the 10 year gilt yield hovering around 2%, the two year yield remains close to a half of one percent. The US dollar lost ground over the week against its basket of currencies. The gold price rallied modestly on the back of that, but remains just below $1200 an ounce, remaining within its 6 month trading range.

 

Bullish sentiment amongst retail investors as recorded by the AAII survey dropped sharply over the week, only 20pct of those polled think the market will be higher in 6 months time. In contrast the Vix fell on the week despite the increased uncertainty over Greece. Fund flow data over the past week reported investors withdrew capital from bonds and equities.

 

Looking to the week ahead on Wednesday we get the latest US interest rate decision, followed by a briefing from Janet Yellen. There are now no expectations for a move on rates at this meeting, the interest will be in the tone of Janet Yellen’s comments as markets try and price in when the first move will occur.

 

Looking to the UK, Tuesday sees the latest UK inflation data, after last month’s fall into year on year deflation, expectations are for inflation to pick up modestly in the month of May. On Wednesday we get the minutes from the last meeting of the Bank of England’s Monetary Policy Committee meeting, as well as the latest UK unemployment rate.

 

For the euro area aside from the Greek negotiations, Mario Draghi speaks at the quarterly hearing of the Committee on Economic and Monetary affairs on Monday. On Wednesday we also get euro area inflation data for the month of May, expectations are for the inflation rate to be flat year on year.

 

With Ascot starting on Tuesday we now enter the sporting summer. Investor sentiment appears to remain unsure of the direction of asset prices, added to this the lack of liquidity can add to the volatility in asset prices. 

Posted on June 14, 2015 .