Equity markets rallied modestly this week as the focus moved from Greece back to interest rates and earnings. The FTSE 100 rose just over 1% on the week. Company reporting season started in earnest in the past week, as most of the major US banks and several notable corporates announced their second quarter results. It remains early days but so far the likes of JP Morgan and Citi beat expectations, as did Johnson and Johnson and Google.
Interest rates came back into focus, the ECB left rates unchanged at their monthly meeting as the Governor of the Bank of England and the Chair of the US Federal Reserve both spoke of the desire to start “normalizing” interest rates at some point this year. Inflation in the UK, year on year for June remained at zero as the UK unemployment rate rose slightly. Economic data in the US remains patchy as the latest retail sales for June came in below expectations. US treasury bond prices rose slightly on the week but continue to remain stable after the sharp fall earlier in the year. UK gilt yields like wise remain stable, the ten-year gilt yield currently trades at just over 2%.
Equity sentiment improved after the reluctant agreement on both sides to continue the bailout the Greek economy. Greece may come of the headlines for a while, but it is hard to believe this will prove to be the end of the saga. The reputations of both sides have not been enhanced by the to-ing and fro-ing of the past weeks. Greece on Monday is expected to make a 3.5bn euro payment to the European Central Bank.
The Vix fell on the week to trade back at the bottom end of its trading range. After strong equity inflows in the previous week the past week saw a further $8bn go into equity funds. Since late May early June nearly $50 billion has come out of bond and money market funds, finding its way into equity funds.
The coming week will once again be dominated by corporate earnings, more than 100 of the S&P 500 companies report results. A few of the notables are, Morgan Stanley, Haliburton, Apple, Coca- Cola and General Motors.
Looking to the week ahead from a macro viewpoint, the focus in the US will probably be Wednesday’s homes sales report. Homebuilder confidence and housing starts have been rising.
For the UK the focus on Wednesday will be the release of the minutes from the last rate setting meeting held earlier in the month. Expectations are that the vote remained unanimous for rates to remain unchanged, however there may once again be signs that Mr. McCafferty is looking to vote for a rate rise sooner than later.
Other major announcements at the end of the week is the release of initial July estimates of purchasing managers indices for China, Germany, France and the Eurozone overall. Hopes are that the strong readings for June in the eurozone will not be impacted by the events in Greece.