After a disappointing month for equity prices in June, the first couple of days in July have seen a modest recovery. On Sunday the Greek people go to the polls to vote on what is becoming as much a vote on Mr. Tsipras, as a vote on the proposed austerity package and on membership of the European Union.
Many commentators regard the outcome of Sunday’s vote as a binary event, a yes vote means the end of Mr. Tsipras, and negotiations resume with a new Greek government, at present who will lead that remains unclear. A no vote would mean the ultimate expulsion of Greece from the EU. Whether events turn out like that time will tell, but one gets the feeling that’s how markets will read the result first thing on Monday morning. The real problem will remain on Monday, no matter what the outcome, Greece will still have a debt burden that is unsustainable.
Away from Greece and its troubles, the latest US jobs data report marginally missed market expectations. Wage growth remained stagnant and labour force participation fell. There was some expectation that a stronger than anticipated labour report would lead to economists moving from penciling in the first rate rise in September, to inking it in. The FT speculated that despite the slightly weaker than expected report, the month of September remains favourite for the first move in interest rates.
As we now enter the third quarter of the year, global equity markets as a whole have given up a large part of their early gains. Merrill Lynch, in the their latest strategy report suggest that they believe equity investors are showing signs of capitulation, which gives them room for optimism in the third quarter.
Aside from Greece and US interest rates, the second quarter earnings season is soon upon us. July 8th is the kick off date, as Alcoa report earnings on that day. Alcoa is always traditionally considered a window on the US earnings season. The stock has fallen approximately 20 pct. from mid April, as analysts have been downgrading expectations into this report. That may make meeting or beating those expectations slightly easier to meet or beat.