Market Commentary: Greece debt talks hit an inflection point, Yellen hints at rate rise

The euro is bearing the grit of renewed woes emanating from Greece as the currency of the European nations slipped against most peers after Greek leaders said the country can’t take any more austerity and it’s time for creditors to compromise. The euro slipped 0.3 percent against the U.S. currency, breaking the 1.10 level again to trade at 1.098 while Poland’s zloty declined with the country’s equities after an opposition candidate won the presidency.

Greek Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis said over the weekend that the country can’t accept crushing austerity. Greece’s Interior Minister Nikos Voutsis, who has no economic decision-making powers, said Sunday the country couldn’t and wouldn’t pay the IMF in June without a deal. The deadlock leaves a whole lot of unanswered questions, however my gut feeling is that the European leaders and policy makers know that the union cannot afford for a Greek casualty just when the continent is finally showing signs of coming back on its feet, albeit being early days.

The Stoxx Europe 600 Index was little changed while the Shanghai Composite Index added 3.4 percent after its biggest weekly jump this year. Markets in the U.S., U.K., Hong Kong and South Korea are closed today, so don’t be alarmed if you don’t see your valuations change.

The dollar is resuming its strengthening trend after registering its’ biggest weekly advance since September 2011 as faster-than-estimated U.S. inflation reinforced comments from Federal Reserve Chair Janet Yellen that she expects to boost borrowing costs this year. Speaking in Providence, Rhode Island, on Friday, Yellen said that she anticipates raising rates this year if the economy strengthens as she anticipates it will. Delaying the first increase until employment and inflation return to the Fed’s targets “would risk overheating the economy,” Yellen said.

Oil speculators missed out as record demand from U.S. refineries helped trim supplies from their highest level in more than eight decades and drive prices higher. Crude snapped a five-day decline after U.S. production fell to a three-month low and inventories slipped to the least since March. Analysts expect demand from refineries to increase as typically this time of year is the strongest on record as Americans prepare for the nation’s peak driving season as more people use their vehicles to go on vacation. U.S. crude-oil production dropped 1.2 percent in the week ended May 15 to 9.26 million barrels a day, the lowest level since Feb. 6, according to the Energy Information Administration.

Looking at the week’s calendar of economic data releases on Tuesday we’ve just got Japan PPI and UK CBI reported sales to look forward to before an active day in the US tomorrow afternoon with durable goods orders, capital goods orders, FHFA house price index, S&P/Case Shiller house price index, May flash composite and services PMI’s, new home sales, consumer confidence, Richmond Fed manufacturing index and the Dallas Fed manufacturing activity index. Wednesday starts in China where we get industrial profits data for April and small business confidence in Japan. There are more confidence indicators in Europe on Wednesday with German and French consumer confidence.

On Thursday we get Japan retail sales in the early morning. We then turn to Europe where we get various May confidence indicators for the Euro area. Initial jobless claims and pending home sales will be due in the US on Thursday. It’ll be a busy end to the week on Friday as we get CPI, industrial production, housing starts and the jobless rate out of Japan first of all. In Europe we start with French consumer spending, quickly following by Euro area money supply data and then the preliminary Q1 GDP report for the UK. Over in the US the second reading for Q1 GDP will be important given the expected revisions, while we also get the Chicago PMI and the final May University of Michigan consumer sentiment reading. A busy and interesting week to say the least.

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