Market commentary: No surprises from Yellen or Greek Parliament

Yesterday we saw a pretty uniform testament from Fed chair Janet Yellen, consistent with her comments earlier in the month, with the key message being that if the economy performs as the Fed expects rates will likely start rising this year. The important question that remains to be answered is whether the data will consistently meet the expectations of the Fed committee.

Yellen also said that policy will remain ‘highly accommodative for quite some time’ and that the she would be willing to hold a press briefing should liftoff occur at a meeting with no scheduled press conference.

Following the press conference, the dollar strengthened marginally while the 10 year treasuries closed 4.9bps lower to 2.35%. Stock markets were broadly flat, with the S&P 500 closing 0.07% down and the Dow 0.02% down. Energy stocks remained under pressure as the price of oil continued to plummet, WTI dropping 3.07% while Brent dropped 2.5% to reach recent lows. Fears of a slowdown, and the current volatility in China continue to impact price negatively.

The Latest supply data from the US are adding downward pressure on the price of oil, whose weakness is also expected to be translated into the US high yield space where a number of highly leveraged US shale companies have issuance.

As expected the Greek parliament, yesterday, approved the proposals agreed upon by Prime Minister Tsipras and the country’s creditors. In the comments after the vote both Tsipras and finance minister Tsakalotos expressed their disdain at how the negotiations were concluded, and that their hands were tied due to the lack of alternatives available. Tsakalotos was quoted as saying “‘I don’t know if we did the right thing but I know we did something to which there was no alternative”.

The next challenge for Tsipras is for his government to remain in power, with a total of 38 Syriza MPs objecting the proposals. A political reshuffle is on the cards, with a minority government a possibility.

Today we expect a similar positive outcome from the German parliament, and we also expect ECB to continue to pledge Emergency Lending Assistance to Greece at today’s meeting.

This morning markets opened stronger, with the German DAX up 1.3% to 11,689 and the French CAC 40 up 1.26% to 5,110.87. The FTSE 100 was also up 0.56% to 6,791.58 with the GBP strengthening 0.22% against the euro to GBP 0.6984/EUR. 10y Bund yields declined steadily over the course of the day, eventually closing 6.1bps lower at 0.826%. In the periphery Italy (-6.3bps), Spain (-7.5bps) and Portugal (-5.4bps) all moved lower.

On the data front, French CPI was softer than expected for June (-0.1% vs. 0.0% expected) while in the US June PPI was a beat at both the headline (+0.4% mom vs. +0.2% expected) and core (+0.3% vs. +0.1% expected) although annual figures continue to remain low (-0.7% yoy and +0.8% yoy respectively). Industrial production was firmer than expected for June (+0.3% mom vs. +0.2% expected) and the highest monthly increase this year. Manufacturing production was disappointing (0.0% mom vs. +0.1% expected).

Looking forward, apart from further political developments, Fed Chair Yellen is due to speak once again at the Semi-Annual Testimony, this time in front of the Senate. Data wise this afternoon in the US we’ve got initial jobless claims, Philadelphia Fed business outlook and NAHB housing market index all due. Citigroup, Goldman Sachs, Google, eBay and Schlumberger report earnings today.

This article was issued by Simon Psaila, Trader/ Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.