Greece: the stalemate continues

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The worldwide financial markets remained relatively stoic last week as the negotiations with Greece again failed to produce a result. Bond prices in the strongest European countries and the United States fell slightly.

Nevertheless, the crippling situation surrounding Greece also carried over to some of the European data Ben Steinebach Ben Steinebach Head of Investment Strategy

Early in the week the sentiment took a sudden upturn when the Greek government came with promises that reduced the differences separating the parties sufficiently that an accord within the Eurogroup (the eurozone’s finance ministers) seemed only a matter of time. However, the institutions involved (IMF, ECB and European Commission) saw this as an opportunity to pile the pressure on Greece. This led to renewed stubbornness on the Greek side, and even caused Prime Minister Tsipras to compare the IMF to a criminal organisation. In part as a result, by Thursday the negotiations within the Eurogroup had again failed to produce a result. Prices on Europe’s stock markets fell marginally on Wednesday and Thursday, though not enough to cancel out Monday and Tuesday’s upsurge. On balance, stock prices in the United States fell slightly, having been infected by the upbeat sentiment in Europe on Monday and Tuesday. These movements on the financial markets took place against a backdrop of encouraging macroeconomic news. In the United States, for example, this included the latest data about personal income and outlays, which had increased more than projected in May. This seems to show that the lower energy prices have finally improved the willingness among the US population to spend their money. At the same time, though, orders for durables were announced to have fallen more than expected while the sentiment among purchasing managers was also down slightly, though remaining at a comfortable level. By and large, macro data from Europe was slightly more favourable, for both the sentiment among purchasing managers and economic growth. In the Netherlands, for example, Q1 economic growth was adjusted from the 0.4% announced previously to 0.6%, implying an annual growth rate of around 2.5%. Nevertheless, the crippling situation surrounding Greece also carried over to some of the European data. The Ifo Indicator – the principal measure of German business confidence – fell for the second consecutive month in June, though it remains comfortable. Prices on the bond market fell marginally, both in the United States and in Europe’s core countries, giving interest rates a slight boost. In Europe’s peripheral countries, however, interest rates fell as investors believed – particularly during the early part of the week – that the Greek situation was heading in a favourable direction. As of Friday it was uncertain how matters would develop over the weekend. We still believe in a favourable outcome and in Greece’s continued membership of the eurozone; however, the deadline might very well be pushed back further in time. A Grexit will undoubtedly feed the concerns on the financial markets, though we do not expect that this dramatically impact the outlook for Europe.

European stock markets holding on to most of their gains

Europe’s markets experienced a significant upsurge on Monday and Tuesday when the prospects of a favourable outcome with Greece improved. When the negotiations once again ground to a halt, encouraging corporate and macro news prevented major drops. In the international arena, sportswear manufacturer Nike presented impressive corporate earnings for the fourth fiscal quarter. Both revenue and earnings outperformed the analysts’ average estimates. Revenue in all the company’s important regions (North America, Europe and China) was up by double-digit percentages. The company also successfully launched numerous new products. On the Dutch market it was Boskalis that announced good news, having acquired new orders with a total value of €75 million in Angola (dredging project for an LNG port), Gabon (an iron terminal) and a dredging project in Senegal. With the Suez Canal dredging project nearing completion, it is good news that the company can utilise its dredging capacity within the same region. Combined with favourable macro data – including the improved sentiment among purchasing managers – this prevented the renewed tensions surrounding the Greek situation from cancelling out Monday and Tuesday’s stock price gains. This is illustrated by the Dutch AEX: the Friday before it had closed on 475.43 and on Monday and Tuesday climbed almost 20 points to 494.45, dropping marginally to 492.39 on Wednesday and Thursday. On Friday morning, amidst the renewed uncertainty, the principal Dutch indicator was slightly below 490 points.

Macro data and Greece to provide most of the news

On Friday it was still unclear what the weekend would bring for the negotiations, though it was evident that the sentiment on the markets would be affected. Some macro news is expected this week. The Eurogroup, under Jeroen Dijsselbloem, met again on Saturday to try to reach an accord. The technical discussions (between Greek officials and representatives from the IMF, the ECB and the European Commission) were also expected to continue. Angela Merkel already turned on the pressure when she said that an accord needed to be reached before the financial opened on Monday. As such, another exciting week lies ahead. No corporate news of any great importance is expected, and would undoubtedly go unnoticed amidst the tension. The same might also happen with the macro news, though the most interesting data should nevertheless be mentioned. In Europe, the Economic Sentiment Indicator for June will be published on Monday, a combination of business and consumer confidence. It remains to be seen whether it will be impacted by the tensions surrounding Greece. We also look forward with interest to a long series of inflation data from European countries, as well as an initial estimate of inflation in the eurozone in June. New data will be presented about retail sales in Germany in May and unemployment in that same country, as well as various other European countries and the European Union as a whole. Less excitement will surround the final data about the sentiment among purchasing managers in Europe, Asia and the United States, which will be published near the end of the week. Other data expected from the United States includes factory orders in May, about consumer confidence (as measured by the Conference Board) in June and about the number of houses waiting to be sold.

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