GREXIT FEARS AND IMPROVING US DATA

The USD enjoyed a strong week on the back of mostly positive economic releases. With consumer confidence at the second highest level post global recession and the ISM manufacturing PMI showing the second highest reading this year so far. On the other hand, the Euro was mixed, after opening the previous week with a gap down, only to recover afterwards as fears of a Grexit intensifies.

USD rallies on Data

The first major fundamental report form the US last week was the CB consumer sentiment. This index is a survey involving 5,000 households, asking respondents to rate their perceived relative level of current and future economic conditions covering business, labor availability and the aggregate economic condition. Impressively, the survey showed the reading at 101.4, one of the highest consumer confidence levels since 2007. The ADP Non-farm employment change report beat forecast, coming at 237k. Although, it has not always been a good reflection of the government NFP, it was expected that the positive NFP along with impressive weekly unemployment readings through the month would result in a strong non-farm payroll report as well. The NFP reading came at 223k, below forecast of 231k. Not particularly bad, considering that the previous month’s report was also reviewed down to 254k from 280k initially reported. Unemployment rate fell to 5.3%, the lowest since April 2008 majorly due to reduction in the labor participation rate, the lowest since 1977. Wages was not particularly impressive coming at 0.0%, showing that there is still an inherent slack in the employment sector. All in all, the figures indicate the economy is improving gradually, following a first-quarter slump. This adds more steam to anticipation of interest rate increases to commence by September.

Grexit Fears Intesify

On Sunday, the Greek referendum was held. Both a Yes and No vote carry consequences. It is largely seen as a decision on whether or not Greece is going to remain a part of the Eurozone. In-fact, it is simply a vote as if Greece should accept creditor’s proposal of continued austerity measures for more aid. A “no” vote is therefore akin to a rebuke of the creditors, which is likely to result in an exit from the group. On the other hand, a triumph for the yes votes will likely lead to more hardship in the long run, as painted by the Prime minister and his cabinet and will likely lead to Alexis Tsipras’ resignation, along with Finance minister Yanis Varoufakis. The Euro remains a risky currency as good news for Greece may be bad for the Euro and bad news for Greece may affect the Euro positively.
As of now, the polls are being led by NO voters with 60% plus vs. 39% YES voters.

The Week Ahead

The effect of Sunday’s referendum is expected to loom large in the markets this week as Greece decides on whether or not accept the proposal of the creditors. We also expect major economic reports from US, UK, Canada, Australia and more regions.

Monday, July 6- Canada is set to release the Ivey PMI which is a survey of purchasing managers, asked to rate the relative level of business conditions in sectors like employment, new order, production and so on. Last month, the pace of purchasing activity increased more than expected in May, thanks to an increase in employment and inventory levels. This month’s release is expected to be softer, forecast for 56.2. Also, we have the ISM non-manufacturing PMI and New Zealand’s NZIER business confidence on Monday.

Tuesday, July 7- Having already cut rates twice this year, the Reserve bank of Australia has left the door open for further rate cuts as the economy suffers from a slow down in the mining sector. On Tuesday, the RBA rate statement will accompany Australia’s latest cash rate decision. For the day, we also have UK’s manufacturing production as well as Canada and US trade balance figures.

Wednesday, July 8- We have two major news from two major economies. UK’s annual budget will be released, as well as the minutes of the minutes from the last FOMC meeting, which was largely perceived as disappointing. The exact details will now be clearer. Canada’s building permits is also scheduled for release.

Thursday, July 9- We start the day out with Australia’s unemployment rate and employment change report. The country has experienced high level of unemployment in recent times as the economy slows. This month, economists estimate 6.1% unemployment rate along with an employment change of 0.1k. UK’s official bank rate is expected to remain at 0.5% and the asset purchase facility at 375B. US unemployment claims is forecast for 277k.

Friday, July 10- Canada’s employment change and unemployment rate are scheduled for release, forecast to come at -4.5k and 6.9% respectively. Fed chair Yellen is also due to speak about the economic outlook at the Cleveland’s sally gries forum honouring women of achievement.