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Decided to make adjustments on the way I blog & share due to time constraints and other commitments. In the coming weeks you should see them. Short updates but more frequent & concise.

Saturday, July 11, 2015

Weekly Market Highlights July (2)

Source: Amp Capital (here for full market update) & iCapital biz (subscription required)

United States
US activity data is solid and suggestive of forthcoming US interest rate rises. House prices recorded annual gains on circa +5% in the year to April. The ISM manufacturing survey rose to a 5 month high - US economic activity is rebounding after the harsh winter weather at the stat of the year. Main focus will be on June manufacturing and jobs data. Expect to see a 1% gain in existing home sales (Monday), further gains in home prices and consumer confidence (Tuesday), a slight gain in the ISM manufacturing conditions index (Wednesday) to 53, another solid 225,000 gain in June payrolls and a fall in unemployment to 5.4% (both Friday). Perhaps the main focus will be on whether the average hourly earnings data shows another uptick in wages growth.

European data is generally positive despite Greece’s woes. European bank lending recorded positive annual growth at 0.5% in May. Europe financial system more supportive of growth than that during 2012 when bank landing was contracting while Italian and Spanish bond yields were under siege. European PMI manufacturing surveys for June are also more encouraging with the survey at a 14 month high. However European unemployment still remains too high at 11.1% in May while annual inflation is minimal at 0.2% in June (still too low).

The Greek population has voted NO in the referendum on agreeing to proposed austerity measures. Greece may now have to confront the prospect of Europe withdrawing financial support making it drastically difficult to stabilise its banking system, likely have to exist the Euro and introduce its own currency. Greek banks have been closed since Monday June 29th. Given that Greek banks were heavily dependent on the European Central Bank (ECB) providing cash given falling deposits, the ECB decision to cap funding at Euro 89 billion has seen Greek banks
close to avoid a cash crisis (also known as a “bank run”). The Greek government also missed a debt repayment to the IMF on June 30th. This effectively constitutes a default but IMF has diplomatically termed this debt as in “arrears”. Just playing with words I would say.

Much depends on Greece in the short term with a no vote likely leading to lead to more near-term weakness and continued volatility. Looking beyond near-term risks, the conditions for an end to the cyclical bull market in
shares are still not in place: valuations against bonds remain good; economic growth is continuing at a not too cold but not too hot pace; and monetary conditions are set to remain easy. As such, share markets are likely to see another year of reasonable returns, despite current uncertainties.

China’s official PMI survey was stable in June while the “Non-Manufacturing” survey showed a healthy gain to a 3 month high. This suggests that Chinese economic growth is holding up at close to the 7% target for 2015 set by the Chinese government. However China's stock market had a bout of panic selling on Wednesday's open. See my previous post: China's Popcorn Is Ready. The market has recovered slightly due to massive Chinese government intervention including drastic measures like allowing the halt of trading as well as disallowing major stakeholders of more than 5% to sell any shares in the next six months. China has a long way to go in its journey of liberating its financial machine. 

Japan’s Tankan survey shows an encouraging gain in business confidence in the June quarter. This is supportive of Japanese shares and the mild economic recovery.

Spot on. Last update I mentioned that "we just avoided a Fitch (rating agency) downgrade though I reserve my doubts". I was right. The Ringgit got thrashed up to 3.83 (due to WSJ's revelations of misappropriation of funds by our PM) before BNM (as usual) intervened by burning more of our foreign reserves. However from the outcome of the 4th MPC meeting, Malaysia’s central bank held its overnight policy rate at 3.25% on Thursday, keeping policy steady. As such in the event that the outflow of Ringgit continues, BNM will have to sell more reserves to prop up the Ringgit or at least smooth the decline. We will see.

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