Last week investors faced rising volatility in global markets and confronted wild swings related to developments out of China and Greece.
A 30 percent drop in China’s Shanghai Index since the spring has spooked investors out of the Chinese market in recent weeks, although the market is still up 70 percent from a year ago and Friday saw the Shanghai index stabilize and rally 4.55 percent.
Major U.S. stock indexes also rallied over 1% on Friday, largely based on positive news about Greek Prime Minister Alexis Tsipras’ government submitting a list of austerity reforms that appeared to be in alignment with the demands of their creditors.
U.S. bonds posted their largest 2 day selloff since 2013 and yields spiked on Friday with the yield on the 10 yr. Treasury rising over 3 percent to 2.40 as bond traders fled the refuge of the 10 yr. Treasury and bought riskier assets such as U.S. equities.
The 10 year Treasury has jumped over .20 since Thursday, the largest increase since July 2013, boosted by comments in a Cleveland speech on Friday from Fed Chair Janet Yellen about interest rates rising this year which would mark the first rate hike since 2006.
Here is what Yellen said in her speech about interest rates increasing in 2015:
“Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy. But I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step. We will be watching carefully to see if there is continued improvement in labor market conditions, and we will need to be reasonably confident that inflation will move back to 2 percent in the next few years.”
The week ahead will be packed full of economic data for investors to absorb but the latest headlines out of Greece indicate that European finance ministers are still not yet in full agreement over approving a 3rd bailout deal for Greece.
New developments about how the Eurozone handles Greece’s debt woes are expected to impact global markets next week and the end of the week will see the beginning of earnings season with Bank of America and JP Morgan reporting.
Retail sales for June will be released on Tuesday and provide the market with a stronger understanding about the health of retail spending in the American economy.
Economists from briefing.com forecast a decline of -0.2 percent in June which follows an increase of 1.2 percent in May.
Fed Chair Yellen will also provide her semi-annual 2 day testimony to Congress beginning on Wednesday.
New inflation readings with PPI on Wednesday and CPI on Friday should give economists a better indication about the level of rising prices in the market and whether the economy is strong enough to absorb the strong prospect of a rate hike by the end of the year.
Manufacturing data will be reported on Wednesday with Empire Manufacturing, the same day the Fed’s Beige book for July is viewed.
On Friday building permits and house start data for June will be released along with Michigan sentiment for the month of July.
Treasury Budget (June)
Retail Sales (June), Import/Export Prices for June, Business Inventories (May)
Fed Chair Janet Yellen’s 2 day testimony to Congress begins
Empire Manufacturing (July)
Fed Beige Book (July)
Industrial Production (June), Capacity Utilization (June)
MBA Mortgage Index for 7/11
Continuing, Jobless Claims
Philadelphia Fed (July),
NAHB Housing Index, Nat Gas Inventories
Building Permits, Housing Starts (June), Michigan Sentiment (July)
-John Schweitzer Schweitz31@gmail.com