On 27 May, 2015 – European markets slid on continued concerns over Greece

Shares were mixed in the Asia Pacific region but rebounded from Tuesday’s losses in Europe and the US on possible progress in the Greek talks.
United States
Stocks rebounded from Tuesday’s losses. The Dow Jones industrials were up 0.7%, the S&P gained 0.9% and the Nasdaq added 1.5% to reach a new record high. Information technology stocks, which sustained some of the biggest losses Tuesday, pulled ahead. Investors blamed Tuesday’s rout in part on mixed economic data. Some data indicated that the US economy may be improving after hitting a soft patch in the first quarter. Though that is good news for the economy, it helps solidify expectations for a fed funds rate increase later this year, which some investors worry may hurt stock performance.
Tobacco companies Lorillard and Reynolds American advanced after the Federal Trade Commission gave its tacit approval to the companies’ US$27.4 billion merger. Michael Kors Holdings sank after the designer and retailer of handbags and accessories posted a drop in sales from a year ago and predicted sales would be well short of analysts’ estimates. Coach and Kate Spade also retreated on Michael Kors’ report of lower tourist traffic, weak watch demand and shipping delays due to West Coast port disruptions. Tiffany advanced after its quarterly results topped expectations, despite a stronger dollar.
Semiconductors rallied. Both Apple and Microsoft climbed. Airlines snapped a five-day losing streak. Hormel Foods advanced after agreeing to buy Applegate Farms. Banks including US Bancorp, JPMorgan, Wells Fargo and Morgan Stanley were up. General Electric has hired Morgan Stanley to advise them on the sale of its Japan leasing business, which has ¥500 billion of assets. Broadcom surged after the Wall Street Journal reported the chipmaker was in talks to be bought by Avago Technologies.
Greece might miss a debt payment on June 5 if it fails to receive bailout funds from creditors, who are demanding that the country make reforms to its economy. It is unclear whether an agreement can be reached in time. Greece’s Prime Minister Alexis Tsipras said Wednesday that his country is close to reaching a deal with its creditors, but stressed that “calm and determination” were needed in the final stretch of negotiations.
Gold at the afternoon London fixing was up 45 US cents to US$1,185.85. Copper futures were down 0.3% to US$2.77. WTI spot crude was down 39 US cents to US$57.64. Dated Brent spot crude was down US$1.44 to US$62.28. The US dollar was up against the yen, pound and the Canadian and Australian dollars. However, it declined against the euro and the Swiss franc. The Dollar Index was up 0.1%. The yield on US Treasury 30 year bond was down 2 basis points to 2.87% while the yield on the 10 year note was unchanged at 2.13%. 
Europe
Stocks rebounded from Tuesday’s losses with their best performance in more than a week on signs, later dismissed, that Greece and its creditors were drafting an agreement that would provide Athens much-needed debt relief. The FTSE gained 1.2%, the CAC advanced 1.9% and both the DAX and SMI added 1.3%. Greece’s government said it is starting to draft an agreement with creditors including the European Union and the International Monetary Fund, but European officials quickly dismissed that as wishful thinking. The rebuttal notwithstanding, the market’s moves, triggered by the Greek announcement, mostly held into the market close.
Greek officials have been holding negotiations with Eurozone and International Monetary Fund officials in Brussels for weeks. On Wednesday, a Greek government official stated that technical teams representing the two sides were to start to write a draft of an agreement. However, Greek officials and its international lenders have been holding discussions for weeks but creditors are still not satisfied with its promises on economic reforms. This followed news earlier that Greece’s central bank did not request an increase to the amount of money Greek banks can borrow under an emergency lending program by the European Central Bank, suggesting these banks were not under increased pressure despite the uncertainty.
Alcatel-Lucent gained after executives on Tuesday defended their plan to sell their company to Finland’s Nokia, telling shareholders that it was the only option for a company that lacks “critical mass” against giants such as Ericsson and Huawei Technologies. Imperial Tobacco Group jumped after US Federal Trade Commission cleared Reynolds American to proceed with its US$25 billion acquisition of Lorillard, ending months of uncertainty about the US cigarette makers’ plan to combine. CRH gained on news that it was set to buy assets from rival Holcim and Lafarge. British Airways owner IAG was up after the Irish government cleared the way for it to bid for Aer Lingus.
Asia Pacific
Stocks were mixed Wednesday as Greece’s fiscal woes, heightened political instability in Spain and Poland and growing concerns that the US Federal Reserve may raise interest rates later this year sent investors scrambling for safe haven assets such as government debt and the US dollar.
The Shanghai Composite added 0.6% as encouraging economic data and news that index provider FTSE Russell will bring mainland listed shares into global benchmarks helped outweigh liquidity concerns before a wave of initial public offerings expected next week. However, the Hang Seng retreated 0.6%. In economic releases, profits earned by Chinese industrial enterprises increased for the first time in six months in April. Industrial profits rose 2.6% on the year to CNY 47.95 billion, reversing a 0.4% decline in March.
The Nikkei was up for the ninth straight day, although gains were capped by concerns over Greece and expectations the Fed will raise interest rates in the coming months. Investors also digested minutes of the Bank of Japan’s April policy board meeting, which revealed that board members were somewhat concerned about achieving the 2% inflation target. The Nikkei was up 0.2%. Mizuho Financial Group, Nippon Sheet Glass, Tokyo Electric Power and Fuji Heavy Industries advanced. Sumitomo Electric Industries jumped after lifting its earnings forecast. Department store operator Heiwado gained after announcing a share buyback.
Australian shares fell sharply after two days of strong gains. The S&P/ASX and All Ordinaries both closed down 0.8%. The indices were dragged down by heavyweight mining and banking stocks. The four big banks also retreated. The Kospi dropped 1.7% — the most in nearly five months — amid worries that US interest rates may increase sooner than expected. The Sensex edged up 0.1%. Expectations that the Reserve Bank of India (RBI) will likely cut rates once again on June 2 helped offset some disappointing earnings and worries over the pace of future Fed rate increases..
Global Stock Market Recap

Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
Japan posts April retail sales. Australia releases first quarter private capital expenditures. The UK releases its second estimate of gross domestic product. The Eurozone posts May consumer and business confidence survey. In the US, April pending home sales and weekly jobless claims, Fed balance sheet and money supply will be reported. Group of Seven finance ministers and central bankers two day meeting begins in Dresden, Germany.
*Note — all releases are listed in local time.
Anne D PickerChief EconomistEconoday