On 19 June, 2015 – Investor optimism for a last minute deal on Greece buoyed European markets
Global shares were mixed Friday and for the week. The unresolved Greek situation took its toll on the indices.
United States
Stocks retreated Friday following Thursday’s rally. Selling pressure remained relatively subdued, however, limiting the downside for the markets. The Dow Jones industrials were down 0.6%, the S&P declined 0.5% and the Nasdaq lost 0.3%. However, on the week, the indices gained 0.6%, 0.7% and 1.3% respectively.
The weakness was partly due to profit taking following recent gains, which lifted the tech-heavy Nasdaq to new record highs on Thursday. Concerns about the situation in Greece also weighed on the markets as the country remains at an impasse with its international creditors. A meeting of European finance ministers Thursday did not make any significant progress, and Eurozone leaders will be holding an emergency summit Monday to discuss the issue again. Greece has indicated that it will be unable to make a €1.5 billion payment to the International Monetary Fund at the end of the month without further aid.
Healthways declined sharply on the day after the wellness program provider cut its full year revenue guidance. Hershey also moved lower after forecasting full year earnings below analysts’ estimates. The company also announced plans to cut about 300 jobs. KB Home moved notably higher after the homebuilder reported second quarter earnings that came in above estimates. Airline stocks turned in a strong performance with SkyWest and American Airlines posted notable gains. Steel, software and utilities stocks also came under pressure on the day, while most of the other major sectors showed more modest moves to the downside. ConAgra Foods’ jumped after activist hedge fund Jana Partners took a stake in the company. ConAgra’s peer Pinnacle Foods also rallied.
News about Greece continued to grab investors’ attention. The European Central Bank on Friday raised emergency lending for Greek banks, reacting to a quickening pace of deposit withdrawals as bailout talks stall.
Gold at the afternoon London fixing was up US$1.55 to US$1,203.40. Copper futures were down 1.4% to US$2.58. WTI spot crude was down 84 US cents to US$59.61. Dated Brent spot crude was down US$1.24 to US$63.02. The US dollar was up against the euro, pound and the Canadian and Australian dollars. However, it declined against the yen and the Swiss franc. The Dollar Index was up 0.1%. The yields on both the US Treasury 30 year bond and the 10 year note were down 7 basis points to 3.05% and 2.26% respectively.
Europe
Most stock indices advanced Friday but retreated on the week. The gains Friday were fueled by investor optimism for a last minute deal on Greece. After Thursday’s meeting of Eurozone finance ministers failed to yield an agreement, the Eurozone finance ministers will hold an extra meeting Monday, June 22 according to Eurogroup President Jeroen Dijsselbloem. The meeting, which will be held in Brussels, is seen crucial and could be the deciding one for Greece’s future with euro. The FTSE was virtually unchanged while the CAC added 0.2%. The DAX lost 0.5% and the SMI slipped 0.1%. On the week, the FTSE was down 1.1%, the CAC and SMI both lost 1.7% and the DAX retreated 1.4%.
In some relief for Greece, the European Central Bank Governing Council Friday raised the emergency liquidity assistance, or ELA, for Greek banks by €3.3 billion, slightly less than what the Bank of Greece had reportedly sought. The bank had held an emergency conference call to review the funding assistance to Greek banks which are facing accelerated withdrawals. Deposit flight may force Greece to impose capital controls, becoming only the second country after the neighboring Cyprus to use the measure in the euro area.
ThyssenKrupp and Continental advanced. Deutsche Bank was down but Commerzbank gained. Valeo gained after it bought a 10.5% stake in LED-maker Aledia. Renault and Peugeot also were up. BNP Paribas, Crédit Agricole and Société Générale advanced. Colt Group surged after the company received an offer from Fidelity. The offer values the entire issued and to be issued share capital of Colt at £1.72 billion. Hikma Pharmaceuticals climbed on a broker upgrade as did Ashtead Group. Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland were up.
Asia Pacific
Share indices except the Shanghai Composite advanced Friday. The Shanghai Composite plunged 6.4% on Friday. The index was in negative territory through the morning, but the sell-off accelerated sharply during the afternoon session. This was the third biggest one-day fall for Shanghai stocks so far this year, and it brought the overall decline for the index this week to 13.3%. That ranks as the worst weekly performance since a 13.8% slump for the week ended June 13, 2008 and also the second biggest weekly drop of the past decade.
Increased regulatory scrutiny on margin lending in recent weeks as well as numerous initial public offerings that have drawn money from the secondary market have kept investors in a jittery mood amid what remains an otherwise strong rally. Despite this week’s declines, the Shanghai Composite is up 38.4% in 2015. The Hang Seng meanwhile closed up 0.2%, a day after Hong Kong lawmakers vetoed a China backed contentious electoral reform package. The Hang Seng lost 1.9% on the week.
Elsewhere, firmer commodity price trends and strong gains in the US overnight reflecting a more soothing than expected message from the Federal Reserve following its latest policy meeting helped to push “Grexit” worries to the back burner. The Nikkei added 0.9% and climbed above 20,000 again following the prior day’s sell-off. Shares rebounded after the Bank of Japan maintained its massive stimulus program as expected to spur inflation. The BoJ pointed to an improvement in exports, factory output and capital spending and signaled its conviction that growth will strengthen enough to accelerate inflation to its 2% target without more monetary easing. On the week, the index lost 1.1%.
Australian shares rose sharply, buoyed by the overnight gains in the US and stronger gold and iron ore prices. The S&P/ASX was up 1.3% while the All Ordinaries added 1.2%. On the week, the former added 1.0% and the latter, 0.7%. The Kospi added 0.2% with gains capped due to massive foreign fund selling. The Sensex was up 0.7% Friday and 3.4% on the week.
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*
Monday — June flash consumer confidence will be released for the Eurozone. May existing home sales will be posted for the US.
Tuesday — June flash manufacturing PMIs will be released for China, Japan, the Eurozone, France, Germany and the US. The UK posts CBI industrial trends for June. In the US, May durable goods orders, FHFA housing prices and May new home sales will be reported.
Wednesday — France reports final estimate of first quarter gross domestic product. Germany’s Ifo survey for June will be released. In the US, the final estimate of gross domestic product and corporate profits will be released.
Thursday — The UK releases CBI distributive trends for June. The US posts May personal spending and income and June Kansas City Fed survey along with weekly jobless claims, money supply and fed balance sheet.
Friday — Japan reports May consumer prices, household spending and unemployment. The Eurozone posts May money supply. The US releases final June consumer sentiment.
*Note — all releases are listed in local time.
Anne D PickerChief EconomistEconoday