Recap: Week Ending June 19, 2015
Equities finished the week higher with all three major US benchmarks closing in the green. The positive finish in equities came as Greece continues to stutter step in talks with its creditors with very little positive news emerging. As a result, the likelihood of a Greek default appears greater and greater each day. With this being said, there is some hope. Rumors have been circling that possibly Russian will provide the necessary funds to Greece. There has even been talks of China offering a similar solution. If Greece were to default, the country’s future in the Euro could be short-lived. The notion that US markets are closing higher is a sign that there is hope that talks will resume, and a solution will arise in the last hour. Jim Lowell, the Chief Investment Officer at Adviser Investments, stated that the average US investor has less than 2/10 of a percent of their assets in Greek markets. He went on to state that, “I think they are taking some measure of confidence that the U.S. economy is on the slow growth, not no growth, track.” If Greece does default, there are talks that banks in the country will not be able to open on Monday.
Despite the global risk of a Greek default, the USD did not catch a bid. The USD is seen as being a haven asset when risk is occurring in markets. Last week the US Dollar Index, which is a basket of currencies traded against the USD, closed at 94.32 marking a weekly loss of -0.70%. With this being said, many other haven assets did move higher last week. Gold, which many investors see as a risk off investment, moved higher by 1.80% to close the week out at $1,201.90. The move higher in the price of gold is a testament to the notion that some investors are still in the camp of a Greek default and are looking to reduce their risk. Last week the price of the long 30 year US Treasury Bond rose, signalling a fall in yields. The move higher in the price of the bond is also a signal that investors are once again looking for a place to keep their money during this time of financial unrest in Europe. Last week the 30-year bond settled at 151.94, creating a weekly gain of 1.16 or 0.77%. Despite the negative news circling, the value of the Euro has remained relatively stable for the past few weeks. Last week the Euro closed at 1.1343USD.
Equity markets weren’t as rosy in Canada with the Toronto Stock Exchange Composite Index, or TSX, falling -0.65% last week. The move lower last week is the fourth straight weekly loss for the Canadian equity benchmark. The move lower comes as the price of crude rose $0.03 or 0.05% last week. From a technical analysis standpoint, the TSX broke the prior support which it had established in early March 2015 at 14,780, signalling this may be the start of something much bigger to come in terms of downside activity.
Last week the US Federal Reserve had one of their Federal Open Market Committee, or FOMC, meetings where they decide on the future of interest rates. No change occurred from the prior meeting as the target rate will still be set to 0 – 0.25%. This result was expected by surveyed analysts and economists. This meeting was said to be one of the first where a possible rate hike could occur. The next FOMC meeting will take place on July 28 & 29. The market will have to wait until then for the news regarding a possible change in rates. The next meeting following the July get together will occur in September, which is when many believe that the a rate hike will occur. Until then, markets are expected to continue to trade sideways in the horizontal range which they have established over the course of the past few weeks and months.