Halfway Through the Trading Year, Greek Future Still Unclear
U.S. equities closed the trading session higher as stocks rebounded somewhat from yesterday’s steep declines, which were the largest in about a year, on the heels of a failed compromise between Greece and its creditors.
Q2 concluded with some mixed reads from the economic calendar, while tomorrow Q3 will commence with some key domestic manufacturing reads. Treasuries and gold were lower, while the U.S. dollar and crude oil prices advanced.
The Dow Jones Industrial Average gained 23 points (0.1%) to 17,619
The S&P 500 Index added 5 points (0.3%) to 2,063
The Nasdaq Composite was 28 points (0.6%) higher at 4,987
In moderately heavy volume, 1.1 billion shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq
WTI crude oil increased $1.14 to $59.47 per barrel and wholesale gasoline advanced $0.05 to $2.05 per gallon
The Bloomberg gold spot price declined $7.27 to $1,172.55 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% higher at 95.48
Consumer Confidence jumps
The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 4.9% y/y in April, below the estimate of a 5.5% increase. M/M, home prices were higher by 0.3% on a seasonally adjusted basis for April, south of forecasts calling for a 0.8% gain.
The Consumer Confidence Index rose to 101.4 in June from a downwardly revised 94.6 in May and compared to the Bloomberg estimate of 97.4. Components pertaining to expectations of business conditions and sentiment toward the present situation both improved solidly. Also, on employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—improved to -4.3 from -6.6 last month.
The Chicago Purchasing Managers Index showed Midwest activity remained in contraction territory (below 50) for the second-straight month and the fourth out of the past five, after rising to 49.4 in June, from 46.2 in May, and versus expectations of an improvement to 50.0.
Treasuries were lower, with the yield on the 2-year note increasing 1 basis point to 0.65% and the yields on the 10-year note and the 30-year bond advancing 3 bps to 2.36% and 3.13%, respectively.
The beginning of 3Q will bring a couple of reads on June U.S. manufacturing activity, with tomorrow’s releases of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index. ISM’s report is projected to show a modest improvement to 53.2 from 52.8 in May, while Markit’s release is expected show an unrevised 53.4 reading, but down from 54.0 in May. Readings above 50 for both indexes denote expansion. As noted, the manufacturing sector appears to still be struggling, potentially hampered by the strong dollar, although the sharp rise has now stabilized. We believe manufacturing will improve in the coming months, helped by a more stable dollar and improving global economic growth, but caution seems likely to continue in businesses and consumers for the foreseeable future.
Other reports on tomorrow’s domestic economic calendar include: MBA mortgage applications, construction spending, vehicle sales and ADP’s employment change report.
Europe lower, Asia rebounds from yesterday’s rout
The European equity markets finished lower, extending yesterday’s sharp broad-based sell-off that came courtesy of Greece’s failure to strike a deal with its creditors over the weekend, while calling for a July 5 referendum and announcing capital controls. Greek markets remained closed, while Athens is expected to miss its payment to the International Monetary Fund (IMF) today and its current bailout program will expire tonight. Reuters reported that European Commission President Jean-Claude Juncker made a last-minute offer to Greece to try to persuade Prime Minister Tsipras to accept a bailout deal before Sunday’s referendum. However, late in the session news broke that eurozone finance ministers will hold a teleconference at 7 p.m. Brussels time to discuss a request by the Greek government for a new two-year bailout deal, though German Chancellor Angela Merkel said there would be no new talks before Greece’s referendum on Sunday. The euro traded lower versus the U.S. dollar and bond yields in the region were mostly lower, though Greek rates continued to surge.
In economic news, German retail sales unexpectedly rose in May, the eurozone unemployment rate held at an elevated 11.1%, and eurozone consumer price inflation was estimated at a 0.2% y/y rise for June, matching forecasts. Also, U.K. 1Q GDP was revised higher to a 0.4% quarter-over-quarter pace of growth, as expected, from the 0.3% increase that was previously reported, though a slower pace than the 0.8% expansion posted in 4Q.
Stocks in Asia recovered some of yesterday’s broad-based sell-off despite heightened concerns about a potential Greek default. Japanese equities finished higher even as the yen continued to strengthen, while stocks in mainland China rallied on hopes that the government may take further action to combat the recent sharp decline. Speculation that the government may suspend IPOs and potentially use the country’s endowment fund to buy equities aided the rebound, on the heels of this weekend’s announcement from the People’s Bank of China (PBoC) that it will cut its benchmark lending and deposit rates by 25 bps and reduce the reserve requirement ratio for certain banks.