Markets recovered somewhat this week following positive news on the Greek/EU deal, the Iran nuclear agreement and the softening of relations between the US and Cuba.

On the Greek deal Prime Minister Alexis Tsipras has stated he doesn’t believe in the deal and that he only agreed to it with ‘a knife at my neck’. Greeks banks have now reopened but are applying tight cash withdrawal limits. It is difficult to envisage how Tsipras and Syriza will come out of this with much credit from their own people or the EU given the flip flopping on policy since their election in January. Although Gr-exit is now an unlikely event there is likely to be more twists and turns down the line.

Data from China has also reduced the worry after the recent share sell off. Growth of 7% for Quarter 2 has buoyed concerns with signs of rebounding activity. This has led to a bounce back on the shanghai stock exchange. However consumer spending does appear to be falling, with many luxury brands reducing their sales level forecasts for 2015.

Following on from its decision to upgrade the Irish sovereign in June,  Standard & Poors have announced that it has raised the credit ratings on Bank of Ireland, Allied Irish Banks and Permanent TSB. In S&P’s view, risks to the Irish banking industry have decreased substantially on the back of improved profitability and lower risk appetite. Furthermore, S&P expects that the structure of the industry will remain broadly stable with few new players and a primary focus on domestic retail and business banking.
S&P also drew attention to the positive Irish macroeconomic outlook. The agency expects Irish GDP to grow by 4.2% in 2015 and 3.8% in 2016. It also expects the Irish unemployment rate to fall from 9.8% in June, to 8.0% by end-2016. Although S&P expects house price inflation to slow, credit losses from non-performing mortgage loans are expected to remain exceptionally low.

The European Commission expects the government deficit will equal 2.8% of GDP in 2015 compared with the government’s forecast for 2.3% of GDP. The risk remains that spending discipline will be eroded as the election approaches.

After heavy falls in June, global equities have risen strongly, reacting positively to the latest Greek bailout and good US Q2 earnings’ results. Euro currency weakness has significantly enhanced returns for eurozone investors in 2015 and this was once again a major feature last week. Equities continue to be supported by the low interest rate environment. In addition, equities remain better value relative to other asset classes despite the rise in price earnings multiples and bond yields. All of the major equity markets were up in local currency terms last week ranging from 5.0% in Japan to 1.5% in the UK.

Eurozone bond prices were up strongly (1.7%) on the week, a knee-jerk reaction to the Greek bailout with core and peripheral markets rising by about the same amount. Overall, eurozone bonds are down by 0.6% year-to-date and remain well-off their mid-April peaks. The German 10-year bond yield fell from 0.90% to 0.79% last week; it had hit an all-time-low of 0.06% in April. Equivalent US yields fell from 2.40% to 2.35%. The Irish 10-year bond yield was 1.36% as of Monday down from 1.6% in June.

Commodities and Currency
Commodity prices in general were down by 1.7% having risen in June, due to slightly stronger economic data, although oil prices were down. Commodities are down 1% so far this year despite some significant volatility.

The gold price was down 1.4% on the month, ending at $1,172 per troy ounce. Gold is now at a five year low.

The euro currency was mixed against the major currencies during June – stronger against the US dollar and the Swiss franc but weaker against the British pound Bank of England governor Mark Carney said that a UK rate hike is getting closer. The €/$ rate moved from 1.10 to 1.12 over the month.

Brent crude dipped almost 2% in the week and is about 10% off its June highs.

Market July 15



Source: Bloomberg. Capital returns in local currency for the week to Friday 17th July 2015.