Europe
Shares were tentatively higher in Europe on Wednesday, helped by stronger than anticipated Chinese economic growth. Uncertainty over the vote in Athens on whether to accept the terms of Greece’s bailout acted as a constraint on gains.
The improvements on the industrial and consumer level in June coupled with a solid GDP estimate for the second quarter bode well for an economic recovery in China . The Chinese stock market however remains a concern, with many shares that were reopened after suspension dropping by the 10% maximum daily limit, bringing indices down with them.
The immediate fate of Greece hangs on the country’s politicians who are debating today and will vote around midnight tonight on whether to approve the bailout deal with creditors signed by Prime Minister Tsipras.
The recommendation by European Commission to use the EU rescue fund, otherwise known as the ESFM is good news for Greece’s ability to make its debt payment to the European Central Bank on July 20. The repercussions of missing a payment to the ECB could be much more widely felt by markets if the response was the withdrawal of emergency funding to Greek banks. Like most things in Greece, using the ESFM is not without hurdles, not least a backlash from UK Chancellor George Osborne protesting the use of UK tax payer money for bailing out Greece.
The FTSE 100 was largely motionless on Wednesday in the context of Greek uncertainty and a surprise rise in unemployment alongside a rise in wages in June. Shares of Burberry were biggest fallers on the benchmark index after the fashion clothing company saw a slowdown in sales in Asia.
US
US stocks opened fairly flat on Wednesday, reflecting confusion over a mixed set of economic data and corporate earnings and hawkish comments from Fed Chair Janet Yellen pointing to a rate hike this year.
Bank of America (NYSE:BAC) impressed through cost savings over the year ago period and Delta Airlines (NYSE:DAL) beat estimates while Yum! Brands disappointed with lower sales.
Mrs Yellen was generally pretty upbeat on the outlook for the US economy, brushing aside international risks and choosing to look through the pockets of weakness domestically. She said there was likely to be a rate hike in 2015 so long as the economy evolves as expected but said a high degree of monetary accommodation remains appropriate.
The Fed Chair referenced some slack in labour market but said there are tentative signs of wage improvement and said inflation should head back to target in medium term as oil and dollar effects fade. There was no mention of concern about the US consumer in the light of June’s disappointing retail sales data.
FX
The US Dollar strengthened on Wednesday following the perception of a hawkish bias in the testimony of Fed Chair Yellen coupled with higher than expected producer price inflation and industrial production in June.
The Bank of Canada surprised markets by cutting interest rates by 25bp to 0.5% sending the Canadian dollar to new six year lows versus the US dollar with USD/CAD breaking above 1.29.
The British pound dropped after UK unemployment surprisingly increased while wages increased less than expected in May. Losses were compounded by dollar strength which sent GBP/USD below 1.56.
Commodities
Crude oil continued its slump with both Brent and WTI contracts down as much as 2% before EIA/DOE inventories data that showed a drawdown in the last week.
Gold and silver saw a third day of losses, taking the price of silver back down to $15 per oz and gold to its lowest since March despite stronger growth figures out of China that would support demand for the commodities. Precious metals continue to look very weak and will likely to continue to do so while there is still a pervading belief that the Fed is about to hike rates.
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