European stocks moved lower on Monday, with risk sentiment ground down further by the prospect of a Greek default.
By Peter Martin
Monday, May 18, 2015
The Greek government has been dipping into emergency funds in order to meet its debt obligations and every day that progresses without the country securing a bail-out deal is a step closer to the country running out of cash.
A spokesperson for the Greek government suggested that talks with lenders will finish this month, but there still seems quite a distance between Greece and its creditors. The German Bundesbank claimed in a recent report that ‘a sustainable solution is not possible without substantial reform in Greece’ but Greek Prime Minister Alexis Tspiras has maintained that there is ‘no way the government will back down on the issue of pension and wage cuts’. The French CAC 40 fell 0.53% while the Spanish IBEX 35 fell 0.36%. The euro also lost ground, sliding 0.67% against the dollar to 1.1372.
US stocks closed up on the week on Friday, with the S&P 500 Index finishing at a record high of 2122.73. Stock prices have benefitted from expectations for when the Fed will hike rates being pushed back as a result of soft economic data: talk of tightening in June gave way to September some time ago, but now many think we are looking at December or even later. Chicago Fed President Charles Evans claims a summer rate hike cannot be completely ruled out, though. Mr Evans said ‘You could imagine a case being made for a rate increase in June’ should data show that first-quarter weakness was just temporary.
Of course, the data we have seen for April so far has been weak enough to suggest the softness has not been solely experienced in the first quarter and Mr Evans, a voting member of the FOMC who has a track record of being very dovish, also said that the Fed should keep policy accommodative long enough to overshoot the inflation target in the medium term. He added that ‘to establish adequate upward momentum in inflation, I think it likely also would be appropriate to increase the fed funds rate target only gradually for a while after the first rate hike.’ The next FOMC meeting begins on June 16.
Stocks were little changed on Wall Street on Monday morning: shortly after the opening, the S&P 500 Index was down just 0.02% at 2122.3, while the Dow Jones rose 7 points or 0.04% to 18,280. As with last week, the economic calendar is slow for the few days, with housing data dominating the first part of the week. We have the NAHB housing market index on Monday, housing starts on Tuesday and existing home sales on Thursday. Things heat up toward the end of the week when we get the flash manufacturing PMI for May on Thursday and a key-steer on US inflation with April’s CPI on Friday.
Oil prices have remained stable despite signs of escalations in conflict in the Middle East. ISIS has taken Ramadi, the largest city in the west of Iraq which lies just 70 miles from Baghdad, while a Saudi-led coalition has conducted air strikes against rebels in Yemen after a ceasefire ended. US crude oil futures were up just 0.26% at $60.68 a barrel, while Brent crude futures slipped 0.38%, suggesting this rise in geopolitical tensions is largely offset by the high supply outlook.
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