Greece And US Rate Concerns Tip Equity Markets Lower

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European markets have continued to remain under pressure today, closing lower for the second week in succession, and close to three month lows, as concerns about Greece, as well as rising bond yields, kept equity investors on the back foot.

We did get a bit of rebound in the aftermath of a stellar set of US jobs numbers, as a surge in the US Dollar Index knocked the euro lower, which did pull European markets off their lows.

Greek bonds and stocks have been hit particularly hard, especially so given the potential damage done by the apparent turnaround by the Greek Prime Minister Alexis Tsipras in first suggesting the payment would be made, and then the subsequent decision to delay it.

With trust between the various protagonists already very low this was perhaps not the best way to help mend fences. If anything it makes any potential solution that much more difficult to attain, as the deadline moves out to the end of the month, assuming that capital controls aren’t needed in the meantime. Talk of a pivot to Moscow isn’t exactly endearing Mr Tsipras to his European counterparts either, after he spoke to President Putin at some length on the phone earlier today.

Lloyds Banking Group (LONDON:LLOY) is in the news again today for all the wrong reasons after it was fined £117m by the FCA for mishandling a number of PPI complaints.

The markets appetite for M&A shows no signs of being sated after weeks of speculation that Liberty Global (NASDAQ:LBTYA) might be interested in a tie up with Vodafone (LONDON:VOD) turned out to be partially true. The companies confirmed that they were in informal discussions about possible asset swap deals, but the shares fell back sharply after Vodafone ruled out the prospect of a merger, disappointing those investors who had hoovered up the shares since the middle of May in anticipation of a bid.

These declines have helped drag the FTSE100 to its second weekly decline in a row and its lowest levels since early April.

Supermarkets have been amongst the worst performers after Deutsche Bank (XETRA:DBKGn) cut its price target on Morrisons and Tesco (LONDON:TSCO), while oil stocks have outperformed after OPEC left production quotas unchanged, with BP (LONDON:BP) and BG Group (LONDON:BG) near the top of the benchmark.

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US markets were already looking a little on the weak side even before the jobs numbers were released, as the poor performance from European markets weighed on sentiment. The much better than expected May jobs report, coming in at 280k, well above expectations, and the best report this year, as well as an improvement in average earnings has reopened debate about the prospect of a June rate rise.

While it is a promising report, it in no way alters the debate with respect to a June rate rise, it is simply too close, but it does shift the narrative back to a possible move in September.

There are still significant areas of the US economy that continue to be a cause for concern including certain parts of the manufacturing sector, the US consumer and weak inflation, which would suggest that despite the reaction to today’s report, the consensus still remains on a possible move on rates in September, data permitting.

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The US dollar has been the big gainer today after today’s positive payrolls report saw 280k jobs added in May. On the downside the unemployment rate edged back up to 5.5%, but despite today’s strong gains it still remains down on the week against the euro, which has been the best performer on the week, due to a sharp rebound in inflation expectations in the euro area.

The worst performer today and this week has been the Norwegian Krone after today’s OPEC decision, combined with a strong US dollar knocked the currency sharply lower.

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Today’s OPEC meeting did nothing to help Oil prices push higher after OPEC oil ministers held production quotas at current levels of 30m barrels per day.

It is highly unlikely that having turned this into a battle for market share that the Saudi’s would countenance a reduction to supply given that they have increased production over the past few months, though there had been some chatter that a production increase might have been mooted.

This, combined with a strong US payrolls report, which pushed the US dollar strongly higher has seen oil prices slide back to hit their lowest levels since April, on the Brent contract.

Gold prices slid sharply after today’s strong payrolls report and their lowest levels since March after today’s strong US numbers.

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Written By: CMC Markets