Global economic outlook

Global economic outlook

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During the past week, the Greek situation had apparently regressed back into negotiation stalemate and media attention turned to China’s stockmarket slide. However, away from the media focus, the BRICS Bank was launched and Russia made a strategic overture to Greek business tycoons. This opened with an advancing Bitcoin price chart and, ironically, will feature several central bank announcements, as the global economy and political arena shifts poles before our eyes.

In the Calendar This Week

Sunday 12 July saw Eurogroup meetings centered primarily around Greece, and they continue on Monday (featured below). China’s year-on-year Trade Balance came in at $46.5bil, down more than $10bil from the previous year.

Tuesday sees publication of UK annual Consumer Price Index (CPI) data that is expected to remain at 0.1%. US Core Retail Sales are expected to decrease from 1% to 0.7% and the Bank of Japan has scheduled a tentative Monetary Policy Statement, as well as a Press Conference late Tuesday – “tentative” schedules usually being a sign that the BoJ is about to surprise the market.

On Wednesday the Bank of Canada issues a Monetary Policy statement and Fed Chair Yellen testifies – meaning, the Fed’s version of the State of the Nation address.

Thursday has an ECB press conference, no doubt, introducing additional Euro printing with Greece as an excuse. Yellen testifies again.

On Friday a swath of important US data should move the markets: Housing Starts, Building permits, CPI (expected around 0.2-0.3%), and Consumer sentiment that is expected to rise.

Greece Back At The Negotiating Table

Without repeating the laborious details, the situation of Greece versus the Eurogroup can best be summarized as follows: The populist Greek ruling party, Syritza, walked away from “dishonorable”negotiations with creditors and asked the Greek people to decide whether they wanted additional austerity in return for a bailout. 61% of Greeks said “No” in a national referendum. A week later, Prime Minister Alexis Tsipras is attending meetings with the IMF, ECB and EC, including the Eurogroup representatives, talking about more austerity for Greek citizens.

Back home Tsipras is threatening to eject leftist “rebels” for opposing his agreements with Brussels and Greece’s creditors. Some opinions have it that Tsipras’s referendum bluff backfired and that he was counting on a Greek “Yes” vote, so he could resign along with Finance Minister Yanis Varoufakis.

The Eurogroup insists on more austerity measures being imposed on the Greek public, that €50bil of Greek government assets be capitalized a Luxembourg-based company to serve as collateral for an €80bil bailout package.

This is how the Eurogroup meeting summary document spelled it out: “In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possibly debt restructuring.”

“Time-out”, of course, means “get out”.

Also In The News

In an odd reversal of their usual anti-China framing, Bloomberg published an article titled “China’s Exports Rise in Another Sign of Stabilizing Economy”. The article centers around China’s Overseas Shipments figure that rose 2.1% year-on-year. Paradoxically, China had trillions of yuan erased from its domestic economy during the past month’s stockmarket crash. Additionaly, figures posted on Sunday showed year-on-year Trade Balance had shrunk to $46.5bil from $57bil the year before. Another sign of stabilizing economy?

The China stock market crash was finally halted when authorities threatened sellers of stocks with imprisonment and the police publicly announced that they had opened several investigations related to this “malicious” activity of selling stocks. Market participants’ confidence was reinvigorated and the buying has resumed.

Discounting the foolishness of the herd, our outlook remains negative for China stocks. Our projected target at the 200-period moving average was hit and a lower target remains at the 62% retracement level.

 

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