Global equities finished close to flat in a relatively calm week for global markets. Domestic stocks finished higher, led by small caps. International markets fell, although much of the price declines came from a significantly stronger U.S. Dollar, which reduced the returns from non-dollar denominated investments. Surprise strength in core consumer prices (that is, ex-food and energy) contributed to dollar strength, as investors believe more signs of inflation will lead the Federal Reserve (Fed) to raise interest rates this year. Domestic housing starts also reached a seven and a half-year high.
Overseas, Japan, the world’s third largest economy, grew 2.4% in the first quarter – nearly twice the pace of the previous quarter. Purchasing Manager Index data indicated slowing activity in China, yet continued strength in Europe. In the U.K., retail sales rose nearly 5% year-over-year as consumer prices fell.
For the week, the S&P 500 added +0.22%, the Dow Jones Industrial Average lost -0.19%, and the MSCI EAFE (developed international) fell -0.18%.
Here are the 3 stories this week that rose above the noise:
Holiday Travelers at Highest Since 2005, Despite Rising Gas Prices
In a positive signal for the U.S. economy, holiday travel will have reached its highest level in a decade over Memorial Day weekend. Gas prices have risen by a third since January, but are still a dollar per gallon lower than last year. Many Americans took advantage of lower fuel prices by traveling during Memorial Day Weekend. According to AAA, 37.2 million Americans traveled more than 50 miles over Memorial Day weekend, an increase of 4.7 percent compared to last year. As stated by Marshal L. Doney, President of AAA, “A strong employment market and low gas prices have driven consumer optimism to new highs and boosted Americans’ disposable income.”
Stanley Fischer: First Rate Hike Will Be No Big Deal
Better-than-forecast durable goods data has caused markets to start the week on a down note as investors weigh the probability that the U.S. Federal Reserve will raise interest rates sooner than expected. However, Federal Reserve Vice Chairman Stanley Fischer said it was misleading to give so much importance to the Fed’s first interest-rate hike since the process of returning to a more normal level will take a few years. “What we are thinking about is raising the interest rate from zero, which is an ultra-expansionary monetary policy. This will be a gradual process,” he said.
What Would Happen If Greece Doesn’t Pay the IMF: Q&A
With a potential Greek default only 10 days away, equity markets are trading lower given the uncertainty. A recent article explains what will happen if Greece fails to repay its Euro 1.6 billion ($1.76 billion) obligation to the International Monetary Fund (IMF) next month.
Although the IMF payment cannot be deferred, Greece may ask to bundle the June payments into a single lump payment later in the month to buy some time. If an IMF payment is missed, the immediate impact would be felt by Greek lenders who would likely lose access to Emergency Liquidity Assistance and face potential insolvency. “Failure to pay the IMF would entitle some of Greece’s other creditors, including the European bailout fund, to declare a default. They would then have the option to demand immediate repayment of all their loans, a process known as acceleration.”
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.
International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.
