Stocks ended mixed last Friday, as investors sought the relative safety of the sidelines ahead of critical weekend negotiations between Greece and international creditors. Troika creditors, including the European Central Bank, the European Union and the International Monetary Fund (IMF), proposed a five-month loan extension, offering to unlock up to €15.5B (US$17.3B) in Greek aid in exchange for required reform measures. Negotiators were said to be at odds over measures valued at approximately €2B. Greek Prime Minister Alexis Tsipras rejected the offer and called for a referendum vote on July 5th. A possible debt payment default may occur this week, which could threaten Greece's continued membership in the Eurozone.
In highlights of U.S. weekly economic data, existing home sales jumped 5.1% in May, bringing YTD sales soaring 9.2% to the second strongest 12-month gain in two years. The first quarter GDP shrank less than earlier projected as a Wednesday final revision came in at -0.2% versus the -0.7% previously estimated.
For the week, the S&P 500 and the Dow Industrials each fell -0.4%, and the MSCI EAFE (developed international) gained +0.9%.
Here are the 3 stories this week that rose above the noise:
The Modern Greek Tragedy -- The Washington Post
"Even if there is an agreement this week that allows Greece, through yet another loan, to make its June 30 IMF installment, a major restructuring or default has to be in the offing soon.
Consider just a few reasons this is true. For one, as Harvard economist and financial crisis scholar Carmen Reinhart notes, the private and public sectors are already behaving as if a default and exit from the euro are imminent, with actions that could well become self-fulfilling. Greeks are hoarding cash and sending their savings abroad; by a conservative estimate, Greek bank deposits have fallen by about 45 percent since their peak in 2009."
China's Shanghai Correction; MS Says Don't Buy the Dip -- Bloomberg
"Chinese stocks sank the most in five months, leaving the benchmark index on the cusp of a bear market, after leveraged investors cut holdings and Morgan Stanley joined a chorus of analysts warning that shares are too expensive.
The Shanghai Composite Index fell 7.4 percent to 4,192.87 at the close, bringing its drop from this year’s high to 19 percent. Chinese stock-index futures tumbled by the 10 percent daily limit as investors rushed to hedge their positions, while the benchmark gauge for China’s smaller exchange in Shenzhen sank 20 percent from this year’s peak. A measure of equity volatility jumped to the highest level since 2009."
Fed’s Williams: Fed Should Raise Rates Twice This Year -- The Wall Street Journal
"The first Federal Reserve official to speak in the wake of this week’s central bank monetary policy meeting said Friday the Fed should raise interest rates twice this year.
'We are getting closer and closer to the time to raise rates,' Federal Reserve Bank of San Francisco President John Williams told reporters following a hometown speech. 'My own forecast would be to raise rates two times this year, if the economy performs as I expect.' He added he would like to see those initial increases at 25 basis points each. As he has on many occasions, Mr. Williams cautioned that whatever happens with a policy that now has short-term rates pegged at near-zero levels will be driven by how the economy performs."
Articles chosen and summarized by the Tower Square Investment Management team. Tower Square Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Tower Square Investment Management individuals who provide investment management services are not associated persons with any broker-dealer.
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