Of course, the spectacle this week was not limited to the Greek archipelagos. Half the world away in China, a plunging stock market had authorities scrambling to stem the tide, pulling out all the stops along the way. From banning major investors from selling for the next six months (investors who hold more than 5% or company executives) to direct purchases through subsidiaries, the scope of intervention was unprecedented even for China. Even so, through mid-week authorities’ efforts appeared to be relatively ineffective, and as prices plummeted further, trading was suspended on over half of the stocks listed on Chinese exchanges.
Greece’s part in this week’s story is only part of the picture. Arguably, a bigger concern is China. The world’s second largest economy has been suffering from a plunging stock market, causing even great concern internally and worldwide. Large measures were taken by the Chinese government to prevent and even further downturns which include preventing major shareholders (those whose holdings are greater than 5%) from selling shares, and direct subsidiary purchases. Even with these measures in place, Chinese markets continued towards the downside and thus trading was suspended on more than half of China’s exchanges.
Thursday was highlighted by a turn to the upside for China as equities rallied into Friday. Chinese equities remained volatile, however, and investor’s concerns stem out to what this situation means for Chinese growth as a whole, which has been slowing down in recent years. Such market shocks negatively affect sentiment and household wealth which may translate to negative effects in consumer spending for the Chinese.
China’s slowing growth and the Greek crisis were enough evidence of potential downside risk, which the Federal Market Committee used as reference in hinting a dovish tone, followed by investors adjusting their expectation for a March 2016 rate hike (fed fund futures). However, all this turmoil is not enough to stop the fed from raising rates, but on the other hand the fact that Yellen failed to mention anything abour raising them, doesn’t indicate a liftoff any time soon.
In the Eurozone volatility is likely to remain high on stocks, bonds, and Euro currency pairs as the “no” vote from Greece, reopened negotiations for Greeks who believe that can get better terms. Germany and Troika seem unwilling on offering anything better than the previous proposals so the Greek PM might be forced to accept.
US Nonfarm data last Thursday, remained above the 200k mark, while unemployment fell further to 5.3%, while wage inflation remained flat at 0%. We have yet to see JOLTS job openings and the FOMC minutes. Nevertheless our views of steady rates for the year remain unchanged till year end, or until the turmoil around Greece and the Eurozone abates.