Market Perspective for June 15, 2015

The IMF walked out of negotiations with Greece last week and over the weekend, European creditors took all of 45 minutes to reject Greece’s latest proposal. While equity investors may get spooked Greek stock prices remain off their lows. European stocks are down in Monday trading, but the slide has not been significant. Bond markets are selling off, with Spanish and Italian government bonds dropping in sympathy with Greece. Currency markets are sanguine and the euro was actually up in early morning trading. Overall, investors are starting to worry that Greece might really be headed for default this time, but the calm in the currency market shows that even the speculators aren’t willing to bet on the final result yet.

If it wasn’t for Greece, investors would be focused on the stronger U.S. economy. The Atlanta Federal Reserve upped its second quarter GDP forecast to 1.9 percent growth following last week’s release of economic data. Over the coming days, industrial production, inflation and housing data from May will be released. Inflation data could be the most important since it was running hot in April, led in part by rising prices in the healthcare sector. Federal Reserve officials want to see core inflation in the 2 to 3 percent range and in April, core inflation was 1.8 percent above April 2014. However, if the monthly inflation rate in April continues into May, core inflation may already be in the Fed’s target range. Overseas, the eurozone will also release its May CPI this week.

The Federal Reserve meets Tuesday and Wednesday. Since the Fed sees raw economic data as it is collected, it already knows what Thursday’s inflation report will be. A rate hike is very unlikely at this meeting, but if economic data is solid and the CPI is running hot, the Fed may give a strong signal on the timing of the first hike. With Greece looming in the background, comments either way from the Fed will likely create some volatility in the bond markets.

Earnings season has mostly wrapped up, but there are some important reports outstanding, with FedEx (FDX) being of particular interest. The delivery and logistics company is a core component of the Dow Jones Transportation Index, currently one of the few sections of the market that interests bearish traders. More important than index membership is the company’s role in the broader economy. The logistics firms like FedEx move goods across the global economy. If there’s a slowdown or an uptick in activity, FedEx is often one of the first companies to feel it. Analysts have forecast $2.68 per share in earnings and $12.31 billion in sales, but most investors will focus on the company’s guidance and commentary on current economic conditions. The other big earnings report this week comes from Oracle (ORCL), a giant in the technology sector. The firm isn’t as much of an economic or even a sector bellwether as FedEx, but it is a large holding in some technology indexes. Another firm worth looking out for this week is Kroger (KR), a component in a number consumer staples funds.

The Russell 2000 Index is the major index closest to a new all-time high. It wouldn’t take more than a day or two of gains to push it to a new record, but it looks as though it will pull back a bit today. Oil remains in a tight trading range, having spent the last six weeks trading between $62 and $58 a barrel. A stronger economy and higher inflation would ordinarily be bullish, but if the market sees rates hikes as more certain, it may keep a lid on prices. Finally, as mentioned the currency markets are relatively calm considering what’s happening in Europe. Although it has been more volatile, the euro, like oil, has been generally flat over the past six weeks.

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