US Open – Greece, Data, Bond Volatility Eyed

While Greece will inevitably continue to be the main story in the markets this week, there are plenty of other things that traders should not take their eye off including U.S. retail sales on Thursday, large amounts of key data releases from China and Japan, and bond market volatility that could again ripple through the markets.

Greece is believed to have been discussed among world leaders at the G7 conference over the weekend and may well be on the agenda again today, although any real progress in the absence of Greek officials is unlikely. After Greek Prime Minister Alexis Tsipras’ performance in parliament on Friday, it feels like negotiations have taken a step backwards. European Commission President Jean-Claude Juncker was clearly very unimpressed with Tsipras’ comments to parliament and accused him of misleading ministers.

Every now and then people allow themselves to become a little optimistic that a deal can be reached and default averted. Unfortunately, it’s never long before the games start again and once again deadlines are being set for when a deal “must” be done. The latest deadline is the middle of the month as any deal would then have to pass through respective parliaments which would take a couple of weeks at least. This brings us to the end of the month when Greece has a €1.6 billion repayment due to the International Monetary Fund and €1.5 billion in public sector wages and pensions to be paid. It also marks the end of the current bailout.

While this continues to tick along in the background, there’s plenty of data being released this week that traders shouldn’t ignore. While the majority of the key data will come from China and Japan, the most important of the lot will arguably be the retail sales figures from the U.S.. Last week’s jobs report was exactly what the doctor ordered and very much opened the door to a rate hike this year.

However, that is all it did and without evidence that this has led to more spending and higher inflation expectations, the Federal Reserve is unlikely to take the plunge. We need to see a good retail sales figure on Thursday to show that the economy has bounced back and consumers are not just saving the extra cash they have from lower oil prices and higher wages. The data from the jobs report showed hiring picked up in retail outlets in May which may be an early indicator of increased footfall and spending, or at the very least expectation of it in the coming months.

Bond market volatility may also remain a key theme in the markets for some time yet. The lack of liquidity as a result of central bank purchases has created a much more volatile environment and while I think the latest phase of volatility has stabilized, it won’t take much to set it off again.

Overnight there was mixed data from China and Japan that provided little direction at the start of the week. On the face of it, the near-record Chinese trade surplus looked very positive but this was driven by a 17.6% decline in imports which raises serious concerns about domestic demand in China. The Japanese GDP revision was much more positive – rising to 3.9% in the first quarter on an annualized basis – especially as it was driven in part by capital expenditure. Overnight tonight we’ll get Chinese inflation data which could impact easing expectations and therefore could drive sentiment on Tuesday.

The S&P is expected to open 2 points lower, the Dow 14 points lower and the Nasdaq 3 points lower.

For a look at all of today’s economic events, check out our economic calendar.

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