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Europe Plunged Into Uncertainty

The Greek electorate decided over the weekend to reject further bailouts and demands by creditors with an overwhelming support for the no vote. This comes after a week of capital controls and an increasing breakdown in the Greek economy as the Euro Area struggles to recover after several years of austerity driven fiscal policies and experimentation with unconventional monetary policies.

Last Week

Greece shuttered banks last week, as capital controls were effectively introduced with ATM’s open for a maximum disbursement of EUR 60 per day. Deposit outflows continued unabated, with banks rapidly running short of cash. Despair and disappointment reigned supreme ahead of the referendum. After calling the debt onerous, the Greeks were supported by the IMF in their assertions that the debt load was unsustainable. Greeks turned out in high numbers to reject austerity with the “no” vote collecting the most support as Europe enters a new phase of crisis. In a positive note, UK GDP experienced a notable uptick with annualized growth surging to 2.90% after first quarter growth printed at 0.40% expansion. Across the Atlantic US payrolls missed expectations despite a strong reading from ADP and the unemployment rate plunging to 5.30%. Labor force participation hit the lowest levels since 1977 with over 93.6 million Americans recorded outside the labor force. China cut interest rates again, lowering both the deposit and lending rates in an effort to stabilize the economy. Volatility continues to pick up in Chinese stocks with nearly $2.5 trillion in market capitalization wiped from Chinese stocks last week.

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The Week Ahead

Besides the fallout from Greece, the week ahead is fairly light on macroeconomic data, but nevertheless very relevant. There are two major interest rate decisions, the first coming from the Reserve Bank of Australia which is expected to keep rates unchanged at 2.00% followed by the Bank of England which is also anticipated to leave monetary policy measures on hold for the time being at 0.50%. Traders will be awaiting the FOMC Meeting Minutes which are hoped to provide more clues regarding a potential September liftoff after several committee members alluded to the timeline and the idea of raising the benchmark rate twice before the end of 2015. Aside from US and European centric data, China will be releasing consumer and producer price indices. Consumer inflation is anticipated to see a modest month over month increase to -0.10% after printing at -0.20% in the prior period. Producer price deflation is expected to hold constant at a -4.60% annualized pace. In the meantime, the world awaits the outcome of the Iranian nuclear negotiations and more details of the Greek plan for moving forward.

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