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Volatility Reigns Supreme

Market volatility witnessed a substantial pickup across asset classes last week after emerging risk factors such as a Chinese equity market meltdown and Greek exit concerns became increasingly real amid rising demands from creditors. More volatility is in the pipeline as anxiety towards the global growth outlook replaces the optimism of the prior few months.

Weekly Review

Although much was made of the outcome of the referendum vote, Greece made its way back to the negotiating table with creditors after calls for debt relief and restructuring were met with firm refusals from European partners. Proposals submitted Friday that closely resembled previous creditor offers were finally approved after marathon negotiations culminated this morning in a deal between Greece and creditors. Outside of the Greek headlines, the main focus was on the continuing tumult and volatility in Chinese stocks as policymakers and regulators impose new roles to facilitate a more orderly flow of stock markets. However, policies prevented at curbing selling are receiving mixed results as policymakers try and tackle what they term hostile sellers. Aside from the volatility dominating financial markets, the release of FOMC Meeting Minutes confirmed the timeline for liftoff even though policymakers saw some notable risks to the outlook. Should external conditions continue to be difficult it might mean pushing back a rate hike even further despite the window for hiking closing rapidly. Other important events included the release of the UK Conservative budget and Bank of England decision to leave the key interest rate on hold at 0.50%.

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The Week Ahead

Coming sessions will see market momentum defined by market data including industrial production from key global regions including North America and Asia. After reporting Chinese import and export data followed by still contracting industrial production figures from Japan, eyes are turned to Chinese industrial production figures due later in the week. Expectations are for the key industrial sector to slip modestly while GDP numbers for the second quarter and annualized basis are expected to dip on the back of a weakening outlook for global trade. Inflation is going to be another important development released throughout the week as the Euro Area is set to report on the consumer price index, with current expectations for the number to hold constant. The UK however, is anticipated to see both annualized and monthly CPI fall slightly, raising the potential for deflationary forces to encircle the region. Aside from inflation, the European Central Bank will be making an interest rate decision as anticipation regarding an expansion of quantitative easing is growing. Canada is also set to report on interest rates, with the key benchmark forecast to stay on hold at 0.75%.

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