April 27th Weekly Market Update

The latest data releases pointing to weak U.S. new home sales and manufacturing Purchasing Managers’ Index (PMI) have investors guessing about the possible messaging coming out of this week’s Federal Open Market Committee (FOMC) meeting. We expect a data-dependent Federal Reserve (Fed) will likely acknowledge temporary factors such as harsh winter weather and the West Coast port strike, as well as the negative impacts of a stronger dollar and a depressed energy sector on growth and employment. But the odds are against the Fed conveying a meaningful change in attitude — data from CBOE fed fund futures indicate a gradual hiking of the fed funds rate and imply a better than 50 probability of a hike later in 2015 — and our view of a September 2015 rate hike remains intact.


As we expected, the April 24 Eurogroup meeting to break the latest impasse with Greece proved anticlimactic. At issue is the release of 240 billion euros in funding tied to Greek reforms and budgetary restraints. Several events leading up to the April 24 meeting took some of the focus off of the actual event: the European Central Bank (ECB) agreed to provide additional backstop funding in the event of deposit flight from Greek financial institutions; the Greek government demanded that local public entities turn over cash balances in support of government operations; and Greek Prime Minister Alex Tsipras met privately with German Chancellor Angela Merkel on Thursday, April 23, in advance of the official negotiations. In addition, investors also had to digest the latest overtures from Gazprom, the Russian state oil company, to make payments to Greece in advance of revenue from a pipeline that has yet to break ground.

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