In a what has become an all-too-familiar turn of events, Greek debt negotiations broke down yet again over the weekend. In a meeting that reportedly lasted less than an hour, yesterday evening leaders from the European Commission walked out of discussions with the Greek government. The primary sticking points continue to be creditor demands for reductions in pension entitlements and public subsidies that the ruling Syriza party finds unpalatable. Prime Minister Alexis Tsipras now finds himself trapped between the terms sought by creditors to extend needed funding and the inflexible platform that he adopted during his elections. Equities fell throughout the euro zone in trading this morning and the euro dipped against the U.S. dollar.
Trans-Pacific Partnership trade bill falls through. The defeat of a trade bill endorsed by U.S. President Barack Obama was in large part driven by deep dissension within his own Democratic Party. On Sunday administration officials reiterated support for the proposal, which would pave the way for the proposed 11-nation Trans-Pacific Partnership and pledged to reintroduce legislation this week. Democratic presidential candidate Hillary Clinton has indicated opposition to the proposed laws.
Saudi Arabia opens door to investors. After years of anticipation and delays, today the Saudi Capital Market Authority announced that for the first time, foreigners will be allowed to hold up to 49 percent of shares outstanding for companies listed on the Tadawul, the Saudi stock exchange. Holdings by an individual will be capped at 5 percent. Earlier this month index provider MSCI said that it would solicit feedback regarding accessibility for Saudi equities as it considered their inclusion in the firm’s MSCI Emerging Markets benchmark.
Russia lowers rates. The Central Bank of Russia cut its benchmark lending rate by 100 basis points to 11.5 percent in a widely anticipated move on Monday. Bank governor Elvira Nabiullina and colleagues issued a statement noting that lower inflation risks paved the way for loosening as the nation’s economy continues to feel the pressure of Western sanctions.
Euro zone trade surplus shows sharp rise. April trade data for the common currency region released today by Eurostat detailed a record trade surplus of €24.3 billion ($27.3 billion). Exports rose by 1.1 percent year-over-year, while imports for the month contracted.
Major European IPO announced. French auto rental company Europcar Group will issue nearly $1 billion in shares in a public offering on June 25. French investment company Eurazeo acquired the company in 2006 in a consolidation move to compete with major U.S.–based car rental companies.
Homebuilders to merge. Property developers Standard Pacific Corp. and Ryland Group Inc. have agreed to merge in an all-stock transaction that will create a combined market capitalization in excess of $5 billion. The new entity will rank as the fourth-largest homebuilder in the U.S., with roughly 13,000 home closings last year.
Portfolio Perspective: The Information Cycle — Adam Grimes, Waverly Advisors
Among the less-appreciated cycles in the market its reactiveness to new information. Though this is difficult to quantify, there are points in which the market reacts strongly to any news or speculation. These reactions are often — but not always — to the downside for stocks, as nervous markets react with vigor to anything that might be perceived as negative news. Last week, news and speculation on the Greek situation continued unabated, yet most markets had few shocks and little reaction. We at Waverly Advisors think this points to a less-reactive phase in the market cycle, though slightly elevated implied volatility may also suggest the options markets are pricing in some higher risks.
The main danger in this phase is that quiet markets can hide lower liquidity. This may be exacerbated by summertime trading conditions. For instance, there may be fewer buyers under the market and any sharp decline could go much further than might be expected. Long-term investors must steel themselves for the possibility of an impressive shakeout, and resolve to not take part in that move by selling unless their risk limits are violated.
Adam Grimes is the managing partner and CIO of Pittsford, New York–based research and asset management firm Waverly Advisors.
