Global markets have opened trading looking uncertain and vulnerable to losses for the third successive week as the Greece uncertainty continues to linger on and negatively impact market sentiment. Although there was optimism on Friday that a positive conclusion to the Greece situation was nearing with this leading to increased Euro purchasing, this has failed to materialise and the current news on the street is that the ongoing talks are no longer about negotiating a bailout for Greece, but rather about negotiating how to approach a Grexit.
As repeatedly pointed out, one of the major issues with the Greece uncertainty is that it remains largely unclear what the potential global implications of Greece leaving the Euro really are. There is an argument that Greece only represents around 2% of EU GDP and is by far the weakest member of the Euro, but you just do not know how investors would react to the announcement of a possible Grexit. If you read the most recent FOMC Minutes release then you would also have learnt that the Federal Reserve are becoming increasingly concerned about international risks and that this could delay the central bank from raising US interest rates.
Additionally, a Grexit could negatively impact how investors look at their investment portfolio. If this means they become more risk adverse, then this would spell further bad news for the emerging markets at the same time they are already feeling continuous pressure due to the combination of depressed oil prices and US interest rate expectations.
Speaking of US interest rate expectations, Federal Reserve Chair Janet Yellen once again repeated her commitment to raising US interest rates later this year during a conference on Friday afternoon. This should put the USD less at risk to further profit-taking in the near-term and I still think it is achievable to expect the Fed to raise interest rates this September.
There is nothing in the US economic data that should prevent the Federal Reserve from raising US interest rates and if they don't hike in September, most will expect them to do so in December. Aside from the consistent US economic data being enough to warrant a rate hike anyway, one of the other reasons why I would like the Federal Reserve to begin raising interest rates is because it would present the global economy with a huge vote in confidence with this being even more welcome considering we received another global economic downgrade from the IMF as recently as last Thursday.
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