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The No Vote Is In

Following the Greeks’ resounding “No” vote against conditions proposed by creditors, we asked CIBC Asset Management portfolio managers for reaction to the current situation and what they are watching for next:

Vincent Lépine, Vice President, Global Asset Allocation & Currency:  The “No” victory at Sunday’s referendum was unexpected, implying that the risks relating to Greece will remain present and will continue to get a lot of media attention. The end result will likely be higher short-term financial market volatility.  Fundamentally, however, the situation has not changed. Greece’s negotiating position is difficult since it does not have the same negotiating ‘leverage’ it had in 2011/2012 when the eurozone was much more vulnerable to a Greek default and/or an exit from the European Union.   How Europe and Greece decide to manage this process will continue to be the subject of intense and recurring negotiations over the coming months and years.  We continue to believe that this process will remain within the context of the European Union as opposed to outside of it – that is, we do not anticipate a “Grexit” in our main scenario.

Stephen Carlin, Managing Director, Equities:   This raises a number of uncertainties relating to next steps for Greek debt restructuring. The process will require political willpower on both sides to find some middle ground.  We do not believe that Europe wants to see a “Grexit”. The key will be just how far the two sides are from common ground and whether the troika (European Commission, European Central Bank, International Monetary Fund) remains comfortable with the concept of revised terms and conditions.  Early signals will emanate from the European Central Bank (ECB) regarding whether it agrees to continue to provide the emergency funding necessary to allow Greek banks to re-open in the next couple of days.   Markets in Europe today are down modestly, as some of this news is already reflected in stock prices. More importantly, the reaction is somewhat muted as there remains optimism that a revised deal can be found. Should negotiations fail to find common ground, we will expect further market weakness and central bank intervention.  The ECB has tools in place to manage through the volatility; however, in the short run, we expect this will continue to place pressure on the euro and strengthen the U.S. dollar.   U.S.-dollar-denominated commodities today are weaker, as expected.  North American markets are less exposed to the Greek news; however, we recognize a modest level of volatility will arise from the uncertainty. On stock price weakness, there will be buying opportunities.

Jeffrey Waldman, Managing Director, Global Fixed Income:  Developments in Europe have triggered a safe-haven bid for North American bonds.  North American bond markets have benefitted from the uncertainty in Europe as a result of the referendum result.  The uncertainty in Europe has resulted in underperforming bond markets in Portugal, Italy and Spain. We will continue to monitor these markets for indications of any contagion.  Government of Canada bonds are modestly outperforming other bond sectors, which is typical when there is a safe-haven bid.

Here’s What We are Thinking


Portfolio Advisory Group  

The Investment Committee of the Portfolio Advisory Group meets regularly to formally discuss markets, sector allocation and investment recommendations. Below is a brief synopsis of our current views. For specific investment strategy relating to your investment portfolio, please contact us.

Investment Strategy 

Volatility likely to continue, but buying opportunities starting to emerge


Greek tragedy enters climax stage… the global economy is better insulated this time around



Markets vs Greece: Mid-Day Monday, June 29, 2015


2015 JUN 29 Mid-day Market Update  Cont Europe where now_29 June 15

Canadian Equity Market

The S&P/TSX Index is declining ~2.0%, falling for a third day and erasing gains for the year, as global equities slipped after Greek debt talks fell apart over the weekend. In economic news, Canadian consumer sentiment reached a five-week high on reduced concern about the threat to home prices from an oil shock. The Bloomberg Nanos Canadian Confidence Index rose to 56.8 in the week ending June 26, from 56.6 in the prior period, polling by Nanos Research Group shows. On the S&P/TSX, all 10 sectors are declining. In terms of breadth, 24 stocks are up, 224 are down, and 1 is unchanged at midday.

U.S. Equity Markets

U.S. stocks are retreating, with the biggest drop in more than a month, amid mounting concern about fallout from a potential Greece exit from the euro area.

In economic news, contracts to purchase previously owned U.S. homes rose in May to a nine-year high, indicating recent strength in the real-estate industry will be sustained. The pending home sales index increased 0.9% to 112.6, the highest since April 2006, after a revised 2.7% advance in the previous month. In corporate news, Macy’s Inc. (M) is falling ~2.3%, its biggest decline since May 13, after Deutsche Bank AG downgraded the department-store chain, citing a sales slump and mounting expenses from shipping, retirement and health-care. General Electric Co. (GE)’s deals to sell the bulk of its vehicle fleet-management business push the company near a goal of unloading at least $20 billion of finance assets before the quarter ends. Canada’s Element Financial Corp. will acquire GE Capital’s fleet assets in the U.S., Mexico, Australia and New Zealand for $6.9 billion. GE also said Monday that it signed a provisional accord with Arval, a subsidiary of BNP Paribas, to sell the European portions of the leasing operations. Sysco Corp. (SYY) terminated its planned $3.5 billion takeover of US Foods after a federal judge blocked the combination, opting instead to add $3 billion to its stock-buyback program. Fiat Chrysler Automobiles NV (FCAU), which makes about a quarter of its sales in the region that includes Europe, is retreating ~5.9%.

Fixed Income

Bonds are rallying firmly as Greece’s sovereign debt crisis escalates.  North American rates markets are rallying firmly after a breakdown in Greek debt talks with International creditors – and the call of a snap referendum on austerity measures by the Tsipras government – have led to a shedding of risk.  With global risks taking center stage, slightly softer May US Pending Home Sales data are being overshadowed.  May Pending Home Sales printed at 0.9% m/m (vs. exp. 1.0%) while the Dallas Fed Manufacturing Index for the month of June printed in negative territory at -7.0, but better than the -16 consensus expectation.  As we approach midday, US yields are trading 0.06-0.11% lower while Canadian yields move in comparable fashion.       

International Equity Markets

European stocks slumped today as Greece teetered on the brink of default after bailout talks fell apart. Stocks are dropping on concern Greece is heading closer to a euro exit after it closed its banks and imposed capital controls. Prime Minister Alexis Tsipras on Friday called for a July 5 referendum on austerity measures demanded by creditors. Greece’s current aid package expires Tuesday, when a deadline to pay the International Monetary Fund is also due. Trading on the Athens Stock Exchange will be suspended during a bank holiday lasting until July 6, the country’s market regulator said. In corporate news, an index of euro-area economic confidence slipped to 103.5 in June from 103.8, the European Commission said today. In corporate news, Greek stocks trading outside of Athens are either falling or untouchable after this weekend’s drama. American depositary receipts of National Bank of Greece SA (NBG – US) is tumbling ~21.9% in New York. Coca-Cola HBC AG (CCH – LN), which switched its primary listing to London from Athens two years ago, dropped 3.4%. TUI AG (TUI – LN) fell 7.1% today after the company said over the weekend that some customers of Thomson Airways Ltd. and First Choice Holidays Plc, owned by TUI, fell victim of the terror attack in Tunisia. Royal Dutch Shell Plc (RDSA – NA) and BP Plc (BP – LN) lost 2.1% and 2.3%, respectively, as oil declined for a fourth day. Chinese stocks tumbled today, sending the benchmark index into a bear market, as signs of an exodus by leveraged investors overshadowed the central bank’s effort to revive confidence with an interest-rate cut.


Market Watch: Global Update





Big Picture

By Andrew Trimble


Greek deadline looms

Greece dominated the narrative this week as bailout talks stalled Thursday and moved into the weekend ahead of a Tuesday debt deadline. Tuesday is the day Athens has to make a 1.54 billion euro payment to the International Monetary Fund or default. The IMF has said it won’t extend the deadline while significant gaps remain between Athens and its creditors when it comes to getting an agreement to unlock funds. Turning to the US, economic data was better than expected this week led by a jump in consumer spending. It rose a seasonally adjusted 0.9% in May as Americans opened their wallets at the fastest rate in six years. The jump came amid rises in personal income and first-quarter GDP. The first three months of the year were stronger than previously thought as GDP was bumped up Wednesday moving from a 0.7% contraction to a 0.2% pullback. The Fed is closely watching these indicators – as well as inflation – for signs of broader economic acceleration before they lift interest rates from near zero. Bankers have said a September increase is possible. Also in the US, it appears the country is back on track to ink a Pacific Rim trade deal called the Trans-Pacific Partnership. The deal with China and ten other countries could have a large impact on global trade. Canada has said it wants to be a part of the pact but it would have to give ground on a range of duties currently protecting the dairy and poultry industries. Ottawa has already given European countries duty-free access to these industries through a European free-trade deal.




North American stocks higher YTD

With two trading days left before we reach the mid-point 2015 all major North American stock markets are in positive territory. YTD through Thursday, the Dow is up 0.38%, the S&P 500 is up 2.11%, the Nasdaq is ahead 7.94% and the TSX is 1.81% higher. For the four days covered in this report, the Dow fell 83 pts. to finish at 17,932, the S&P 500 gave back 4 pts. to end at 2,105, the Nasdaq shed 5 pts. to close at 5,112 and the TSX gained 244 pts. to settle at 14,897.


Our Recommendations


Lackluster performance continuing in Canadian and U.S. equity markets

  • Equities: Himalaya Jain, Director, Portfolio Advisory Group wrote: “Almost halfway into 2015, Canadian and U.S. equity markets are up less than 2% apiece. Unfortunately, we’re expecting this lackluster performance to continue in the near-term and our full-year price-only return expectations remain in the mid-single digit range. With equity market valuations still near the high end of the historical range, we see hurdles in the form of monetary policy uncertainty and related bond market instability, erratic economic progress, and geopolitical anxieties. Among the few measures that have been moving higher is volatility. While global oil prices will remain a wildcard when it comes to S&P/TSX Composite Index performance, we think the 40% recovery in WTI crude oil since the mid-March low has likely run its course for now and oil should trade in a narrow range over the summer months. Even beyond the coming months we think oil prices may experience a shallow recovery that could see oil trade in a US$60-US$70/barrel range through 2016. As such, we are moving back to a neutral stance on the energy sector from the overweight position we recommended in February. Acknowledging that compelling investment opportunities are in short-supply, we remain focused on holding a portfolio of large-cap, dividend-paying companies. Holding higher levels of cash, particularly as the opportunity cost remains low, continues to be a prudent risk management strategy that also allows for opportunistic investments during periods of market weakness.”

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