Don’t Lose Sight of China amidst the Current Greek Drama

By James Dondero | July 13, 2015

  • The drama in Greece continued to dominate headlines last week, naturally weighing on the markets. The real volatility however continues to be in China as the debate rages regarding the health of their economy and what the impact of government actions will be. In our view, the DAX Index in Germany is offering a more orderly pullback, and potentially an ideal entry here.
  • Not surprisingly, the US Dollar was again higher last week given the uncertainty overseas. The greenback remains in a long term uptrend, and it appears to us that the advance is poised to reassert itself. This would, of course, put additional pressure on commodities, and we continue to see deflationary trends globally.
  • Bonds would likely benefit during a deflationary environment, as fixed income streams become more valuable when the cost of living declines. Technically speaking, yields continue to struggle at important areas of resistance, and whether they fall into a longer term trading range (or not) may well depend on China.
  • Finally, while the US markets finished little changed last week, broad market averages such as the S&P 500, NASDAQ and Value Line held important areas of support. Additionally, market internals improved on the week, which is clearly good news for the bulls. Looking ahead, the earnings and revenue bars appear particularly low for US companies due to report, which could clearly help the bulls going forward.

 

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