By James Dondero | July 1, 2015
- Markets around the world are again becoming dominated by news headlines, most notably those out of Greece and the Supreme Court’s ruling regarding King vs. Burwell. While we believe events in Greece continue to be a non-event longer term, we also believe they could add to volatility over the short term.
- Particularly compelling in our view right now is the US Dollar. The greenback spent 2Q15 digesting its gains over the previous year, and appears to us as if it’s ready to resume its advance. Unsettling headlines from around the globe could easily spark a fresh move higher.
- Fundamentally speaking, rising crude inventories have been putting pressure on crude oil which so far has been bending but not breaking. The $58 level remains key, and a close below this area would likely lead to significant technical selling and potentially a test of crude oil’s March lows. Stepping back, other commodities such as copper remains weak as well which continues to point towards an overall theme of deflation.
- Also benefitting from the headline driven market have been US Treasuries, which are still struggling at previous areas of resistance, such as 2.40% on the 10-yr US T-Note. Treasuries of course often benefit from geopolitical uncertainty, and we continue to believe that yields in the US are likely falling into a trading range.
- While bonds may benefit, we believe US equities may well see additional weakness over the short term. As long as their 40-week moving averages hold however, the longer term uptrend remains intact. While the tape is getting increasingly split, the Supreme Court’s ruling regarding King vs. Burwell helped propel the health care sector to another new high.
- Finally, while events overseas are driving the news cycle, markets in Athens remained surprisingly calm. China on the other hand has become surprisingly weak, with several important benchmarks having broken their shorter term moving averages. Countries with commodity-based economies such as Brazil and Russia remain the weakest, and in well-established downtrends.