With the ending of the financial year in June in Australia, July proved to be a turbulent month for the world’s financial markets. We witnessed the resolution (for now) of the Greek crisis which settled nerves but no sooner had this happened we experienced significant volatility in the Chinese equity
market which had/has a contagion effect on Australian shares. After flirting with departure from the Eurozone, the Greek Prime Minister suddenly capitulated to the demand of the country’s creditors in a deal that was harsher than he was rejecting a few days before. Greece will now get the financial support it needs, but at a cost as the political landscape has been changed and new elections are likely before the end of the year as voters feel duped by the new government.
The dramatic falls in Chinese equities raised concerns about the country’s economic health, but in reality the stock market has little connection with the economy. Likewise Chinese shares doubled in the corresponding period over the space of a slightly more than a year. Of greater importance is the continued improvement of the US economy and the Federal Reserve’s much publicized signal that it is likely to lift interest rates this year. Markets remain jittery on how this will play out.