Publication date: 5 July 2015 | Covering: June 2015
Monthly Briefing
- FRESH: Greece missed IMF €1.5bn payment June 30 (5 days ago); first developed-country IMF default; Tsipras calls referendum July 5 (TODAY)
- Fed June 16–17: Holds 0–0.25%; projects two hikes in 2015; maintains “considerable time” language stripped
- China stock market boom-to-bust: Shanghai peaks June 12 at 5,166; falls 20%+ by month end; government intervention
- Puerto Rico Governor García Padilla declares debt “not payable” June 29; Caribbean sovereign debt alarm
- US Q1 GDP revised to -0.2%; weather effects blamed; Q2 expected strong rebound
- BOJ easing; Jamaica IMF EFF; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Greece on the Brink: Default and Referendum
As this edition publishes on 5 July 2015, Greece is holding a referendum — called by Prime Minister Alexis Tsipras just one week ago — in which voters are being asked whether to accept the terms proposed by the country’s creditors (the IMF, ECB, and European Commission) as the condition for releasing the final tranche of the second bailout programme. Five days ago, on 30 June, Greece became the first developed country to miss an IMF payment in history: the €1.5 billion repayment due on that date was not made, and Greek banks have been closed with capital controls in place since 29 June, following a decision by the ECB to hold its emergency liquidity assistance for Greek banks at existing levels rather than expand it. The final week of June was one of the most dramatic in the eurozone’s history. Tsipras’ decision to call the referendum shocked creditors who had believed a deal was imminent; the European Commission, IMF, and ECB all declined to extend the bailout programme to accommodate the referendum, meaning the programme formally expired on 30 June. As this edition goes to print, the result is unknown. A ‘yes’ vote would likely lead to a resumption of negotiations and Tsipras’ political position becoming untenable; a ‘no’ would deepen the crisis and bring the prospect of a disorderly Greek eurozone exit (Grexit) into sharp focus.
Federal Reserve: Projecting Two Hikes, Watching Greece
The Federal Open Market Committee held the federal funds rate at 0 to 0.25 per cent at its June 16 to 17 meeting, with Chair Yellen emphasising at the press conference that the Committee needed to see continued improvement in the labour market and greater confidence that inflation would return to 2 per cent before lifting off. The updated Summary of Economic Projections reduced the median projection from two rate increases in 2015 — down from a higher level in December — while maintaining that the first hike remained likely “some time this year”. September and December were the two meetings most closely associated with liftoff expectations. Chair Yellen acknowledged that Greek and other global developments were being monitored, noting that the Committee would need to consider whether they had material implications for the US economic outlook. The US first-quarter GDP was revised to minus 0.2 per cent in the final estimate, the first negative quarter since 2014, though the statistical consensus attributed the weakness to severe winter weather, a West Coast port dispute, and the stronger dollar’s effect on exports.
China’s Stock Market Boom and Crash
China’s stock market had experienced one of the most extraordinary boom-bust cycles in modern financial history in the six months through June. The Shanghai Composite had risen from around 3,000 at the start of 2015 to a peak of 5,166 on 12 June — a gain of more than 70 per cent — driven by margin lending, retail investor enthusiasm encouraged by state media, and monetary easing by the People’s Bank of China. The correction began in mid-June and accelerated rapidly: by the end of June, the index had fallen more than 20 per cent from its peak, officially entering bear market territory. The People’s Bank of China cut rates and reduced reserve requirements; the securities regulator suspended IPOs and attempted to restrict short-selling; large shareholders were barred from selling. Despite these interventions, the decline continued. The episode raised serious questions about the depth and stability of China’s financial markets and the degree to which the domestic stock market boom had been a real-economy credit risk rather than a contained financial market phenomenon.
Puerto Rico and Caribbean Debt Concerns
Puerto Rico’s Governor Alejandro García Padilla declared on 29 June that the US territory’s debt of more than US$70 billion was “not payable”, marking an escalation of the island’s fiscal crisis that had been building for several years. Puerto Rico, as a US territory, does not have access to bankruptcy protection under US municipal bankruptcy law. The declaration placed Puerto Rico on a collision course with its bondholders and raised the spectre of a protracted and disorderly debt restructuring. For the Caribbean region, the Puerto Rico situation was a sobering illustration of the fiscal fragility that small island economies can accumulate over extended periods of borrowing to fund current expenditures and infrastructure. Jamaica, which had completed its own National Debt Exchange in 2013 and was operating under an IMF Extended Fund Facility, had taken a fundamentally different and more structured path to addressing its own fiscal vulnerabilities.
Jamaica Mortgage Market in June
Jamaica’s mortgage market continued its gradual recovery through June 2015. The BOJ’s easing monetary policy and the IMF EFF programme framework provided a stable domestic foundation, even as global markets were turbulent. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent continued to define the affordable housing finance market. The summer period was beginning to generate diaspora property enquiries. The Greek and Chinese market turbulence had limited direct transmission to Jamaica’s domestic mortgage market, though the external financing cost implications of any global risk-off episode were always a concern for a highly indebted economy with active international bond issuance.
Looking Ahead
The Greek referendum result, unknown as this edition publishes, will shape European and global market sentiment for the weeks ahead. The Fed’s July 28 to 29 meeting will assess the state of the US economy and the degree to which Greek and Chinese developments have material implications for the domestic outlook. China’s stock market correction and its eventual stabilisation — through government intervention or natural market equilibration — will be closely watched. For Jamaica, the IMF programme review and the summer tourism season are the primary near-term domestic considerations. The mortgage market is expected to remain broadly stable, with the NHT’s schemes and the BOJ’s continuing easing the key domestic drivers.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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