Plimoth Investment Advisors - Plymouth Massachusetts

Weekly Market Commentary

May 14th – May 18th

While the week was filled with U.S. economic data releases, investors continued to focus on the European Debt Crisis, still digesting the fallout from the French and Greek election two weeks ago.

The Greek government formally announced that a coalition government could not be formed, creating the need for new elections that are now scheduled for June 17^th. The anti-austerity charge is being led by the leftist bloc party Syriza, and their candidate Alexis Tsipras. It is widely believed that Tsipras, who finished second in the first elections held, could take the first place spot on the 17^th. However, the formation of a coalition government that backs his party’s agenda is still not likely. During a recent poll, roughly 80% of Greeks surveyed were in favor of remaining in the Euro-zone. This position appears to be somewhat at odds with the hard-line anti-austerity stance being touted by Tsipras.

Meanwhile, Euro-zone officials have been both sending warnings of the potential peril of Greece deciding to leave the EU, and it’s widespread impacts across the continent. Other Euro-agencies have been discussing the possibility of Greece’s exit, with some reports indicating that contingency plans are being prepared for just such an event.

The re-emergence of Greece has also exacerbated concerns in other nations as the borrowing costs for both Spain and Italy continued their upward trend from last week. Eurozone banks also felt the heat this week as debt concerns stoked investor concerns over the solvency of several European banks, with Spanish banks being most suspect.

While U.S. economic data was mixed for the week, investors keyed on the uncertainty in Europe, pushing equity markets to their third week of losses. 10-year Treasury Bonds continued to gain ground, closing the week to yield 1.72%.

With the G-8 meeting this weekend at Camp David and the European Commission meeting next week, it appear likely that market directionality will continue to hinge on the news related to the European Debt issue.

One thing seems certain, the plan for Europe must not be solely predicated on fiscal austerity, but must include a plan for developing a growth plan for the European continent.