It was a whirlwind week for financial markets. As the week began, news that Greek voters had rejected the European bailout plan sent equity markets reeling. Market sentiment worsened as the rout in Chinese equities continued despite government intervention.
By the end of the week, an eventual rally in Chinese markets and news that Greek government proposals for a new bailout were positively received by European stakeholders sent North American equity markets back up.
Minutes from the Federal Open Market Committee's June meeting showed participants paving the way for rate hikes, but also expressing concern that their rosy forecasts had yet to play out in the data. Reference to the downside risks posed by Greece and China gave the minutes a dovish feel that pushed expectations for the first rate hike further into 2016.
The bottom line is that the wave of financial volatility unleashed over the past week is unlikely to recede. Even if a package is agreed upon, Greece will remain a source of uncertainty for financial markets. The hobbled Greek banking sector is likely to need restructuring, with the weakest banks closed or merged with stronger ones.
In terms of China, the Xi put (after the Chinese President) may have stemmed the tide for now, but it has threatened the credibility of policy makers and represents a setback to their reform agenda. The events of the past week may not be enough to stall the Fed from raising rates later this year - indeed Yellen's speech on Friday failed to mention them at all. Still, it doesn't help the case for an earlier liftoff.
