U.S. stocks reach record highs on reduced geopolitical conflict between Russia and Ukraine. S&P500 gains .4% to 2,097 and DJIA gains .3% to 18,019. Also contributing to upward momentum was German expansion beating expectations, and both sides in Germany-Greece negotiations express willingness to compromise. VIX decreases to 14.69. German bund yield increases to .35%, and U.S. counterpart increases 4bp to 2.03%. Dollar index appreciates close to 11 year high. Despite new highs for stocks and risk-on attitude reflected in bond market, many investors are seeking to protect themselves in the event of a downturn. The cost of put options relative to the cost of call options has jumped to the highest level since 2006.
Greece and its creditors are looking for a compromise ahead of Monday’s meeting. Greece’s anti-austerity government wants to end the current bailout program and implement a new plan that includes raising wages and reinstating government workers. This plan isn’t getting much support from creditors, who argue that countries shouldn’t be able to spend money they don’t have. An important factor to think about for Germany and other euro area creditors is that, if they give in to Greece’s demands this may lead to other anti-austerity movements in peripheral countries such as Spain.
Brent rises about $60 for the first time in 2015 amid announcements from biggest oil companies that they will cutback investment in new projects. This action will lead to a decrease in expected supply levels. Apache, BP, Statoil, and Total of France have all announced cutbacks on their spending plans in areas such as rig count, fracking crews, and exploration investment.
Central bank divergence around the world and deflationary trends can be seen in currency markets. Swedish krona depreciates against the euro after their Riksbank cuts rates and announces bond buying program. Denmark has also cut rates in order to preserve its peg against the euro, and Norway is expected to take similar action. On the other side of the spectrum, the pound appreciates against the dollar as Bank of England announces better inflation report than expected. Euro has been resilient against the dollar this week due to optimism about the eurozone economy (better than expected German growth data, euro economy growth) and weak U.S. retail sales.