Stocks jump to records as Greece extends its aid with creditors. S&P rises .6% to 2,110 and DJIA rises .9% to 18,139, both are all time highs. The agreement removes one of the obstacles that has been plaguing markets over the past month. A purchasing managers index in Europe rises for for the third consecutive month. The euro appreciates against the dollar following the move, and the German 10 year falls 2 basis points to .37%. However despite the solid PMI, European companies continue to report falling selling prices, which raises the possibility for deflation ahead of ECB’s quantitative easing which begins next month. The U.S. 10 year yield rises to 2.12%, which is 7 basis points higher on the week.
Germany and Greece reach a deal that extends aid for another four months. This deal essentially buys time to give Greece another four months to secure longer term financing. Greece on Monday will submit a list of reforms that they must complete in order to receive the aid that comes with completing the current program. The agreement prevents a bank run on Greek deposits, something that many officials feared. The deal includes no reduction in the value of Greek debt, and Greece must continue to produce a budget surplus.
Many economists think it’s possible that the euro reaches parity against the dollar this year. Although its becoming increasingly unlikely that Greece leaves the euro, even if Greece stays in many investors may still decide to reduce their euro exposure. Greece’s government says it wants to stay in the euro, and Germany’s government also wants Greece to stay in the shared currency. Eurozone doesn’t have bright economic prospects amid deflation, and as a result the euro will likely depreciate further.
Oil traders have become increasingly dependent on the Baker Hughes rig count as they try to find the bottom in the oil market. This statistic is more than seventy years old, however it is rising to prominence given the current oil market conditions. In recent years the number of rigs has been almost obsolete as huge shale wells caused the U.S. government to come up with a new way to gauge output. Now, this statistic is most helpful when oil prices are volatile, and many short term traders have been watching it closely each week. This week the report showed that rig count decreased, and oil prices shot up as a result.