Wednesday June 3

Stocks rise following positive economic data. The S&P 500 rises 0.2% to 2,114 while the Dow increases 0.4% to 18,086. Todays movements in equities were largely driven by economic data, which showed that the trade deficit fell by more than expected. As a result, the US 10 year yield rose 11 basis points to 2.37%. In addition, the ECB updated its inflation expectations for the region, which helped markets. The euro appreciated 1% against the dollar to $1.1260 and the german bund increased 16 basis points to 0.86%.

Alexis Tsipras is set to meet with international creditors. In spite of the proposal set forth by the creditors, he intends to talk about a counter proposal as he says he will talk about the plan of the Greek government as opposed to the creditor plan. The counter proposal was described as the “last, best offer” of the Greek government. According to a Syriza party spokesman, Greece will not pay the €300mm payment to the IMF on Friday if no deal is reached. This technically would not place the country in default as the IMF gave them until the end of the month. They claim to have enough to pay the €300mm but not enough for the rest of the €1.6b. The creditors deal involves a budget surplus and pension reforms, both of which are demands that Tsipras and his government are strongly opposed.

The ECB keeps interest rates low, with the benchmark remaining at 0.05%. It will also continue to charge eurozone banks 0.2% to keep money at the ECB. Both of these measures are intended to spur lending and banking activity in the region in order to support the economy. Both of these decisions were anticipated by markets. Economic headlines for the region today showed that inflation was projected to be 1.5% (upgraded from 0 after 0.3% y/y inflation May reading) in 2015, 1.5% in 2016, and 1.8% in 2017. Economic growth is expected to be 1.5% in 2015, 1.9% in 2016, and 2.1% in 2017. The ECB targets an inflation rate of just below 2%. In spite of these positive indicators, a major factor that is plaguing the region is unemployment which stands at 11.1% in the region. This widely ranged between countries, at just 4.7% in Germany and as high as 25.4% in Greece. The euro appreciated 0.9% against the dollar to $1.126 after the ECB upgraded inflation expectations.

The US trade balance narrowed more than estimated in April. Exports less imports was expected to be a -$44b, however the number came in at -$40.9b along with downward revisions to previous readings. The gap fell 19.2% from the previous month and was supported by the European rebound and the stabilization of the US dollar. This a positive sign for 2Q GDP. Imports fell 3.3% after a 6.5% increase in March. This suggests that disappointing data from previous months. Treasury yields increased following this reading.

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Wednesday June 3

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