Stocks rise on jobless claims and CPI data. The Dow increases 1.0% to 18,115 and the Nasdaq sets a new record to 5,132. The consumer price index rises slightly lower than expected with a 0.4% monthly gain versus the expected 0.5% gain. This keeps pressure on the Fed light as the central bank watches inflationary indicators. Jobless claims last week were only 267k versus the estimated 275k as this indicator continues to maintain historic lows. Both of these factors contribute to optimism in markets today. Markets continued momentum from yesterday on the hopes that the Fed won’t raise rates in the immediate future.
A group of hedge funds mostly based out of London are shorting stocks for companies in Greece’s banking sector. More than twenty funds have been fined for trading practices which allegedly target the banks. “Naked” short selling shares breaks European rules according to a Greek regulator. Greek banks are large holders of the country’s debt, and as yields rise each day the banks continue to lose money which has sent their stock prices falling. Hedge funds seek to profit off of this opportunity. Conventional short selling occurs when an investors secures the right to borrow a share, pays a fee, then proceeds to sell the borrowed share. Naked short selling occurs when the investors sells before securing the right to borrow. This is a sensitive topic in the eurozone, as some organizations and regulators see the practice as greedy speculation exploiting the sufferings of failing companies. National regulators put bans on this practice during crisis situations. Many of the hedge funds are appealing the fine.
European leaders call an emergency meeting for Monday in a last attempt effort to prevent a Greek default and subsequent Grexit. The president of the European commission wants to “urgently discuss” Greece “at the highest political level.” Finance ministers remain hopeful that Tsipras will accept the deal on Monday. €2bn has been withdrawn from Greek deposits this week alone. Creditors want the country to be more credible and to have more reliable projections and a willingness to compromise. The Greek central bank may press the government leaders to impose capital controls. It is being discussed to let €10.9bn that was previously set aside for existing aid to be released to Greece quickly to expedite the legislation and official proceedings that would otherwise need to take place before a deal and funds processed. In July and August Greece has €6.7bn in debt payments due.
Regulators are weighing the decision whether or not to ease capital requirement rules in Europe in order to revive the securitization market. The regulators are aiming for “simple, transparent, comparable” products which would be easier to trade than complex and unique derivatives that were popular leading up to the financial crisis. Securitization is the process of packaging loans and selling them to investors. This provides a variety of benefits to markets. Securitization brings additional funding to support lending, and it transfers risk from banks (so they can lend more) to investors. Officials believe that lowering capital requirements may increase demand for loans and in this way spur lending in the region.