Thursday July 9

Stocks rise following heavy losses yesterday. The S&P and the Dow both added 0.2% to 2,051 and 17,548 respectively. Markets in China rebounded today as a result of support from regulators, and Greece submitted a new proposal meeting the deadline. The PBoC eased margin requirements (which may only contribute to this problem down the road) but for now it increases the demand for stocks. The volatility index rises above 20 for the first time since January. Bond prices fall as investors shift money back into equities. The 10 year yield rose 11 basis points today to 2.30%. The 30 year yield rose 12 basis points to 3.10%. The USD is stronger against the euro to $1.1020. Peripheral yields continue to fall which reflects strength in spite of Greece’s uncertainty.

Alexis Tsipras is trying to pass reforms in parliament before presenting the plans to creditors this weekend. The government is trying to show creditors that it is committed to a recovery and reforms to its economic system. If approved the plan will include increases to the value added tax and savings through cuts to its pension spending. The plan will be submitted to creditors this weekend. Wolfgang Schauble suggests that Euclid Tsakalotos is easier to deal with than Varoufakis. Creditors are beginning to show more of a flexible attitude towards Greece, as it appears that all parties are hoping to get a deal finished.

Janet Yellen says that bond markets are underestimating the Fed. The difference between long and short term yields is low. The spread between the 30 year and the 10 year yield is only 149 basis points versus 250 at the end of 2013. The forwards market indicates that traders are expecting this spread to narrow either further. It will be difficult for the Fed to implement a steeper yield curve. The shape of the yield curve depends on the economic outlook, inflation, demographics, and savings as opposed to just monetary policy.

Jack Lew and Christine Lagarde pressure eurozone leaders to provide Greece with debt relief and to avoid a Grexit. Debt restructuring is a necessity at this point for Greece according to many analysts. Jack Lew says that Greece needs to give creditors honesty and confidence, and that creditors need to come to a reasonable compromise. Politicians in Washington see this as an avoidable crisis as the US has been a big advocate for debt relief.

Thursday July 9

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