Tuesday July 7

Stocks rise after a choppy day of trading. The S&P adds 0.6% to 2,081 and the Dow adds 0.5% to 17,776. Markets were down as much as 1% before rebounding to finish higher on the day. Economic data today showed that exports fell by 0.8% in May due to a strong dollar. In addition, imports fell 0.1% from the previous month which is indicative of weak US demand. The JOLTS report was up 0.5% which is a strong reading. The 10 year yield fell 5 basis points to 2.23% as a result of the uncertainty in Greece and developing crash in China. The heavy stock market losses earlier in the day may be due to China and Greece earlier in the day. Commodities also rebounded later in the day after finding support, possibly after the mixed economic data. Markets in China continue to fall and no progress is being made in Europe. The US dollar appreciated 0.9% against the euro to $1.1012. The bund yield fell 12 basis points to 0.64 as euro area investors seek safety and quality. Italian and Spanish yields were also lower by 12 and 8 basis points respectively. Greece arrived at the EU summit without a new plan. €3.5bn is due to the ECB in two weeks, and it is likely that Greece will default without additional funds.

Greece was expected to submit a plan at the meeting of eurozone leaders today. The country had a chance to present and submit new economic plans, and missed their opportunity to do so. Markets respond with mixed signals. The euro fell almost 1% against the dollar, however the British pound also fell by the same amount which suggests that these moves were a product of dollar strength as opposed to euro weakness. Bund yields continue to move lower along with peripheral yields in Spain and Italy. Jean Claude Juncker says he does not want Greece out of the currency union nor the political union of the EU.

Competitive devaluation is returning to global currency markets. Countries around the world have been devaluing their currencies to make their products cheaper relative to peers. This is good for countries that rely on exporting goods as a weak currency is a positive factor for exports, economic growth, and employment. In the 1930s the competitive devaluation of currencies was a result of unintended economic or political occurrences (like the collapse of banks, or leaving the gold standard). Some analysts say today that countries are using these techniques as a primary objective to support their own growth. Shinzo Abe has been devaluing the yen over the past several years through his massive QE programs. Abenomics refers to monetary stimulus in order to combat deflation.

Tuesday July 7

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