Friday July 10

Stocks rise as a result of Greek optimism. The S&P500 and the Dow both gain 1.2% to 2,076 and 17,760 respectively. Reports today suggested that Greece made concessions for a bailout and submitted the proposals to creditors. The euro appreciated 1.1% to $1.1155 on the news. Markets reflected a risk on attitude shifting out of bonds and into equities with the 10 year yield rising 12 basis points to 2.42% (after hitting a recent low of 2.19% on Wednesday). The market is receiving the newest Greek submission to creditors well. Investors still wait for more definitive signs out of China regarding retail investor confidence and Greece regarding a finalized deal. The US dollar index fell 0.6% as investors shift to more risk. Yields in peripheral eurozone countries such as Portugal and Spain fall 7 basis points and 4 basis points respectively. The yield on the German bund in contrast rose 18 basis points to 0.90%. Deutsche Bank analysts at this point see a deal to be more likely than   a Grexit at this stage.

Leaders in France seem to like Greece’s proposal. Francois Hollande says the plan is “serious and credible.” Reports claim that that what Greece submitted today is similar to what creditors had submitted to Greece just a few weeks prior. The ECB, the European Commission, and the IMF must evaluate before eurozone finance ministers meet on Saturday. If approved, it would unfreeze funds and the third round of bailout talks will begin which analysts estimate could be around €70bn. Angela Merkel and officials in Germany have been silent so far on this plan. Greek banks are about to collapse, and bankruptcy could begin as soon as Monday as they continue to suffer from capital outflows despite controls. The plan will still have to pass the Greek parliament, which will be very challenging for Tsipras as it includes pension reforms and tax increases.

BlackRock addresses the outflow concern. The world’s largest asset manager owns very large holdings of debt and fixed income instruments in many of its funds. If investors sell funds in large amounts, BlackRock will be forced to sell bonds into a very illiquid market, which will significantly lower prices contributing to a positive feedback loop that could decimate markets and the company. Regulators want the situation to be monitored more closely. BlackRock vice-chairman Barbara Novick says much of the money is in retirement accounts which doesn’t get moved around that often. Retirement accounts make up around 46% of mutual fund money across the industry.

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Friday July 10

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