Stocks rise as progress in Greece is a source of optimism. The S&P500 adds 1.1% to 2,099 while the Dow adds 1.2% to 17,977. Over the weekend Greece and its creditors came closer to a deal, and this supported markets around the world. The 10 year yield fell 165 basis points in Greece to 12.01%. Peripheral yields fall, with Portual’s 10 year falling 8 basis points to 2.77% and Spain’s equivalent losing 3 basis points to 2.1%. The euro appreciated at first, then fell later in the day as a result of policy divergence between the EU and the US. The euro fell 1.4% on the day to $1.1007 as the dollar was up 0.8% versus its peers. With concerns in Europe and Greece subsiding, monetary policy is shifting back to primary attention. The 10 year yield in the US rose 4 basis points to 2.44%. The US equity volatility index fell to 13.98 after hitting 20 just two days ago.
Greece and its creditors apparently reach a deal agreement over the weekend. Negotiations are moving quickly, and Greece will have to approve extensive economic and spending reforms for Wednesday. The 17 hour summit over the weekend resulted in the groundwork for an €82-86bn bailout, the 3rd round for Greece in the last few years. The plan calls for the sequestration of €50bn of Greek assets to be used for privitizations, bank recapitalizations, and debt repayment. The plan would also include €12bn for next month and €10bn “immediately” for the support of Greek banks. There is speculation that these extensive measures would be seen as a violation of sovereignty and democracy that would not be passed by the Greek parliament. The reforms must be implemented and approved by Wednesday. Merkel says that once Greece implements the reforms, she can recommend the plan to her parliament. The third bailout will be funded by the European Stability Mechanism, the European Rescue Fund, and the IMF. The plans include tax and pension reform, labor market liberalization, and more. Germany wanted the wording to include “Greece should be offered swift negotiations on a timeout from the euro area,” which was later removed from the final version. Creditors say that debt relief will only be considered after the first positive assessment of the reforms. Now the plan must be passed in Germany, Netherlands, Finland, Spain, and Portugal.
Stocks in China continue to rise in the aftermath of last week’s selloff. The main regulator is paying more attention to margin lending. Indexes rose 2.4% on the day after rising 10.6% over Thursday and Friday. Financial shares still continue to fall. Questions still linger regarding the sustainability of the rebound as 36% of companies are still frozen for trading.