Stocks rise on Greece and jobless claims. The S&P500 gains 0.8% to 2,124 and the Dow adds 0.4% to 18,120. Greek concerns continue to ease and unemployment claims fall. Jobless claims were expected to be 282k for the previous week and they were slightly lower than expected at 281k. Claims continue to remain at very low levels. On the other hand, a Philly Fed business survey showed slow growth with the index reading 5.7 against the expected 12.0. The euro falls 0.7% to $1.0880 as the dollar index rises 0.7% against peers. Greece approves austerity measures, and will receive €7bn in bridge financing in addition to ELA being raised. This progress is more symbolic than structural, but it is a step in the right direction.
The Greek parliament approves the bailout plan, which will mean new austerity measures. Now negotiations will begin for the €86bn bailout. Tsipras will struggle to maintain control of the Syriza party as many party members oppose the bailout. The ECB will decide whether to even further extend ELA as Greek banks remain closed. Wolfgang Schäuble believes a temporary Grexit may be ideal as it will allow for a haircut. He says that currency membership is “incompatible” with debt cuts. Peripheral yields fall to six week lows as the bund yield eases back 2 basis points to 0.76%. 10,000 protestors continue to show opposition to austerity measures outside Greek parliament.
This quarter is projected to be the worst for S&P500 earnings since the recovery from the financial crisis. Earnings are expected to fall 4.3% from the previous year. So far 71% of the companies who have reported have beat expectations. The strength of the US dollar is still a big theme in markets. Technology is the hardest hit sector with 59.4% of its profits coming from abroad. Johnson & Johnson, BoA, Netflix, Intel, and JP Morgan represent a diverse set of companies who all beat earnings in 2Q.
The pound hits a seven year high against the euro. The British pound is up 0.3% to €1.42 (euros per pound) for the first time since November 2007. The currency is up just 2.9% this week largely due to the imminent rate rise in the UK. Mark Carney the governor of the Bank of England said a rate rise is near in spite of low inflation citing above average growth, rising costs and higher wages. Affirmation of the US hike by Yellen (as interpreted by markets) also supports the cause for the BoE to take action. Many currencies are being brought lower by monetary policy divergence. Japan, the Euro, Sweden, Norway, Switzerland, Australia, New Zealand, and Canada all represent countries who are easing and bringing their currencies lower. It is possible that the recent weakness in the euro in spite of the Greece resolution is a result of investors using it for the carry trade. If investors borrow in Europe at low interest rates then buy bonds in higher yielding emerging markets this puts downward pressure on the euro. In this trading strategy, there is currency risk if the euro appreciates or the destination currency depreciates.