US stocks continue to rise in spite of negative data. The S&P500 gained 0.4% to 2,108 and the Dow added 0.4% to 18,054. Data today missed expectations which may have contributed to the idea that the Fed will hold off before raising rates. Retail sales were expected to increase 0.3% however sales actually fell -0.3%. Sales excluding cars and gas missed by an even wider margin. Import and export prices were both expected to add 0.1% but in reality they fell -0/2% and -0.1% respectively. This calls into question second quarter GDP results and contribute to deflationary concerns which may push back the timing of the Fed. Alexis Tsipras needs to get the approval of his parliament for tomorrow. He will need support from the opposition party, making it an unpredictable outcome.
The US and Iran agree to a nuclear deal. Iran will stop building a nuclear bomb, and in return the US and other nations will lift economic sanctions. Obama welcomes the deal, citing a smaller chance of nuclear conflict in the Middle East. He will veto any legislation from congress that prevents the implementation. The deal will impose strict limits on Iran’s nuclear program for the next 10 + years. Iran’s $400bn economy will become open with the world. The country will be able to maintain a peaceful nuclear program, open up trade, technology, finance, and energy. The discussions were between Iran, the US, Russia, France, China, UK, and Germany. Oil fell 2.1% to $56.65 for Brent and 2.3% to $51 for WTI.
BlackRock is replacing banks in areas that are controlled by new regulation. The rules prevent banks from holding cash that is not used. BlackRock is now offering shorter term investors ways to park cash. Uninsured cash deposits are likely to go in the event of a crisis, and new Basel regulation penalizes banks for holding these assets. Banks are therefore asking clients to use their cash or to move it elsewhere. Banks are asking for extra business in the form of foreign exchange or security lending. Retail deposits are the most stable with only a 10% chance of leaving within 30 days of a crisis. Hedge funds show a 100% chance of leaving in the event of a crisis. Banks must hold liquid, low yielding assets in case of redemptions.
Greece repas a bond that is denominated in yen. The 20 year samurai bond would have been the first commercial default which would have been disastrous for Greece. A relatively small $94.5MM payment was made to Mizuho Bank. Markets had reflected a 50/50 chance of default. The bond was priced at Y44.73 against par last week compared to 80.35 as recently as June 1. This payment had been a “test of Greece’s commitment to private sector creditors.”