Friday July 17

Stocks rise after strong US economic data. The S&P500 increases 0.1% to 2,126 and the Dow rises 0.2% to 18,086. Data today was strong which may contribute to a rate hike at the early end of current expectations. CPI was in line with estimates, rising 0.3% with a 0.2% rise from core components. Housing starts were 1.274MM and housing permits came in at 1.343MM, both of which were above expectations. The US dollar appreciated 0.3% against peers, and was up against the euro to $1.0840. Analysts speculate that the euro is falling as a result of policy expectations between the Fed and the ECB. Crisis continues to subside in Greece as leaders officially provide the €7bn bridge loan to prevent a Monday default on a payment to the ECB. Ongoing impediments to progress in Greece include fiscal targets, privatization terms, and debt relief. Confidence in the region continues as peripheral yields fall lower. In the US, the 10 year yield is flat at 2.35%.

The German parliament backs negotiations on an €86bn bailout for Greece. The votes were 439 in favor compared to 119 against and 40 abstentions. Sixty members of Angela Merkel’s conservative party voted against the plan. Tension is high within the German government, and the bailout will be a contentious topic among the different political parties. The far left party believes that conservative officials are being to tough on Greece and are “destroying Europe.” Schäuble still wants an organized, voluntary, and temporary Grexit to be considered. He expressed doubt over Greece’s outlook but nevertheless urged parliament to accept the deal. Germany will closely monitor Greece’s economic and political conditions as a result of its participation in the bailout.

China’s state owned banks have contributed a total of $209bn (or Rmb1.3tn) in order to support stocks over recent weeks. As a result, there is strong belief that the recent rebound in equities is not organic nor sustainable. The PBoC has been lending to the CSFC, which lends securities to brokerages. The brokerages in turn support lending to retail investors, therefore increasing their participation in buying stocks and supporting prices. Stocks are up 15% since reaching a low on July 10th. Including a recent debt issuance, the CSFC has Rmb2tn to prop up stocks, which makes them a very powerful force in the markets.

Friday July 17

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