Monday August 10

Stocks rise on positive sentiment generated by large Berkshire Hathaway acquisition. The S&P500 rose 1.2% to 2,101 and the Dow Jones added 1.4% to 17,615. Berkshire Hathaway acquires Precision Castparts for $32bn, which was a source of optimism for markets. Warren Buffet is finding value in the manufacturing sector, which may indicate his confidence on the US recovery. He is typically more cautious than most in the M&A market. After Friday, the odds of tightening are up to 60% for September. The two year yield added 1 basis point to 0.73% and the ten year added 6 basis points to 2.22%. The German bund yield increased 1 basis point to 0.67%. This represents a risk on shift. More poor economic data came out of China with exports falling 8.3%, which was more than forecast as only a 1.5% fall was expected. Equities were calm, which may reflect that investors are expecting further stimulus.

Greece and its creditors are getting close to reaching a deal. The two sides are almost finalizing the outline for an €86bn bailout. Alexis Tsipras and Greek negotiators have apparently made concessions. Finland, which is a country that has typically been strict with Greece, is satisfied with the progress. On the other hand Germany still wants to hold out for more reforms out of Greece. EU officials are optimistic that a deal will be reached by August 20. Greece has to make a €3.2bn payment to the ECB on that day. This should be a source of optimism as a Grexit appeared to be close just one month ago. The new reforms include spending cuts, administrative reform, and privatizations. The remaining impediments include the details to a €50bn privatization program. The Eurozone finance ministers will meet on Friday to approve. If it passes that stage, individual parliaments must then approve. The German parliament will still want IMF approval, but the IMF has previously indicated that it cannot participate at this stage because of Greece’s high debt levels and poor history of implementing reforms.

The Ukraine debt talks continue without much progress. The country is scheduled to meet with a group of international creditors later this week in San Francisco. $500MM is due on September 23. Ukraine is firm in their request for a debt haircut, wanting their debt reduced by $15.3bn over the next four years as part of a $40bn rescue plan with the IMF. The country is experiencing an economic recession and an armed conflict with Russian separatists. The international creditors committee meeting with Ukraine represents $8.9bn of debt, the largest being Frankin Templeton. Franklin Templeton wants a delay to principal payments as opposed to write downs, claiming that Ukraine’s problems are temporary. The committee recently compromised on a 10% write down and reversal conditions if the economic state improves. Ukraine rejected this request, as it was too big of a gap between the 40% haircut they originally wanted. The price on a 2016 bond due in 2017 fell from 59 cents on the dollar to 56 cents.

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Monday August 10

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