Markets Accepting Greek Rescue Plan So Far

July 22, 2011

Markets so far have not challenged the new EUR 109 billion EU rescue plan for Greece, which entails selective defaults, a doubling of loan maturities, and reduced lending rates.  Attention now turns to the U.S. debt ceiling negotiations, where time remaining to do a deal is getting dangerously short.

Stocks in the Pacific Rim climbed by 2.1% in Hong Kong, 1.6% in India, 1.2% in Japan and South Korea, 1.4% in Singapore, 1.5% in Thailand, 1.0% in Australia and 0.8% in New Zealand.  In European trading so far, the British Ftse, Paris Cac and German Dax have risen by 1.0%, 1.2%, and 0.7%.

The 10-year yields on German bunds and British gilts are up two and three basis points.  The 10-year JGB is steady.  Peripheral yield spreads versus Germany remain much narrower than earlier this week.

In further evidence of lessening risk aversion, the Swiss franc and Japanese yen fell 0.7% and 0.2% against the dollar, which otherwise dropped 0.4% against the kiwi, 0.3% relative to the Australian dollar, and 0.1% versus the euro and yuan.  The dollar is 0.1% firmer against the loonie and unchanged versus sterling.

Oil and gold prices firmed 0.4% and 0.2% to $99.51 per barrel and $1590.50 per ounce.

Euroland data released today have been mixed.

  • industrial orders leaped 3.6% in May, more than three times greater than forecast and were 15.5% higher than a year earlier.  Germany, France, Italy and Spain all posted advances of more than 2.0% on month.  Orders in April-May were 2.1% above the 1Q level.  Core industrial orders were 3.0% higher than in April.
  • The German business climate in industry retreated more quickly than expected according to the July IFO survey, which printed at 112.9, down from a reading of 114.5 in June and February’s high score of 115.4.  Expectations scored a 105.0 after 106.2 and 110.5 last January.  Current conditions printed at 121.4 after 123.5 in June, which had been the high for the move.  Manufacturing and wholesaling absorbed the biggest setbacks.  Construction improved to a new high of minus 0.7 versus minus 14.2 in July 2010.
  • The IFO index for German services survey had a July reading of 25.3, down from 26.4 in June and 33.0 in February.
  • French business sentiment fell to a 7-month low of 105 in July from 110 in May.
  • The French index of leading economic indicators declined 0.3% in May, reversing April’s increase.
  • Italian retail sales slid 0.1% on month and 0.6% on year in May.

Spanish PPI inflation stayed at 6.7% in June.  Icelandic wage inflation accelerated to 7.1% in June from 5.3% in May.  The Greek current account deficit was EUR 1.99 billion in May, down from EUR 2.31 billion in April.

Australia reported another upsurge in its terms of trade (export/import price ratio).  Export prices jumped 6.0% in 2Q11 and 10.5% on year, while import prices went up 0.8% on quarter and 1.0% on year.

Canada will be reporting both consumer prices and retail sales later today.  No U.S. data releases are scheduled.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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