Eurozone Leaders Announce Agreement in Principle on a Greek Bailout

July 13, 2015

A third financial bailout for Greece contingent on the Greek parliament passing a long list of stringent economic reforms by Wednesday, July 15 was hammered out after around-the-clock weekend talks in Brussels that did not end until Monday morning.  The deal includes higher VAT on restaurants, higher taxes on Greek shipping companies, ending tax breaks for the islands, pension reform, defense spending cuts, privatization of state-owned properties, and the establishment of a 50 billion euro of Greek assets to be held offshore as collateral and to help recapitalize Greek banks.  The deal, all in all, is much harsher than what Greek voters overwhelmingly rejected in the July 5 referendum and, frankly, punitively humiliating.  It is not a recipe for a return to sustained minimal positive growth.  However, an immediate default and expulsion of Greece from the eurozone have been averted, and markets have reacted positively.

There’s been no resolution in the Iran nuclear talks, in contrast.

Share prices in the Pacific Rim went up around 2.5% in China, 1.6% in Japan, 1.5% in South Korea, 1.3% in Hong Kong and Taiwan, 1.1% in India and 1.0% in Singapore, but Australia’s market slid 0.3%.  European equity gains so far amount to 1.7% in France, 1.5% in Spain, 1.2% in Germany and Italy, 1.0% in Switzerland, and 0.3% in Great Britain.

Comex gold and the West Intermediate crude oil price are each 0.6% lower at $1,156.69 per ounce and $52.11 per barrel.

The dollar has advanced 0.9% against the Swiss franc, 0.6% versus the euro, 0.5% relative to the yen and 0.3% vis-a-vis the loonie. The greenback is 0.3% softer against sterling and unchanged versus the yuan, Aussie dollar, and kiwi.

10-year sovereign debt yields are a basis point lower in Germany and The Netherlands but up 7 bps in Britain, Australia, Portugal, Spain and Italy.  The Swiss and Japanese 10-year bond yields are unchanged, and futures trading points to a big rise in the 10-year Treasury yield at the open.

China recorded a much smaller-than-forecast $46.54 billion trade surplus in June, almost exactly midway between May’s $59.49 billion and April’s $34.13 billion surpluses.  On-year export growth of 2.8% was positive for the first time in four months, and the 6.1% contraction of imports was the smallest 12-month rate of decline since December.

The revision of Japanese industrial production in May was insignificant.  Such fell 2.1% instead of 2.2% and resulted in a 1.5% drop of the average April-May output from the 1Q level.  Production in May was 3.9% lower than a year earlier, and the ratio of inventories to shipments posted a rise of 1.9% from April and 6.4% from May 2014.  Capacity usage fell 3.0% on month and 6.8% on year, while productive capacity edged up 0.1% on month and 0.2% on year.

Japan’s tertiary index, which measures service sector activity, dropped for a third straight time in May, falling by a greater-than-forecast 0.7% on top of a 0.1% dip in April and a 0.9% decrease in March.  The April-May average tertiary level was 1.0% lower than the 1Q mean.

Ireland’s construction purchasing managers index printed at 65.7 in June, 2.4 points higher than May’s level and signifying the fastest growth since November 2004 in construction activity.

New Zealand food prices rose 0.5% on month but slipped 0.1% on year in June.  Home sales in New Zealand were 29.2% higher than a year earlier in June.

The June U.S. Federal budget results will be announced by the Treasury later today.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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