While you were sleeping: Greece gets deal

Tuesday 14th July 2015

Equities on both sides of the Atlantic rallied on a deal between Greece and its international creditors, staving off the country’s exit from the euro zone—at least for now—as it secured a third bailout.

Greece and euro-zone leaders reached agreement after all-night talks in which the beleaguered country was forced to concede its demands for less austerity.

"Clearly the Europe of austerity has won," Greece's Reform Minister George Katrougalos told BBC radio, according to Reuters. "Either we are going to accept these draconian measures or it is the sudden death of our economy through the continuation of the closure of the banks. So it is an agreement that is practically forced upon us.”

Wall Street breathed a sigh of relief. In late afternoon trading in New York, the Dow Jones Industrial Average climbed 1.1 percent, the Standard & Poor’s 500 Index advanced 0.9 percent, while the Nasdaq Composite Index gained 1.3 percent.

Tech stocks leapt, with Microsoft, Intel, Apple, Cisco Systems and IBM all higher. Facebook surged more than 2.4 percent.

US Treasuries declined, pushing yields on the 10-year note three basis points higher to 2.43 percent.

“It’s great hearing Greece is not going over the deep end,” Rob Lutts, chief investment officer at Salem, Massachusetts-based Cabot Wealth Management, told Bloomberg. “What’s good for the rest of the world for now is Greece staying as is and instituting these reforms. Last week’s volatility was all on the back of what’s going on in Greece, as well as in China, and today it’s pretty apparent the path is one of resolution.”

The Chicago Board Options Exchange, or VIX as its known, shed 17 percent.

In addition to tech stocks, the Dow was paced higher by DuPont, Caterpillar, Nike and Walt Disney.

Europe’s Stoxx 600 Index finished the session with a 2 percent gain from the previous close. The UK’s FTSE 100 Index rose 1 percent, Germany’s DAX gained 1.5 percent, while France’s CAC 40 Index added 1.9 percent. The euro fell 1.4 percent against the US dollar.

To be sure, Greek Prime Minister Alexis Tsipras faces an arguably larger battle in trying to secure approval of the nation’s parliament for the fresh bailout by the Wednesday deadline. Media reports suggested Tsipras betrayed his election promises and capitulated to the rest of Europe.

So the accord might yet prove a tough sell.

"This is not over yet. In fact it might be far from over," Anthony Lawler, a portfolio manager who invests in hedge funds at investment firm GAM in London, told Reuters. "It is not at all certain that the Greek government will accept what is proposed.”

The rest of Europe wasn’t left unscathed either with German Chancellor Angela Merkel seen as pushing Greece to the edge and having put her own legacy at risk.

Wednesday offers another key event as US Federal Chair Janet Yellen delivers her semiannual testimony to Congress. Last week she said she still expects the Fed to lift rates this year.

BusinessDesk.co.nz

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