Stocks opened sharply higher this morning on hopes for resolution of issues in Greece & China. The Dow and SPX are up 233 pts & 1.35%, respectively. All ten major sectors are in the green, with most up more than 1% in early trading. Not surprisingly, the dollar is a bit weaker against the Euro. Commodities, however, continue to slide. Copper is down another .5%. WTI crude oil is down 1% to $52/barrel. Bonds prices are lower on the day as yields rise. The 5-year Treasury yield is back up to 1.64% and the 10-year is trading up to 2.39%.
Last night, Greece submitted a new proposal for a plan to reform government finances. The Greek parliament will vote on it today and the country’s creditors—European Central Bank (ECB), Int’l Monetary Fund (IMF), and European Commission (EC)—will consider it this weekend. Interestingly, former ECB president Trichet reviewed the proposal and said, “…clearly we have something which is very different from what was the position at the moment of the referendum.” The Greek list of reform proposals was more or less in line with what Europe was looking for. So it makes one wonder, what was the point of the referendum? In the space between the referendum and today, the Greek economy has tanked.
Chinese stocks rebounded strongly this morning, and perversely, our markets blindly followed. CNBC contributor Art Cashin characterized the government’s capital markets strategy as “Rally or be executed.” So it’s all manipulation. Bloomberg reported results from a recent survey of Wall Street economists conducted on July 8-9. Two-thirds of them say China’s recent stock market correction will reduce third quarter growth in that country by between 0.1% and 0.6%. The other third say they don’t expect any effect at all. Economists currently forecast about 6.8% to 6.9% GDP growth in China for the last half of 2015. China reported first quarter growth at 7.0%.
Alcoa (AA) kicked off earnings season night before last. The CEO noted improving demand in all kinds of aluminum end markets, especially in the US. He predicts 8-9% growth in aerospace end demand, and is encouraged by US auto sales rising 4% this year. He mentioned US construction activity is accelerating, and commercial truck and beer can manufacturers are also seeing increased demand.
This morning, CNBC interviewed Charles Plosser, former President of the Federal Reserve Bank of Philly. He said Greece and China don’t really pose a financial contagion risk to either Europe or the US. “Spillover effects to the US are likely to be quite small.” And he believes the Federal Reserve feels “comfort that whatever happens, it can be contained.” As for the economy, he says we are on a “steady state path” of modest growth. He notes the consumer is strong and housing is improving. He believes the Fed should already have begun raising interest rates.
MikesMarketUpdate 