The US dollar and bond yields rose yesterday as prospects for a Federal Reserve interest rate hike this year improved, while optimism that a deal could still be at hand to stave off a Greek default boosted European shares and kept a floor under US stocks.
A seven-year high in new US single family home sales last month, combined with other data, helped bolster the case for lifting benchmark US interest rates.
Federal Reserve Governor Jerome Powell said the US economy could be ready for a first interest rate hike in September followed by a second increase in December and that the economy is likely to strengthen in the second half of the year.
Overseas, Greece presented new proposals yesterday that eurozone leaders welcomed as a basis for a possible agreement to unlock aid and avert default and a potential exit from the euro. But some eurozone leaders cautioned that much work still needed to be done, and some Greek lawmakers reacted angrily to concessions offered by Athens.
“If people are looking past Greece, we can return to the (monetary policy) divergence theme … and when you do that you look at fundamentals,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. “Generally speaking, I think people see the US economy accelerating, leading to a Fed rate hike.”
The greenback rallied to a better than one-week high of 0.93880 Swiss francs before drifting back to 0.93325 francs, up 1.30 percent on the day, while the euro fell to a two-week low of 1.11350 before recovering some ground to trade at 1.11840, off 1.38 percent..
MSCI’s all-country stock index was up just 0.04 percent.
The Dow Jones industrial average rose 10.31 points, or 0.06 percent, to 18,130.09, the S&P 500 lost 0.49 points, or 0.02 percent, to 2,122.36 and the Nasdaq Composite dropped 4.73 points, or 0.09 percent, to 5,149.24.
The pan-European FTSEurofirst 300 index rose 1.2 percent, while Greek stocks jumped 6.1 percent.
Also fueling the rally were better-than-expected data on factory and service sector activity in France, Germany and the euro zone overall, according to Markit’s preliminary June purchasing manager indexes.
European stock markets rose further yesterday, building on the previous day’s sharp rally on hopes of there finally being a deal on Greece’s bailout.
The CAC 40 in Paris climbed 1.18 percent to 5,057.68 points and Frankfurt’s DAX 30 gained 0.72 percent to 11,542.54 points.
Athens’ main index surged 6.1 percent yesterday after rocketing nine percent Monday.
Lisbon jumped 3.08 percent, while Rome rose 0.35 percent and Madrid added 0.30 percent. Outside the eurozone, London’s benchmark FTSE 100 index rose 0.13 percent to end the day at 6,834.87 points.
“Better than expected manufacturing and services data from France and Germany alongside continuing optimism for a Greek debt deal helped European equities rally for a second day on Tuesday,” said Jasper Lawler, market analyst at CMC Markets UK.
Eurozone business activity rose sharply in June to hit a more than four-year high, which analysts said suggested a better-than-expected recovery in the making despite the Greek crisis. The closely watched Markit Economics Composite Purchasing Managers Output Index (PMI) came in at 54.1 points in June, up from 53.6 in May, for its best performance since May 2011.
Agencies
Most Asian markets climb
Hong Kong: Most Asian markets climbed yesterday on growing hopes that Greece and its creditors will finally hammer out a debt reform deal that will avoid a default and possible eurozone exit.
The gains tracked a record close for the Nasdaq on Wall Street while European markets also soared, including a nine percent surge in Athens. But the euro retreated in Japanese trade as investors await the next move.
Investors were also cheered by preliminary figures suggesting a contraction in Chinese manufacturing activity may be easing.
Tokyo soared 1.87 percent, or 381.23 points, to end at 20,809.42, breaking through 20,700 for the first time since April 2000.
Sydney advanced 1.32 percent, or 74.10 points, to 5,684.3 and Seoul closed up 1.27 percent, or 26.04 points, at 2,081.20.
Shanghai, which plunged more than 13 percent last week before a long weekend, ended 2.19 percent higher, adding 98.13 points to 4,576.49. Hong Kong rose 0.93 percent, or 252.61 points, to 27,333.46.
Eurozone leaders said they were confident they would bring an end to the five-month crisis over Greece’s bailout reform after it submitted proposals aimed at freeing up much-needed cash to help it pay its bills.
Cash-strapped Greece is at risk of defaulting on a 1.5bn (1.7bn) IMF payment on June 30 if it fails to reach a deal. That could lead to it crashing out of the eurozone and even the European Union.
After an emergency summit in Brussels on Monday, eurozone chiefs told their finance ministers to hold fresh talks today to thrash out details of an accord before a summit of the 28 EU leaders tomorrow.
EU sources said that Greece had now met 90 percent of the conditions set by its creditors, while European Commission chief Jean-Claude Juncker told a news conference he was “convinced” a deal would be done.
However, a Greek bank source said the European Central Bank (ECB) would make available emergency liquidity funds for the country’s lenders for a fourth time since Wednesday.
The move, providing an unspecified amount, comes as Greek savers continue withdrawing cash in large volumes owing to fears about a default.
On Wall Street on Monday the Nasdaq rose 0.72 percent to a new record, the Dow added 0.58 percent and the S&P 500 advanced 0.61 percent.
Athens rocketed 9.0 percent, while there were also big gains across Europe’s other major markets, which were extended in early trade Tuesday.
“Hopes are likely to heighten for a positive outcome over the Greek issue before a European Union summit later this week after Greece signalled readiness to compromise,” Yujiro Goto, currency strategist at Nomura Holdings, told Bloomberg News.
However, the euro eased to 1.1261 and 139.27 yen in Tokyo trade from 1.1340 and 139.91 yen in New York late Monday.
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