Daily Agenda: Athens Accepts Terms Rejected by Voters

Chinese exports swell; Iran on verge of nuclear deal; two major limited partnerships to merge.


Jasper Juinen

It in the 11th hour, Greek Prime Minister Alexis Tsipras has more or less fully capitulated to demands from Greece’s creditors. The terms of the bailout agreement, which includes a recapitalization of the nation’s banking sector, include more profound austerity measures than those rejected in a voter referendum held July 5. Tsipras must now grapple with potential revolts within his own Syriza coalition in advance of a parliamentary vote on Wednesday. Many political analysts regard the latest turn of events as a power play by German policymakers to send a clear signal that no individual state within the euro zone can unilaterally dictate its own terms during periods of economic duress. With the agreement now subject to fierce partisan political debate within Greece, it appears, as has been so often been the case over the course of this crisis, that rather than reaching a final resolution investors now must consider a new flashpoint in the ever-evolving saga.

Data shows expansion in Chinese exports. National Bureau of Statistics data released today in Beijing indicated that China’s exports expanded sharply in June to break a three-month losing streak. U.S.-specific shipments rose by 12 percent versus the same month in 2014. Import levels declined for the eighth consecutive month, as demand for raw materials remains weak. Separately, Chinese equity markets continued to rally today, with the Shanghai Stock Exchange Composite index closing up more than 2 percent while trading in hundreds of companies’ shares remain halted.

Major MLP merger announced. MPLX today announced an agreement to acquire MarkWest Energy Partners in a $15.8 billion acquisition that will create a total market capitalization of roughly $21 billion. The deal will create the fourth-largest publicly listed master limited partnership in the U.S.

Iran nearing nuclear power agreement. Reports emerged today indicating that Iran is on the verge of striking a definitive deal to end a 13-year economic embargo by agreeing to international oversight over its nuclear program. President Hassan Rouhani publicly announced that a final agreement is “very close” in comments to Iranian media sources.

Reports suggests bolstered Chinese investment in European infrastructure. Following Premier Li Keqiang’s comments last month indicating China’s willingness to invest in the newly created European Union infrastructure investment fund, reports surfaced today that the total size of the nation’s commitment will exceed $11 billion. The deal will hinge on the participation of Chinese technology companies, a politically sensitive issue based on concerns over China’s past international disputes over intellectual property laws.

Portfolio Perspective: Markets Greet Greek Agreement with a ShrugAdam Grimes, Waverly Advisors

Europe has weathered the Greek crisis well. Major European indexes recouped recent losses with a 2 percent rally last week. Germany gained nearly 3 percent in a strong week, up 1.3 percent. Even more important than the magnitude of the gains, however, is the structural significance. Europe sits at a key decision point where further decline could trigger the strongly bearish monthly patterns to take control. If this happens, Europe could continue under pressure for many quarters, perhaps trimming 20–25 percent from current price levels. We expect these bearish patterns to fail and if they do, it will be through strong upward momentum on a daily and weekly basis.

The U.S. is relatively stronger, though concerns persist over growth and labor market strength. There are two parts to this: some of the concerns are unfounded, as they are driven mostly by parsing and discussing the Federal Reserve’s announcements. We believe the Fed is focusing too much attention on short-term fluctuations in labor numbers, which appear, to us, to simply be consistent with long-term trends. Perhaps this flow of speculation is driven by the necessity to have something to say, though we do not yet see any cause for concern on that front.

On the other hand, the strong U.S. dollar is making a definite impact on exports and factory orders. This is a significant headwind for the economy. At this time, we see strong structural support for a further rally in stock prices and would not focus too much attention on these concerns, though it is a factor to watch over coming months nonetheless.

Adam Grimes is the managing partner and CIO of Pittsford, New York–based research and asset management firm Waverly Advisors.