Equity markets demonstrated renewed optimism this morning as money flows continue to demonstrate a shift in risk away from bonds to stocks. The Stoxx Europe 600 Index rose for the fourth consecutive day, climbing more than 1 percent in early trading on expectations that a deal will be reached between Greece and its creditors. Separately, the Shanghai Composite Index recovered from a nearly 5 percent drop early in the session to end up by 2.2 percent for the day. Critically, today marked the busiest trading via the Shanghai-Hong Kong Stock Connect trading link since its inception last year, suggesting that international buyers remain unswerved after the dramatic correction last week on the Chinese equity market.
ECB adds liquidity for Greece. Reports today indicate that the European Central Bank has increased liquidity facilities available to banks in Greece for the fourth time in less than a week as the Mediterranean nation’s financial system teeters. Although the Greek government was unable to secure a deal with creditors during an EU summit yesterday in Brussels, public statements from both sides of the table suggest an agreement may be reached before the deadline. Hard-line members of Prime Minister Alexis Tsipras’s Syriza party have decried concessions offered in the new terms.
U.K. cuts Lloyds stake. In a disclosure released today by U.K. Financial Investments, a government investment vehicle, it was revealed that public ownership of Lloyds Banking Group has been reduced to less than 17 percent of shares outstanding. The sales of shares, overseen by Morgan Stanley, now brings the total recouped by public coffers to more than $18 billion as the stake acquired during the credit crisis bailout is unwound.
Soft manufacturing data from East Asia. Final HSBC manufacturing purchasing managers index (PMI) data for June released today confirmed a contractionary reading for Chinese businesses surveyed with the headline index at 49.6, slightly higher than consensus forecasts. In Japan, Markit/JMMA flash manufacturing PMI also registered slightly negative at 49.9.
White House trade bill returns to the Senate. The proposed Pacific trade pact legislation backed strongly by U.S. President Barack Obama returns to the Senate for a vote today. The bill has repeatedly been blocked in the House and Senate by pushback from within the Democratic Party, who have raised concerns about the potential impact on U.S. employment. If it receives the 60 votes needed to pass, the legislation will allow fast-track process approval of trade deals, including the 12-nation Trans-Pacific Partnership.
Platinum reaches multiyear low. Futures for platinum reached a six-year low yesterday. July delivery contracts stumbled to close at $1,060.60 per ounce on the New York Mercantile Exchange. The precious metal is off more than 11 percent for the year, with many analysts predicting further selling as a strong U.S. dollar versus the South African rand encourages greater output by producers in that emerging market.
Pace of U.S. home sales picks up. National Association of Realtors data released yesterday indicated a surge in new U.S. homeowners as May sales rose 5.1 percent to an annualized rate of 5.35 million. New home sales data for the month will be announced later today with consensus forecasts for strong gains in that segment as well.
Portfolio Perspective: Bond Investors Beware Rising Food Costs — Sean Darby, Jefferies
Food. An emerging El Niño, a Commodity Research Bureau food price index that is bouncing off five-year lows and total grain net long speculative positions at more than nine-year lows would indicate that a long position in foodstuffs might be warranted. While lower energy prices have helped tame inflation concerns over the past year, investors have overlooked the fact that low food prices have also provided a downdraft on the consumer price index. Bond investors beware!
Sean Darby is the chief global equity strategist for Jefferies Hong Kong Limited.