In what appears to be a near-complete capitulation, Greece has delivered new terms to creditors that are very similar to the proposals that Athens rejected late last month in favor of a referendum. The most notable aspect of the terms is the absence of a request for a debt restructure, as well as acceptance of pension cuts. The proposal drew praise from several European Union leaders, though German Chancellor Angela Merkel was notable in her silence. Jeroen Dijsselbloem, finance minister of the Netherlands and president of the Eurogroup of euro-zone finance ministers, commented publicly that creditors might provide a response to Athens as early as today. At home, Prime Minister Alexis Tsipras’ about face will likely enrage a significant portion of his Syriza coalition colleagues. European equity markets rallied in response to the possible deal, with the STOXX Europe 600 Index up more than 1.5 percent during the early hours of trading there.
Chinese stocks continue rebound. For the second day in a row, Chinese stocks have climbed, with the Shanghai Stock Exchange Composite index up more than 6 percent in early trading. Despite a double-digit rebound in two days, the impact on market sentiment in China is pronounced: nearly $4 trillion in paper value has disappeared within weeks. While the selling has subsided for the time being, analysts warn that the extraordinary measures taken by regulators, including the suspension of sales by major holders of individual stocks, may cast a chill over foreign interest in Chinese equity markets. Separately, on Friday the China Association of Automobile Manufacturers reduced projected sales of vehicles from a growth rate of 7 percent to just 3 percent due in part to stock market fluctuations.
IAE sees continued pressure on oil prices. The International Energy Agency monthly report, released today, concluded that oil prices may not rise significantly until well into 2016. According to the findings of the Paris–based organization, the market is seeing a supply imbalance that will keep prices low until non-OPEC producers reduce output. The agency also predicts that global demand will continue to soften on slower growth rates in major developing economies.
Ryanair accepts IAG offer. The board of directors of Swords, Dublin–based no-frills airline company Ryanair Holdings today voted in favor of accepting a bid by British Airways parent IAG for the carrier’s 30 percent stake in Aer Lingus Group. The decision comes after a prolonged campaign by IAG CEO Willie Walsh to get shareholder and government approval to allow his company a foothold in the Irish market.
European bonds continue to see outflows. Analysis by Jefferies in Hong Kong released today concludes that last week investors withdrew $599 million in withdrawals from developed-Europe bond funds, with outflows over the most recent six weeks totaling in excess of $12 billion. Separately, Kenneth Chan, a Jefferies quantitative strategist, reports, “High-yield bonds experienced another week of broad-based outflow [worth] $1.1 billion while equity markets performance remained highly correlated to it.”
Hotel sale unveiled in Hong Kong. InterContinental Hotel Group today announced a sale-lease-back transaction in which it will take in roughly $940 million for its harborside InterContinental Hong Kong hotel while retaining a 37-year occupancy contract. The buyers were a consortium of funds, lead by Hong Kong–based private-equity fund Gaw Capital Partners.
Portfolio Perspective: Mid-2015 Rate Outlook — Rajiv Setia, Barclays
Global bond yields have rallied sharply over the past two weeks in response to growing fears of Greece leaving the European Economic and Monetary Union, a sharp sell-off in Chinese equity markets and the resulting broad-based spillover to the commodities complex. Economic data in the U.S. have surprised somewhat to the upside recently, but that has obviously taken a backseat. With ten-year yields having declined to 2.2 percent, on July 7, we at Barclays turned neutral on our recommendation to go long ten-year U.S. Treasuries, initiated at 2.4 percent. We maintain our view to receive five-year Eonia (Euro OverNight Index Average), initiated at 0.28 percent, as we think there is still scope for euro-zone hiking cycle expectations to become more benign.
In our view, the risk-reward in being outright long ten-year US Treasuries at 2.2 percent is not particularly attractive.
Rajiv Setia is head of U.S. interest-rate research at Barclays in New York.
