SCOREBOARD: Greek escape

Sanity prevailed and the Greek parliament passed, in a second vote overnight, the individual reform measures required to receive the next tranche of cash. The immediate need was for about €12 billion within the next two weeks and that should be easily met – default has been averted for now. That done, the issue is how to get the second aid package passed and the sticking point here, remember, is private sector involvement. The French government, as we know, has gone some way in convincing its banks to accept a voluntary rollover, as have the Germans, although negotiations continue.

This was enough and the risk play continued last night. Indeed, some of the economic data out also helped to buoy markets, although admittedly we are only talking about lower tier data. Specifically, the Chicago PMI rose to 61.1 in May from 56.6 when the expectation was for a fall. Now, most of the manufacturing-related surveys have softened lately and this of course has sparked all sorts of hysteria that growth is stalling. Naturally enough, this has not turned out to be the case and indeed the Chicago PMI seems to back my view that, apart from supply disruptions from the Japanese earthquake and perhaps statistical noise, nothing much has really changed on the global growth front. It's a good sign at least that the PMI rose, given the importance of the auto sector to this region.

Equities were bid hard then, rising between 1.1 per cent and 1.5 per cent in Europe and 1.1 and 1.2 per cent on Wall Street. Most of the gains were to be found in the first few hours of trading, with the S&P hitting a high of 1321 and easing only slightly into the close (1320 or 1.01 per cent). Industrials, tech and energy stocks were the key outperformers, noting that all sectors rose. And that gain in energy stocks occurred despite a fairly lacklustre session for crude – WTI was up 0.1 per cent $94.89 and down 0.5 per cent on Brent to $111.85. Elsewhere, the Dow closed 1.2 per cent higher (12414), the Nasdaq was also 1.2 per cent higher (2773), while the SPI was up 0.5 per cent (4624).

Nothing much happened in the forex space except for perhaps sterling, which was down a big figure at the low but then recovered to be off only 30 pips to 1.6049. The euro was up smalls to 1.4505, with Greece giving some support, but we saw comments from Trichet reiterating that rates were likely to go higher in July ('strong vigilance' etc). The Australian dollar was down smalls to 1.0723 and the yen was broadly unchanged at 80.49. Elsewhere, in the commodity space, we saw gold down about $10 to $1499, copper rose 1.3 per cent and softs were generally modestly stronger as well.

Finally, for the price action, treasuries sold off again and for the same reasons – the rally had run too far, Greece and the end of QE2. While the 2-year yield was unchanged at 0.46 per cent, the 5-year and 10-year rose sharply, up 8bps (1.76 per cent) and 6bps (3.15 per cent) respectively. This brings 5-year and 10-year yields up about 30bps and 25bps respectively over the last five sessions alone. Big moves. The Australian 3s and 10s were off about 6 ticks a piece to 95.16 and 94.73.

Data otherwise showed that US jobless claims were little changed in the week to June 25 at 428,000. Then in Europe, CPI was unchanged in June at 2.7 per cent, while German unemployment fell about 8,000 in June with the unemployment rate unchanged at 7 per cent. Finally for Europe, German retail sales fell 2.8 per cent in May after a flat outcome in April.

That's pretty much it. Today there is nothing much for Australia or New Zealand but Japan will put out the Tankan survey at 0950 AEST and China releases the manufacturing PMI at 11 AEST, so watch out for that. This afternoon we see trade data from India and tonight, the main release is the ISM survey (the market looks for a further softening to 52 from 53.5).

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.