Equity markets rallied on Monday, relieved at the 11th hour the deal agreed between Greece and the rest of Europe. The proposals will be put forward to the Greek parliament later today, in the face of a lot of anger from the Greek people. The battling of the past weeks in an attempt to provide a better deal for the Greek people has had the opposite effect. Greece has ceded a great deal of its sovereignty in order to win this additional bailout, and despite this there is no certainty that the issue won't rear its head again in the coming months. Spanish and Italian bonds have rallied in the past days, again probably more in relief than for any other reason. By openly discussing the possibility of a country leaving the euro, the risk has increased owning European bonds, at some stage markets should start to price in that higher risk.
Equity markets on Tuesday marked time, despite a weaker than expected US retail sales report for June. Later on Wednesday Janet Yellen gives her bi-annual testimony to congress on the US economy. Many economists had inked in September for the first rate rise for more than 7 years. Will the weaker than expected employment report, Tuesday's disappointing retail sales data and the troubles in Europe temper the Fed chairs appetite for a rise in September? US treasury prices rose modestly after the sales report.
Earnings season is now well underway, as two US heavy weights JP Morgan and J&J reported earnings on Tuesday. JP Morgan matched expectations as loan growth increased. Johnson and Johnson, despite the stronger dollar impacting the top line also met expectations. The season is now in full flow and on Wednesday we get earnings from the likes of Rio, Intel and Bank of America to name a few.
China has been making a lot of headlines recently as the stock market has fallen sharply in the past months. Overnight on Tuesday China macro data came in better than expected. Q2 GDP came in at 7% against expectations of 6.8%, Retail sales for June were up 10.6% versus expectations of 10.2%, and industrial production up 6.8% year on year against expectations of plus 6%. Some question marks are always raised over the reliability of Chinese data, but these numbers would suggest some of the recent measures taken by the Bank of China are having some positive impact. This data will also suggest that the Chinese economy can grow at 7% this year, meeting Chinese government forecasts.