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U.S. equity markets posted substantial gains Monday after all-night negotiations between Greece and its eurozone counterparts yielded a fresh bailout deal for the debt-laden nation.
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The Dow Jones Industrial Average jumped 217 points, or 1.22% to 17948. The S&P 500 added 23 points, or 1.11% to 2099, while the Nasdaq Composite rose 73 points, or 1.48% to 5071.
World markets turned their attention back to Greece on Monday after 17-hour talks resulted in a deal between Greece and its international creditors for a third bailout deal that will keep the nation in the eurozone.
The new bailout deal is subject to approval by the Greek parliament no later than Wednesday before formal implementation of the bailout begins. Among other measures, under terms of the agreement, Greece must increase revenue by widening the tax base and streamlining its value-added tax (VAT) system, while also improving the long-term sustainability of its pension system. Those were provisions the nation was previously adamantly against in early negotiations.
Chris Beauchamp, senior market analyst at IG wrote in a note early Monday that although an initial deal has been struck, the hard work is not over just yet. He said he’s keeping a close eye on the bailout-approval processes in Athens and Berlin.
“It would not be surprising to see Alexis Tsipras depart the stage before the end of the week, given that he is likely to face more than a little opposition to a deal that is worse than the one Greeks rejected last week,” Beauchamp wrote. “A new national unity government would then result, and while this would provide a platform for reforms in line with creditor demands, it does little for the image of European democracy.”
On that note, while Barclays said in a note to clients it doesn’t consider a Greek exit from the eurozone as its base case, it still sees high long-term risks associated with the bailout program.
“Negotiations and execution of a third bailout will likely prove extremely challenging, as banks may be forced to remain closed (temporarily) and capital controls will need to remain in place for a while,” the note said.
Traders across the globe cheered news of the preliminary deal.
The Euro Stoxx 50, which tracks large-cap companies in the eurozone jumped 1.75% to 3590. Meanwhile, the German Dax closed 1.49% higher, the French CAC 40 rose 1.94%, while the UK’s FTSE 100 moved 0.97%.
Still, Beauchamp wondered whether the optimism would last even through the end of the week.
“For now, investors are in a confident mood, but whether this optimism will survive the week as details become clear and the nit-picking begins is another matter,” he wrote.
In the U.S., second-quarter earnings season will compete for investor focus as big banks, including Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), JP Morgan Chase (NYSE:JPM), Citigroup (NYSE:C), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) all report their results before the bell this week.
After a speech on monetary policy last week which outlined a forecast that likely includes raising interest rates this year, Federal Reserve Chief Janet Yellen is expected to again make headlines on Wednesday. She will present her semi-annual monetary policy report to House and Senate committees where she will likely face a round of questioning about when the central bank intends to begin the process of raising interest rates from a near-zero range.
The Federal Reserve’s anecdotal beige book report is also due out on Wednesday.
The economic calendar kicks off the week on a light note, but picks up momentum throughout the week. On Monday, traders got the latest look at the federal budget as the U.S. Treasury Department reported a $52 billion surplus in June. The nation’s 12-month deficit was the second lowest mark since August 2008.
Tuesday ushers in the latest look at retail sales, and import/export prices. Later in the week, a snapshot of producer prices, regional manufacturing surveys from Philadelphia and New York, housing starts, and consumer sentiment are also set for release.
In currencies on Monday, the euro fell 1.46% against the U.S. dollar. The yield on the benchmark 10-year U.S. Treasury note rose 0.013 of a percentage point to 2.43%. Bond yields move in the opposite direction of prices.
Investors also kept an eye on China, where the nation continues to grapple with extreme volatility in the face of a recent massive selloff. On Monday, though, the Shanghai Composite index rallied 2.39% to 3970. Elsewhere in Asia, Hong Kong’s Hang Seng gained 1.30% to 25224, while Japan’s Nikkei added 1.57 % to 20089.
In commodities, U.S. crude oil futures settled 54 cents lower, or 1%, at $52.20 a barrel as traders brace for the possibility that sanctions on Iranian oil exports will be lifted. Brent crude shed 1.44% to $58.15 a barrel. Gold, meanwhile, fell 0.1% to $1,156 a troy ounce.