Deal with Greece powers equity markets
Global stock markets posted solid gains this week, helped by news that Greece and its creditors had struck a deal to alleviate the country’s debt problems and enable it to remain in the European Union.
The deal would provide Greece with a third eurozone bailout package to eliminate the immediate threat of the country defaulting on debts and to aid its troubled banks. In exchange, Greece must implement significant austerity measures and economic overhauls. The Greek parliament passed austerity reforms on Wednesday, including spending reductions and tax increases, and the deal received key backing from the German parliament on Friday. The European Central Bank increased emergency loans to banks and Greece is expected to receive short-term funding beginning Monday.
European equity markets were the biggest beneficiaries of Greece-related developments, with the broad Stoxx Europe 600 index advancing more than 4%. Other markets, including those in Canada and the U.S., saw healthy gains. China’s market posted a small gain after sharp losses in recent weeks.
The Bank of Canada reduced its key lending rate by one-quarter of a percentage point to 0.5%, the second reduction this year. The cut sent the Canadian dollar to its lowest level against the U.S. dollar in more than six years. The move to stimulate the economy comes as the central bank said gross domestic product probably shrank by 0.5% in the second quarter of this year after contracting 0.6% in the first quarter. (Two consecutive quarters of contraction would meet the conventional definition of a recession.) The bank said the economy would grow by a slim 1.1% in 2015, down from previous estimates.
Rates in the U.S. remain poised to move upward. U.S. Federal Reserve Chair Janet Yellen indicated to the U.S. Congress that the central bank remains on track to raise rates later this year despite international turbulence. Many believe the Fed will raise rates in December, although September remains a possibility. Inflation rose for the fifth consecutive month in June, strengthening the case for a rate hike.
The second-quarter corporate earnings season got under way in the U.S. with encouraging results, particularly in the information technology sector. Tech earnings pushed the Nasdaq Composite index to fresh record highs.
In other news this week:
What's ahead next week: