Stocks Rise on Greek Deal, Bonds Show Tepid Welcome; Euro Drops

U.S. stocks climbed and European equities capped their biggest rally since 2011 on Greece’s bailout agreement, while debt markets were wary and currency traders took the deal as a green light to sell the euro.

The Standard & Poor’s 500 Index rose 1.1 percent by 4 p.m. in New York, sealing its best three-day gain this year. The Stoxx Europe 600 Index jumped 2 percent, bringing its four-day surge to 6.3 percent. Bonds in Spain and Italy ended Monday little changed, while German bunds erased an earlier drop to advance. The euro slid on prospects the deal may clear the way for higher U.S. interest rates. Crude oil and gold retreated.

While equity investors speculated the deal reached by euro-area leaders will remove an obstacle to the region’s economic recovery, bond traders shifted attention to the parliamentary hurdles ahead before Greece can even begin negotiations with creditors. The nation’s debt crisis, coupled with a rout in Chinese equities, had prompted investors to speculate the U.S. would put off rate rises until next year.

“It’s great hearing Greece is not going over the deep end, at least not this week,” Rob Lutts, chief investment officer at Salem, Massachusetts-based Cabot Wealth Management Inc., said by phone. “Last week’s volatility was all on the back of what’s going on in Greece, as well as in China, and today it’s pretty apparent the path is one of resolution.”

The prospect of a Greek deal saw the S&P 500 advance 2.6 percent over the past three days after falling to its lowest level since March 11. The gauge is now 1.5 percent below its last record reached May 21, with Monday’s gain bringing the index briefly past its average price for the last 50 days for the first time since June 26 on an intraday basis.

‘Knee-jerk Response’

All of the 10 main groups in the S&P 500 climbed, with technology and consumer-discretionary stocks rising at least 1.5 percent to post the biggest advances. An index of 30 retailers climbed to an all-time high, bolstered by gains in Netflix Inc. and Amazon.com Inc., with both reaching records.

“It’s a no-brainer right now with this knee-jerk response,” Steve Bombardiere, an equity trader at Conifer Securities LLC in New York, said by phone. “It’s good that a disaster maybe has been averted. We had a fairly decent rebound so it’s more muted here than anywhere else. We’re in earnings season now, we need to see evidence of a recovery.”

JPMorgan Chase & Co., Wells Fargo & Co. and Intel Corp. are among S&P 500 members slated to report results this week. Analysts project earnings for companies on the equity benchmark dropped 6.4 percent in the second-quarter, according to data compiled by Bloomberg.

Fed Focus

With the Greek crisis looking to be nearing its conclusion, U.S. equity investors are retraining their focus toward economic data for clues as to the timeline for Federal Reserve monetary-policy tightening. Reports due this week include retail sales, industrial production, housing starts and consumer sentiment.

Fed Chair Janet Yellen said Friday that she still expects to raise borrowing costs this year, repeating that the subsequent pace of increases will be gradual. She;s due to deliver her semiannual testimony to the U.S. Congress on Wednesday and Thursday.

Yields on 10-year Treasury notes climbed a third day, rising five basis points, or 0.03 percentage point, to 2.45 percent. Rates jumped eight basis points on Friday following Yellen’s comments.

The euro weakened by the most this month, losing as much as 1.5 percent to $1.0996 before ending Monday trade at $1.1002. It slipped 0.8 percent to 135.82 yen, paring back some of Friday’s 2.3 percent surge.

Hedging Pressure

The rally in European stocks exacerbated pressure on the euro, with gains fueling demand for hedges against currency losses. Portugal and Italy led the biggest rebound in European equities since December 2011, with Italy’s FTSE MIB Index and Portugal’s PSI 20 Index each rallying more than 10 percent in the past four days. Germany’s DAX Index pushed its advance to 7.6 percent.

Debt talks have been dictating stock moves, with European equities alternating between gains and losses almost every week since April. The benchmark gauge of European equities, which rose as much as 21 percent this year to a record, dropped 6.1 percent from that April peak through the end of last week as negotiations between Greece and its creditors dragged on.

European bonds, however, signaled caution as news of Greece’s capitulation dissipated through markets. Investors bought the safety of 10-year German bunds, with yields down four basis points to 0.85 percent. While higher-yielding debt from peripheral European countries reversed earlier losses, the gains were muted compared with Germany’s.

China Resurgence

The MSCI Emerging Markets Index added 1.1 percent, capping its biggest three-day advance this year, as Greece’s agreement with creditors spurred demand for riskier assets. China’s Shanghai Composite Index rose a third day, climbing 2.4 percent as hundreds of stocks resumed trading following the nation’s equity rout, and as trade data exceeded economists’ estimates.

“Bargain hunters are focusing on small caps that were hit the most during the market rout,” Dai Ming, a fund manager at Hengsheng Asset Management Co., said in Shanghai. “The market doesn’t have too much interest in big companies. They were the outperformers in the market plunge.”

The Shanghai gauge has rebounded 13 percent in three days after unprecedented government intervention to end the selloff. Officials last week banned major shareholders from selling shares for six months, ordered state companies to buy equities and allowed more than 50 percent of listed firms to suspend trading. The public security bureau is investigating the plunge and has found signs of stock market manipulation, the official Xinhua News Agency reported over the weekend.

Commodity Moves

U.S. oil extended its biggest weekly retreat since March, amid prospects Iran and world powers may soon strike a deal over the country’s nuclear program, freeing it to export more crude. West Texas Intermediate oil dropped 1 percent to to settle at $52.20 a barrel, while Brent crude ended Monday 1.2 percent lower at $57.85.

Gold, which has shown an indifference to Greek headlines, fell 0.5 percent in the spot market to $1,157.98 an ounce, while futures due in August slipped 0.2 percent to $1,155.40. Nickel soared 4.4 percent in London after sinking 6.2 percent last week on concern the Greek and Chinese crises could crimp demand for industrial metals.

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