A deal reached in Greece and another day of recovery for Chinese equities are setting US markets up for a decidedly higher open on Monday with the Dow Jones industrial Average looking to gain triple digits.
US treasury yields are rising alongside those of core European countries including German bunds while yields on peripheral country debt including Spain and Portugal are falling. The yield spread is tightening between core and peripheral nations in Europe as contagion risks fall, making the higher yielding peripheral debt more attractive.
The spread between US treasury and German bund yields is widening as investors dump the safety of US debt while also looking ahead to a potential rate rise this year from the Federal Reserve. The improving relative yield is attracting investors into US dollars with the euro being used as a funding currency, explaining why the euro is down despite a deal being struck in Greece.
A deal in Greece means US markets can go back to focusing on the beginning of second quarter earnings season this week. A renewal of euro-weakness and comparative dollar strength will not be a positive backdrop for the many international companies within the S&P 500. Two multinationals with large foreign earnings; Google (NASDAQ:GOOGL) and General Electric (NYSE:GE) report on Tuesday and will act as the first barometer for how much the strong dollar has hurt earnings.
Banks are also reporting this week with earnings expected from JP Morgan Chase (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS) and Citigroup (NYSE:C). Easy comparisons with the second quarter of last year that saw huge fines for banks should see rising profits with performance in fixed income trading likely to be the key determinant for those with investment banks to determine any EPS estimate beats.
Futures suggest the:
S&P 500 will open 13 points higher at 2,089 with the
Dow Jones expected to open 115 points higher at 17,875 and the
Nasdaq 100 33 point higher at 4,453.
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