Global Markets

Global equities staged a relief rally after the Greek parliament agreed to its creditors' bailout plan. No one appeared to be pleased with the plan however. And Christine Lagarde, Director of International Monetary Fund, said the Eurozone creditors' plan for Greece is "categorically" not viable without a reduction in debt. However, she did not say what amount of relief Greece would need. Ms Lagarde said the IMF will participate in a "complete" bailout package.

She will support a significant extension on Greek debt maturities and reimbursement deadlines. The long-term aim is that Greece returns to the market. Ms Lagarde's comments echo those from European Central Bank president Mario Draghi on Thursday. He said debt relief is "uncontroversial" and the only question is "what form this takes." Greek banks are tentatively set to re-open on Monday after the ECB said it will raise its emergency loans to them by €900 million.

In Asia, the shanghai Composite steadied after its plunge — but some shares remained frozen and were not traded.

Three central banks met during the week including the Banks of Canada and Japan and the European Central Bank. The BoC surprised with an interest rate cut.

Bank of Canada

The Bank of Canada opted to cut key interest rates by 25 basis points Wednesday. The target for the key overnight rate now stands at 0.50 percent while the deposit rate was lowered to 0.25 percent and the Bank Rate to 0.75 percent. The second 25 basis point cut this year reflected a significant downgrading of the BoC's near term growth projections, attributable to an unexpectedly large negative impact from the collapse in oil prices as well as weaker non-energy commodity and non-commodity prices. In April, the BoC's forecast for second quarter GDP growth was an annualized 1.8 percent — but this has now been slashed to a contraction of 0.5 percent, effectively putting the economy into recession. January's 25 basis point cut was supposed to pre-empt the main effects of the oil price slump but in practice, industry was hit unexpectedly hard.

European Central Bank

As widely anticipated the European Central Bank left key interest rates on hold at its governing council meeting Thursday. The refinance rate remains at just 0.05 percent, 25 basis points above the minus 0.20 percent deposit rate and 25 basis points below the 0.50 percent marginal lending facility rate.

With the real economy performing much as expected and inflation trending in the right direction, ECB President Mario Draghi's post meeting press conference did nothing to suggest an increased likelihood of either a change in interest rates or a modification of the current €60 billion per month bond buying program over the foreseeable future. For now at least, the ECB seems to be cautiously happy with the way its monetary stance is impacting growth and prices.

Otherwise the post-meeting conference was most notable for the confirmation that, in the wake of the new bailout deal, the ECB now feels able to increase the ceiling on its Emergency Assistance Liquidity (ELA) loans to Greece. This had been frozen at €89 billion since June 28. The limit will be raised by €900 million for one week, a vital step if the Greek banking sector is to stay afloat.

Bank of Japan

As expected, the Bank of Japan left its key interest rate range at zero to 0.1 percent. It said it would continue to buy JGBs at annual pace of ¥80 trillion. The vote to maintain its policy was 8 to 1. Takahide Kiuchi voted against the decision once again, arguing that lower purchases (¥45 trillion) were appropriate. In its statement, the monetary policy board said that the economy has continued to recover moderately and is likely to continue doing so. The MPB said that the core CPI is likely to continue to be about zero for now due to the decline in energy prices. It noted that private consumption has been resilient and exports were picking up. The BoJ expects the economy to continue recovering moderately. However, the BoJ sees risks to its outlook stemming from European growth and prices.

Global Stock Market Recap

Europe and the UK

It was a very good week for equities. Eurozone stocks roared back to life when Greece agreed to a deal with its creditors. Mario Draghi held a steady and supportive course at the ECB's governing council meeting and had a few cheery words for Greece, saying the question of debt relief is one of "how" not "whether". Markets liked what they heard. For the week, the FTSE was up 1.5 percent, the CAC soared 4.5 percent, the DAX added 3.2 percent and the SMI was 3.4 percent higher.

Fears over the Greek debt crisis abated after the European Central Bank raised its emergency lending to Greek banks and Eurozone finance ministers agreed to provide Greece with a €7 billion bridge loan from a European Union bailout fund, enabling it to repay a €3.5 billion plus interest loan to the ECB Monday and clear arrears with the IMF. Greek banks will reopen on Monday for the first time in three weeks, but capital controls remain.

The International Monetary Fund said Greece's debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far. In a report released Tuesday, the IMF said the closure of banks and imposition of capital controls exacted a "heavy toll" on the banking system and the economy. Consequently, it further deteriorated debt sustainability. While the Greek deal significantly reduces the risks of an imminent disorderly exit, the road will likely be bumpy, as the preliminary details of any new program look harsh to implement and the notable debt relief prospects are not very precise.

Bank of England Governor Mark Carney said on Tuesday at the Treasury Select Committee hearing, that the point at which interest rates may begin to rise is moving closer. It is counter-balanced somewhat by disinflation. Speaking to British lawmakers for the first time since May's national election, Carney said households should start to prepare for higher borrowing costs, though the BoE would only raise rates slowly.

Asia Pacific

Equities advanced last week. Sentiment was underpinned by easing fears over the Greek debt deal and Grexit and the Chinese stock market rout. The Nikkei gained 4.4 percent on the week with a weakening yen contributing to rising investor morale in addition to the Greek moves. The dollar was firm against the euro and yen amid expectations the Federal Reserve is on track to raise interest rates this year.

The Shanghai Composite was up three of five days and 2.1 percent on the week as more companies resumed trading and investors clung to hopes that the People's Bank of China will act to cut interest rates and reserve requirements to inject liquidity, stabilize stock prices and revive investor sentiment if the situation demands. Chinese officials scrambled in weeks past — from encouraging brokerages to buy stocks to making it easier to invest with borrowed funds — and the efforts seem to have taken hold.

Shares rose as the week ended as concerns about liquidity eased — with many previously suspended shares returning to trading. There were reports that China's securities regulator had more cash at hand to support the stock market. China Securities Finance Corporation, a state-run unit that helps finance margin trading, is reported to have received 2.1 trillion yuan ($338.08 billion) in credit lines from commercial banks. Last week, the securities commission said the unit was extending a 260 billion yuan credit line to 21 securities firms to buy stocks.

The Asian Development Bank (ADB) cut its growth forecast for developing Asia this year and next, citing slower than expected growth in the United States and China. While retaining its India GDP growth projection for 2015-16 at 7.8 percent, the bank said any delays in reforms relating to land acquisition and the goods and services tax (GST) could hamper growth.

Currencies

The U.S. dollar rallied against its major counterparts with the exception of the pound sterling. The British currency was boosted by remarks from Bank of England Chair Mark Carney who had a distinctly bullish tone. Despite his talk of a rate increase, which would be the first since the fall of 2007, most believe the BoE will wait until the Federal Reserve makes its move. Sterling hit its highest against the euro in more than 7-1/2 years after Carney said the decision to raise rates will come into "sharper focus" around the end of 2015, his strongest hint yet about the timing of the bank's next move.

Support for the U.S. currency came from Fed Chair Janet Yellen who was rather upbeat in her semi-annual Congressional testimony. The dollar's gain on the week was its biggest weekly rise since May as economic data reinforced expectations of a U.S. interest rate increase this year. The dollar hovered near a seven-week high against a basket of major currencies. The euro was mired close to a seven week low. Speculation over the timing of the next U.S. rate increase has returned to the forefront, with investors looking to U.S. economic data for indications. Analysts said that with the risk of a Greek exit from the Eurozone diminished, the market would focus again on policy divergence between the Fed, which is pondering rate rises, and monetary easing by the European Central Bank.

Selected currencies — weekly results

Indicator scoreboard

Germany

July ZEW survey was mixed with a slightly more optimistic assessment of the current state of the economy contrasting with a fourth consecutive decline in expectations. The current conditions gauge was up 1.0 points at 63.9, a 2-month high and its first advance in the last three months. However, expectations declined a further 1.8 points to 29.7, their lowest mark since November 2014. The buoyancy of the current conditions measure suggests that recent developments in Greece (and China for that matter) have had only a limited impact on analysts' perceptions of where the German economy stands. However, the downgrading of expectations is consistent with recent economic data that have suggested a somewhat disappointing second quarter.

United Kingdom

June consumer prices were unchanged on the month and unchanged on the year. The main downward pressure on the 12-month rate came from clothing & footwear. There was also a negative impact from transport. Food & non-alcoholic beverages subtracted marginally from the annual rate. Upward pressure on inflation was only limited and stemmed mainly from miscellaneous goods and services. As a result, annual core inflation edged 0.1 percentage point lower to 0.8 percent reversing May's limited increase.

June factory gate prices moved broadly in line with expectations. An unchanged level from May, when prices were up an unrevised 0.1 percent, saw the annual decline ease to 1.5 percent. At the same time, input costs decreased a sharper than expected 1.3 percent on the month after a steeper revised 1.1 percent drop last time. This made for a 12.6 percent annual decrease following a 12.3 percent decline in mid-quarter. Output prices showed little volatility across all sectors with the sharpest monthly move only a decline of 0.3 percent in food products. As a result, core prices were also unchanged on the month and, at 0.1 percent, their annual rate was similarly flat. Input costs were driven down on the month by a combination of hefty declines in crude oil (3.3 percent), home food materials (3.5 percent) and imported metals (2.2 percent). In fact, all subsectors registered monthly decreases except fuel (up 0.6 percent).

Following a smaller revised 1,100 decline in May, claimant count unemployment rose 7,000 on the month in June, its first increase since October 2012. The jobless rate held at 2.3 percent, matching its level in both April and May. Painting a similar picture, the ILO measure showed unemployment up 15,000 over the three months to May, enough to nudge its rate a tick higher to 5.6 percent. Moreover, in May alone the jobless rate was an even higher 5.8 percent. However, the apparent weakness of the jobs market coincided with another sizeable bounce in wages. Total average earnings in the three months to May increased an annual 3.2 percent, a marked 0.5 percent increase from its April pace. Much of the pick-up was attributable to stronger bonuses as the yearly rise in regular earnings edged up only 0.1 percentage points to 2.8 percent over the same period. For the month of May alone, overall wages growth slowed from 4.4 percent to just 2.6 percent.

Asia/Pacific

China

China's June merchandise trade surplus was $46.6 billion against expectations of a $55.3 billion surplus. In Yuan terms, exports were up 2.1 percent on the year while imports tumbled 6.7 percent. The first half of 2015 trade balance was CNY1.61 trillion or $263.9 billion. On a seasonally adjusted basis, exports were up 1.1 percent on the year after sliding 1.4 percent in May. Seasonally adjusted imports dropped 9.9 percent after a 14.1 percent plunge. According to Chinese Customs, expectations are for export growth to rebound in the second half of the year. It noted that the Greek crisis will have some impact on China's trade – it is hard to quantify just how big an impact there will be.

Second quarter GDP was up 7.0 percent on the year, slightly higher than expectations. For the first half of the year, GDP was also up 7.0 percent when compared with the same months a year earlier. Seasonally adjusted GDP was up 1.7 percent on the quarter. A series of stimulus measures launched late last year has helped to stabilize growth. The stabilization follows four cuts in benchmark interest rates since November and reductions worth more than 1.5 percentage points in the required reserve ratio for banks. Premier Li Keqiang set a full-year growth target of "around 7 percent" for 2015, a goal that looks to be within reach. Annual growth in 2014 was 7.4 percent, falling short of the government's target for the first time since 1989. An investment slowdown continues to drag on the economy, as property developers pull back on construction amid an overhang of unsold flats and factories slow expansion plans in the face of slowing sales.

June industrial production was up a greater than expected 6.8 percent from a year ago after increasing 6.1 percent in May. For the year to date, output was up 6.3 percent. Output increased 0.64 percent on the month, up from 0.54 percent in May. Most sub-categories improved. Motor vehicle output improved to an increase of 0.7 percent after sinking in both April and May. Non-metal minerals were up 7.0 percent after increasing 5.1 percent the month before. Ferrous metals also improved, increasing 6.6 percent after 5.7 percent. Transport equipment gained 8.0 percent after 5.1 percent the month before. However, cement output continued to decline, this time by 5.8 percent.

Retail sales grew at a 10.6 percent pace in June, up from 10.1 percent in May and well ahead of forecasts at 10.1 percent. The data suggest the Chinese economy was picking up speed as the second quarter concluded. Urban sales increased 10.4 percent after 9.9 percent last time while rural sales edged up to an 11.8 percent increase from 11.6 percent the month before. Auto sales increased for a third month, this time by 4.8 percent after rising 2.1 percent in May and 1.6 percent in April. Home appliance sales jumped 10.2 percent after increasing just 5.1 percent in May. However clothing sales slowed, increasing only 9.4 percent, down from 12.5 percent in May.

Americas

Canada

May manufacturing shipments edged up 0.1 percent on the month. The minimal increase followed a slightly steeper revised 2.2 percent drop in April and left shipments 3.6 percent lower on the year. However, the advance in nominal sales was not matched by volumes which dropped a further 0.5 percent from April and now show an annual decline of 2.7 percent. In fact, even the overall nominal monthly increase would have disappeared but for a 22.2 percent surge in aerospace product & parts. This helped to mask relatively broad-based declines among the other subsectors (only six increased) including sizeable reversals in chemicals (3.5 percent), machinery (3.5 percent) and electrical equipment, appliance & components (4.6 percent). The only other increase of note was in petroleum & coal products (5.6 percent). Elsewhere in the survey, new orders gained 1.7 percent on the month but backlogs were off 1.3 percent.

June consumer prices were up 0.2 percent on the month and 1.0 percent on the year. Core prices were unchanged on the month on both the excluding food & energy and Bank of Canada measure which excludes eight volatile items. This left the former's annual rate steady at 1.8 percent but saw the BoC's preferred index accelerate from 2.2 percent to 2.3 percent. On a seasonally adjusted basis, the CPI was up 0.4 percent for a second month. Core CPI was up 0.2 percent and the BoC rate up a marginally firmer 0.3 percent. All subsectors except health & personal care (unchanged) recorded monthly advances.

Bottom line

Three central banks met with the Bank of Canada surprising and lowering its policy interest rates by 25 basis points. Tensions eased around Greece as the country and its official creditors reached a deal that established a path to a third bailout program with up to €86 billion in loans over three years from the European Stability Mechanism in exchange for a severe course of fiscal austerity and structural economic reforms.

This coming week will give us a flash view of manufacturing and services activity in July. Minutes from the Bank of England will tell us if the monetary policy committee remains unanimous in keeping policy on hold. Japan posts its June merchandise trade balance while Australia's second quarter consumer price index will perhaps indicate firming prices in light of the declining value of the Australian dollar.

Looking Ahead: July 20 through July 24, 2015

Anne D Picker is the author of International Economic Indicators and Central Banks.