The euro rebounded against the dollar and equity markets around the globe surged to record highs on Friday after euro zone finance ministers agreed in principle to extend heavily indebted Greece’s financial rescue by four months.
Investors had awaited a deal all week. As talks for a deal progressed, Germany’s DAX index hit a record intraday high and Britain’s top share index closed within 0.5 percent of a 15-year high before the accord was announced.
The euro rebounded and the benchmark 10-year U.S. Treasury note retreated. Europe’s leading equities index closed at seven-year highs in anticipation a deal would be reached.
The Greek accord will allow investors to concentrate on the fundamentals that should be driving the market, said Ben Pace, chief investment office at HPM Partners in New York.
“You’re seeing a little bit better U.S. economic statistics than you’ve been seeing over the past three or four weeks. The European statistics have gotten a lot better too,” Pace said. “So maybe a relief rally today, because the markets were down as there was a lot of consternation going around.”
Surveys indicated on Friday that the euro zone’s private sector expanded in February at its fastest pace in seven months, though companies continued to cut prices, suggesting low inflation remains a challenge for policy-makers.
The euro pared losses against the U.S. dollar to trade up 0.1 percent at $1.1377. Against the yen, the dollar pared losses to trade up 0.13 percent at 119.09.
MSCI’s all-country world equity index rose 0.34 percent, while the European FTSEurofirst 300 index of top regional shares closed up 0.33 percent at 1,525.21.
The Dow Jones industrial average closed up 154.67 points, or 0.86 percent, to 18,140.44. The S&P 500 gained 12.85 points, or 0.61 percent, to 2,110.3 and the Nasdaq Composite added 31.27 points, or 0.63 percent, to 4,955.97.
The Nasdaq matched an eight-session winning streak from a year ago and inched closer to its March 2000 all-time high reached during the dot-com bubble.
For the week, the Dow rose 0.7 percent, the S&P 500 gained 0.6 percent and the Nasdaq rose 1.3 percent.
Greek bond yields pushed lower on hopes euro zone finance ministers would reach a deal.
Greek three-year yields dropped 57 basis points to 16.555 percent, pulling further away from last week’s highs above 22 percent.
The Greek stalemate overshadowed data pointing to growth in Germany and France. Markit’s Composite Flash Purchasing Managers’ Index rose to its highest since July, beating the highest forecast in a Reuters poll of economists.
Halfway into the European earnings season, results have been strong. Fourth-quarter earnings are expected to grow 19.5 percent, which would be the best quarter in 3-1/2 years.
The FTSEurofirst 300 is up 11.4 percent so far this year, outpacing a 2.6 percent gain in the S&P 500. The ECB’s plans to buy government bonds to boost the economy has helped the rally.
The gap between the yield of 10-year U.S. Treasuries and the earnings yield of the S&P 500 is at its widest in 40 years, noted Alex McKnight, a portfolio manager at GAM in New York.
“We see global yields as ridiculously suppressed, be it the U.S, be it Europe,” McKnight said. “This is the level (at which) I may not be piling into equities right here, but I don’t think they’re bad value” relative to government bonds, high-yield or investment grade credit, he said.
U.S. Treasury debt prices rose in early trading, boosted by safe-haven buying as investors worried about the likelihood of a Greek deal. They later reversed course. Benchmark 10-year Treasuries fell 2/32 in price to yield 2.1187 percent.
Brent crude oil steadied above $60 a barrel as news of a falling U.S. rig count outweighed concerns about oversupply.
Brent crude futures for April settled up 1 cent at $60.22 a barrel. U.S. crude for March delivery fell 82 cents to settle at $50.34. The contract expires on Friday.
Source: Reuters
