Europe gives weary cheer to Greek rescue deal; gold drops to $1150

LONDON (Reuters) – World markets gave a weary cheer on Monday as euro zone leaders emerged from-all night talks in Brussels with a deal to keep Greece afloat and part of the euro currency union.

Wall Street’s S&P 500 <ESc1> and Dow Jones industrial <1YMc1> indexes were expected to ride Europe’s wave of relief when they reopen, with futures markets pointing to gains of 0.7-0.8 percent.

As Europe’s markets opened, European Council President Donald Tusk announced that after months of negotiations, overnight discussions had produced a third bailout deal in five years for Greece.

"The agreement was laborious, but it has been concluded. There is no Grexit," European Commission President Jean-Claude Juncker told a news conference after 17 hours of bargaining.

The head of the International Monetary Fund, Christine Lagarde, called it "a good step to rebuild confidence" in Greece.

The pan-European FTSEurofirst 300 index <.FTEU3> jumped as much as 1.75 percent to hit a two-week high. Italian <IT10YT=TWEB>, Spanish <ES10YT=TWEB> and Portuguese <PT10YT=TWEB> bonds gained versus German Bunds in debt markets.

The euro <EUR=><EURJPY=> rose initially against the world’s other major currencies, then dropped back as traders locked in some of its gains of recent days.

Capital controls imposed by Athens have limited trading in Greek bonds, but Tradeweb data showed two-year yields down 4.81 percentage points. U.S.-listed Greek equity assets that continue to trade also surged.

"It’s positive that they’ve reached an agreement and it should be positive for risk in general," said Vasileios Gkionakis, Global Head of FX Strategy at UniCredit.

"We are seeing a dip in the euro at the moment. But that is because of the moves at the end of last week; generally this should bode well."

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Greek Prime Minister Alexis Tsipras finally won conditional agreement to receive a possible 86 billion euros ($95 billion) over three years, but he had to pay a high price.

On top of big cuts in spending, 50 billion euros ($55 billion) worth of Greek state assets – including recapitalised banks – will have to be put into a trust fund beyond the government’s reach. They would then be sold off, primarily to pay down the national debt.

GRIN AND BEAR IT

Asian stock markets had kept their nerve as Greek talks went on through the European night and as Chinese stocks rose for a third straight session after their recent rout.

Data from China showed exports rose 2.8 percent in June, while imports slipped 6.1 percent, in a tentative sign global demand might be on the mend.

China reports domestic product data on Wednesday. Forecasts are that annual growth slowed to 6.9 percent last quarter.

The CSI300 index <.CSI300> of the largest listed companies in Shanghai and Shenzhen added 2.6 percent. That came on top of last week’s rally of 5.7 percent, after Chinese regulators moved to steady markets. Japan’s Nikkei <.N225> gained 1.6 percent.

"This is victory in the first battles of a long-lasting war," said Hou Yingmin, analyst at brokerage Aj Securities. "But it takes time for market sentiment to fully recover from the recent trauma, which was so severe, and bears are likely to make a comeback."

Relief that Greece’s future in the euro was now looking more certain undercut demand for safe-haven assets. Yields on German government debt <DE10YT=TWEB> rose 3 basis points, dragging those on U.S. Treasuries <0#TY:> with them.

For U.S. markets there was also the ongoing debate over whether the economy is now strong enough to cope with less support.

The Treasury Department is scheduled to issue its June budget report at 2 p.m. ET. The department is expected to post a budget surplus of $51.0 billion, compared with a $82.4 billion deficit reported in May.

Federal Reserve Chair Janet Yellen said on Friday that she expects the central bank to raise U.S. interest rates for the first time in almost a decade this year. She appears before U.S. politicians on Wednesday.

In commodity markets, gold fell toward $1,150 an ounce <XAU=> as the dollar <.DXY> regained its overnight strength. It was up for a third straight day against the yen at 123.35 yen <JPY=> and $1.1084 <EUR=> to the euro.

Oil prices were under pressure meanwhile, as Iran and six world powers looked to be closer to a deal on the Iranian nuclear programme that would bring relief from sanctions for Tehran and thus more crude to the market.

Brent crude sank $1.24 to $57.49 a barrel <LCOc1> and U.S. crude shed 91 cents to $51.83 as discussions in Vienna continued following a string of extensions over the last couple of weeks.

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