Week in Review: Stocks rally as Greece's austerity plans opens way for EU bailout

Global economic news

Greece approves austerity measuresOn Thursday Greek Prime Minister George Papandreou won a second vote from lawmakers to implement his €78 billion package of budget cuts, asset sales, and tax hikes. The package qualifies the country to receive the next tranche of aid from the European Union. Deutsche Bank and Allianz, Germany's largest bank and insurer, were among the country's firms that agreed to reinvest in Greek debt to help avoid the euro area's first default. They agreed to roll over at least €2 billion of Greek bonds maturing in 2014. German and French lenders are the largest foreign holders of Greek debt, and their participation may help the European Union meet a goal of getting banks to roll over at least €30 billion worth of bonds.


IMF says global markets will suffer if the United States fails to raise debt ceilingThe International Monetary Fund said global markets will suffer if the U.S. Congress does not approve an increase in the $14.3 trillion debt ceiling. It also cautioned about the risk of a sudden increase in interest rates or a sovereign downgrade if lawmakers fail to reach a budget and debt compromise. U.S. Democrats and Republicans have been negotiating to find a way to cut the long-term deficit and raise the nation's $14.3 trillion debt ceiling. In April, Standard & Poor's put the U.S. government on notice that it risks losing its top credit rating if policymakers do not agree on a plan by 2013 to reduce budget deficits and the national debt. Moody's Investors Service in June said that it would put the U.S. government's "Aaa" rating under review for a downgrade unless there is progress on increasing the limit by mid-July. August 2 is the "hard deadline" on which the United States will no longer be able to meet all of its debt obligations, according to President Barack Obama.


Euro gets boost from expectations of ECB rate hikeThe euro hit its highest level in nearly three weeks on bets that the European Central Bank will raise interest rates next week to curb inflation. ECB President Jean-Claude Trichet signaled that officials are determined to raise borrowing costs next week with risks to price stability on the upside. "We are in a state of strong vigilance, and we stand ready to act in a firm and timely manner to avoid that recent price developments give rise to broad-based inflationary pressures over the medium term," Trichet said this week.


Manufacturing slows globally, rises unexpectedly in United StatesManufacturing slowed globally as weakening U.S. growth and Europe's debt crisis damped demand for goods. China's factory index fell to the lowest level since 2009, and in the 17-nation euro area, the gauge dropped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months. Manufacturing increased at the slowest pace in nine months in India, and contracted in Italy, Ireland, Spain, and Greece. On Friday, however, the Institute for Supply Management reported that U.S. manufacturing growth unexpectedly picked up in June.


Italy passes budget cuts in hopes of avoiding debt contagionThe Italian cabinet passed Prime Minister Silvio Berlusconi's proposal of €47 billion in deficit- cutting measures intended to balance the budget by 2014. The cuts are an effort to shield Italy from the debt-crisis contagion. Italy still faces a possible downgrade according to an e-mail from Standard & Poor's on Friday.


Japan's Tankan survey shows corporate sentiment fell sharply after earthquake and tsunamiThe Bank of Japan's quarterly Tankan survey showed that Japanese corporate sentiment fell sharply in the aftermath of the March 11 earthquake; the closely watched index for large manufacturers dropped for the first time in over a year. However, large Japanese companies said they will boost capital spending 4.2% in fiscal 2011. A separate report showed Japan's industrial production rose at the fastest pace in more than 50 years led by carmakers as they restored plant operations after the tsunami and earthquake.


IMF names Lagarde to managing director postThe International Monetary Fund named French Finance Minister Christine Lagarde as its next managing director. Lagarde is the first woman and the eleventh consecutive European to lead the institution considered to be the world's emergency lender. She takes the reins after the resignation of Dominique Strauss-Kahn, who was released from house arrest on Friday as the sexual assault case against him began to unravel.


U.S. home prices slow pace of declineU.S. home prices slowed their pace of decline in April. Prices rose 0.7% in April compared with March according to the Standard & Poor's Case-Shiller 20-city home price indices. Foreclosures and bruised consumer confidence continue to weigh on the housing market however.


Corn prices dropCorn fell more than 10% in two days this week after the U.S. Department of Agriculture said U.S. farmers planted a bigger crop than analysts were expecting.

U.S. and global corporate news

Toyota and Honda sales fall in JapanToyota Motor and Honda Motor led a 23% drop in domestic vehicle sales, a tenth straight monthly decline, after the nation's earthquake disrupted production. Toyota's deliveries dropped 28% from a year earlier. Sales at Honda dropped 32%.


BJ's Wholesale soldBJ's Wholesale Club agreed to be bought by Leonard Green & Partners and CVC Capital Partners for about $2.8 billion. The transaction, which is subject to shareholder approval, is expected to close in the fourth quarter.


BYD jumps 41% in trading debutBYD, the Chinese automaker partially owned by investor Warren Buffett's Berkshire Hathaway, jumped 41% in its trading debut in Shenzen.


NewsCorp sells MyspaceThe Wall Street Journal reported that NewsCorp sold music and entertainment Web site Myspace to Specific Media, a little-known ad-targeting firm, for $35 million in cash and stock. The one-time popular Internet site was acquired six years ago for $580 million.

The week ahead

• European Union finance ministers holds a conference call on Saturday, July 2, to free up a fifth installment of aid to Greece from last year's bailout.
• Eurostat releases its producer price index for the eurozone on Monday, July 4.
• The U.S. Census Bureau reports on new orders from U.S. manufacturers on Tuesday, July 5.
• ECB policymakers meet Thursday, July 7, to vote on whether to raise the eurozone's main refinancing rate.
• Japan reports its trade balance on Thursday, July 7.

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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com.

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