European Indices rally 1 on Greece optimism

Traders bought into risky asset classes such as mining, banking and energy stocks in Europe, helping to lift indices by 1% on Tuesday on optimism that Greece would secure the funding it requires from its european partners.

Optimism for Greece lifts equity markets
Whilst there may be huge amounts of unsettlement in the streets of Athens towards the new austerity measures, the financial markets appear relatively calm and optimistic that the new austerity package will pass a vote in parliament. The deal announced by French banks to rollover half of their maturing bonds into 30-year Greek debt, a deal tentatively agreed to by German banks also, has given investors reassurance that Europe is uniting together to maintain stability within the eurozone.

Investors know that any European assistance to Greece would be heavily reliant upon both France and Germany support. Today’s statements appear to reaffirm their commitment to helping Greece overcome its debt hurdles and restoring stability and confidence in the eurozone as a whole. Whilst both of these aims are unlikely to be achieved overnight, the recent actions has certainly breathing a bit of confidence back into the market on the eve of the vote on the new austerity measures. As such, investor appetite for risk has been healthier and this in turn has pushed indices higher across Europe and the US.

Today, crude prices have risen by 1.3% along with copper prices, up by 1% and the heavyweight miners, energy stocks and banks all strongly higher. This paints a picture of high appetite for risk in today’s markets.

However, I would urge a degree of caution as we saw a similar bullish theme to the markets at this same stage last week when similar optimism that Greek PM Papandreou would pass the vote of confidence lifted stock markets, only for stocks to fall the next day in a typical reactive situation to that of ‘buy the rumour, sell the fact’.

Moreover, with the strong rally seen so far this week, one cannot rule out the potential for some investors to lock in their gains early and downsize risk before the vote in the Greek parliament just in case of any shocks.

Weaker US consumer confidence shrugged off
Even more exemplifying of the risk appetite theme to today’s markets that investors shrugged off with ease a worse than expected reading in US consumer confidence. The reading fell to 58.5, weaker than the expected 60.5 measure by most market participants, a level not seen since November last year. The market however reacted with indifference, instead focusing on the Greece news as traders were given a large clue that the reading could be weaker, weighed down by jobs expectations, after the shockingly bad reading for non-farm payrolls for May.”