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UK markets see impressive rally
Markets have flung caution to the wind and rallied impressively during today’s session. The bounce in oil, now in its third day and still looking as if it has legs, has certainly helped, but it is Greece that is the source of real optimism. For the first time it looks as if the new Greek government is reacting, rather than driving events. A switch to a more conciliatory tone on the part of the finance minister and the prime minister has raised hopes that a deal may be possible. Added to that is the fact that the Germans have yet to completely dismiss the debt-swap idea, when normally a rejection would be swift and curt. Perhaps we will avoid another Greek crisis after all.
BP shares have slipped back from this morning’s highs, but other oil firms are surging as the commodity continues to find buyers. Miners have jumped on the bandwagon on hopes that the Chinese central bank might join the global easing party, dragging the FTSE back to the highs seen last week.
Fed comments lift markets
US data might be turning sour, but it is never a bad idea to hope that regional Fed president James Bullard will step in to give markets a boost. True to form, he has opined that there is ‘momentum’ in the US economy, with low oil prices providing a further boost. Couple this with a bounce from the 200-day moving average and we have a powerful brew with which to lift markets. Earnings season has picked up from last week too, and markets are now inclined to hope that, if a Greek deal can be struck, the ECB’s quantitative easing programme will make for a much smoother road ahead.
Greek stability takes shine off gold
If Greece is on the verge of an agreement with its creditors, or is at least heading towards one, then gold is bound to lose its attractiveness. Other safe havens like treasuries have lost some of their appeal too, so it is not surprising to see the metal take another dive. Silver, by contrast, is bouncing along with other raw materials thanks to expectations of a pickup in Chinese industrial consumption. Then there is oil, which has enjoyed the combination of weakening supply and rising demand fundamentals to maintain its surge for another day. Oversupply does not disappear overnight, however, and the jury is still out on whether this bounce has much further to run.
Euro finds new strength
Greek hopes have made their presence felt in forex markets as well. The euro has found new strength versus both the pound and the US dollar, since it seems the currency union’s future is not as bleak as it seemed to be just a week ago. EUR/USD’s move back above $1.14 sees it break a level that has held the pair back for a week, a development likely to bring out technical buyers. James Bullard’s observation that the Fed’s overall move on rates should be slow and gradual has boosted the euro as well.