Default fears leave markets strained

In mid-morning trading the FTSE 100 is in the red as traders remain afraid of a Greek default. 

Leadenhall building
Source: Bloomberg

European equities are under the strain of continual Greek concerns. Traders are sick of the non-stop back and forth, and whenever Greece is in crisis talks there is always a series of comments from different parties involved in the negotiations which contradict each other, and traders do not know who to trust.

For the time being no deal has been reached, and the longer the talks go on without a deal being struck the more likely they are to drop stocks. The more experienced traders have learned that a deal is usually hammered out right at the last minute, and they are waiting in the wings. Athens is not in a position to make its repayment next week unless it gets its hands on the next  tranche of the bailout. Ultimately, it is the International Monetary Fund and European Central Bank who decide whether Greece will remain solvent or not.  

Commodity companies are lower this morning as weak iron ore prices drag the shares of the mineral extractors lower. Citigroup recently slashed it price target for iron ore, and Goldman Sachs does not foresee a cartel being formed among the mega miners to control the supply. The fundamentals for mineral stocks does not look good as China isn’t ready to consume more metals and the supply will likely remain high.

Sterling took another blow after the second estimate for UK GDP remained at 0.3%, and in light of the deflation situation an interest rate rise isn’t even on the horizon.

We are expecting the Dow Jones to open 50 points lower, at 18,110, and this is down to the decline in European markets. The US market is somewhat sheltered from the fallout in the eurozone, but while corporate reporting remains thin and the Federal Reserve remains tight-lipped, traders are turning to Europe for direction. The Fed is not likely to raise rates next month, but traders are reluctant to buy into the market because even if rates remain on hold in the near-term, the chatter of a September rate hike will circulate.

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