Greek repayments prey on traders' minds

Heading into the close the FTSE 100 is sinking further and further into the red as Greece drags the market lower. 

London skyline
Source: Bloomberg

Greece pushes FTSE 100 lower
The FTSE 100 has failed to hold onto the 7000 mark as Greece’s fate hangs in the balance. Traders can’t hold their nerve as the Friday deadline draws nearer. This isn’t the first time that Greece has brushed with bankruptcy, and it won’t be the last, but traders are getting out of the market while the exchange is open. If the past is anything to go on, then an agreement over financing will be announced at the last minute, and investors will come flooding back in, but while neither side is willing to buckle, dealers will stay on the sidelines.

The so-so manufacturing numbers from China overnight triggered a sell-off in the commodity-related companies. Beijing has spent a lot of time and  money on trying to stimulate the economy, but the economic indicators are not showing it yet, and without that signal dealers will stay short on the miners.

Dow Jones hangs in the balance
The Dow Jones is hovering around the 18,000 mark, and the US seems indecisive as there is no overriding theme, but many small factors could pull it in either direction. Dealers will not be coaxed into buying US equities while Greece still needs a handout before Friday’s repayment, and this will erode any rallies. The poor personal spending number underlines the problems in the US economy; income is ticking higher but members of the public are saving, not spending. 

Shares in Alters are up 6% after the company was approached by Intel. The move has been in the pipeline for several months as this isn’t the first attempt made by Intel. The semiconductor sector has seen mergers and acquisitions  activity over the past year, and the low interest rate environment accommodates such corporate expansion.

Commodities face a mixed bag
Gold has popped above the $1200 mark after Eric Rosengren of the Federal Reserve stated the conditions were not right for an interest rate rise. Mr Rosengren is a non-voting member of the Fed, but he said what a lot of traders are thinking. It would be difficult to imagine an interest rate hike when the US economy contracted in the first quarter. 

Copper has little to be cheery about after the HSBC manufacturing PMI for China showed that the sector remained in contraction in May. The trading range for the red metal was tight as the survey wasn’t weak enough to warrant additional stimulus from Beijing, and neither was it so encouraging to see a pick in demand for copper.

Euro suffers amidst Greek uncertainty 
The euro is still feeling the pain as Greece is still without a deal. If Athens doesn‘t get its next tranche of the bailout, the nation will be bankrupted by the repayment which is due on Friday. Traders are quietly confident that Greece will broker a deal at the last minute, but in the meantime dealers don’t want to be long on the single currency while there is a compromise in sight.

The US dollar has resumed its dominance in the currency markets after solid manufacturing and construction figures from the US. The market has a short memory, and Friday’s disappointing GDP data hasn’t deterred the dollar’s push higher.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.