Market rebound on Greek hopes

The Greek debt negotiations will make a very good soap drama given its many twists and turns. Lately, the market seems willing to play along, reacting to news out of Greece. Yesterday’s was a prime example.

Greek flags
Source: Bloomberg

Much of the bounce in the European and US equities stem from more Greek optimism after the Greek Prime Minister, Alexis Tsipras, commented that a deal was close at hand.

Whether it is an excuse to buy or genuine hopefulness, traders lap it all up, despite the dubious headlines.

These reports were largely contradicted by comments from several EU officials. The Germans were certainly surprised at the upbeat around Greek commentary with Finance Minister, Schaeuble, saying that the Greek talks have not gone far.

Nonetheless, overnight markets recovered from Tuesday’s decline. Major European bourses rebounded more than 1% while US equities posted strong gains. Notably, Nasdaq set a new record close at 5106. Apple and the iShares Nasdaq Biotechnology ETF climbed 1.9% each. The VIX index fell over 5% to low-13 levels.

In the currency markets, USD strength appears to deflate a little. The dollar index headed to a high of 97.78 before pulling back to around 97.30, mostly weighed by euro bounce. Meanwhile NZD remains under pressure, although the pair had moved off the earlier lows after Fonterra announced a cut to the 2014-15 milk payout forecast.

It is tough to say how this will play out in the Asian markets today but it is probably safe to say that any gains in major regional bourses on the back of the Greek headlines are likely to lack momentum.

In China, we may see some recovery in the A50 and CSI300 indices. However, news that more Chinese brokerages are tightening margin lending rules may dampen retail investors’ risk appetite. Guosen Securities increased the margin requirement for 908 counters while Southwest Securities reduced the amount of margin financing that traders can receive using collateral.

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