Markets rally despite unresolved Greek deal

Heading into the close the FTSE 100 is powering ahead as the ECB have kicked the Greek can down the road. 

The Leadenhall building
Source: Bloomberg

FTSE rises as Greek deal looms

The market has rallied as no news from Greece is deemed to be good news. Traders were waiting on the edge of their seats for lunchtime’s European Central Bank announcement, only to be told it would be the end of the week before we know the outcome; however, this was good enough for dealers.

It has gotten to the point where can kicking by Greece’s creditors is seen as a positive outcome for stock markets, and as long as traders are not told that Greece must go back to the drawing board, it is a sign to jump on the band wagon.

The ECB has spent the previous five years scolding Greece, but ultimately allowing the nation off the hook in the end, and this is precisely what traders predict will happen again.

Post-Fed bounce still lifting US markets

In the US the Dow Jones is up 130 points, at 18,145, as bullish sentiment from Greece has been felt across the pond. The US market has the advantage of not being too closely linked to the eurozone, but on a day like today it is not reaping the rewards from the positive swing.

The US market is still buoyant from the mildly dovish remarks from the Fed last week and traders have found the right balance of being bullish but not afraid of the rate rise the Fed may introduce at the back end of the year.

Corporate reporting is few and far between, and the final reading of the first-quarter GDP on Wednesday is the highlight of the economic announcements.

The overall employment data from the US is impressive, but it will be difficult to see an interest rate rise this year if growth in the first three months is negative.

Copper slips ahead of HSBC report

Gold is losing its appeal and the strength of the equity market is exacerbating the problem. Traders no longer have the fear factor when it comes to the eurozone, and the possibility that Greece will have a deal at the end of the week has triggered a sell-off in gold. The second reason behind gold’s decline is the Federal Reserve may be raising interest rates this year. The US central bank may not be in a rush to ramp up interest rates but it is making small steps towards it, and all the while gold is feeling the pain. 

Copper is a touch lower on the trading session ahead of HSBC’s survey of Chinese manufacturing overnight, and the consensus is for the sector to remain in contraction. Copper  has been locked in a downward trend ever since China started to go off the boil, and it will be difficult for the red metal to snap out of its losing streak.

Dollar buyers return

The dollar is back in demand as Greece’s fate still hangs in the balance. The Greek proposal has been received by its creditors who are currently assessing them but won’t have an answer until the end of the week.

The euro is trading lower today, but it is remarkably strong considering one of its members is close to the exit. Another way of looking at it is that dealers are dead certain that the ECB will not allow the nation to leave and a deal will eventually be reached.

The dollar has been drifting lower since March, but as we approach the second half of the year it could be given a second wind as a rate rise from the Fed this year has is a distinct possibility.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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