Risk recovers on Greek optimism

Global markets managed to edge higher as Europe remained front and centre of investor focus.

Source: Bloomberg

With Greece having walked away from negotiations on Monday, it seemed we were in for some risk-off trade but once again it is a headline-risk-driven market and at the moment the headlines seem constructive.

At the same time, global equities are looking very bullish and investors are quite happy to keep buying the dips. The latest headlines suggest Greece will submit an application to extend the loan agreement but it remains unclear if any changes to the agreement will be made.

The ECB is meant to review the emergency liquidity assistance for Greek banks. Given there isn’t much time until the Friday deadline, the fact Greece is still looking to submit something is somewhat encouraging.

There were further positive signs on the economic calendar as the ZEW economic sentiment reading came in ahead of expectations and reinforced the idea we are seeing signs of bottoming in Europe. It seems QE for Europe is already playing a big role in restoring confidence for the region and its key economies.

With optimism on Greece and some positive economic data, the euro recovered and EUR/USD is actually back above $1.1400 now. I would look to react at the moment, as opposed to anticipating headlines. Risk sentiment seems to have improved all round and further gains in oil prices have perhaps also contributed to the recovery.

BoJ in focus

USD/JPY managed to squeeze higher and is back above ¥119.00 – it will be in focus today as the BoJ meeting concludes and Governor Kuroda holds a press conference. Not much is expected out of the meeting but, given the economy recently pulled itself out of a recession and still fell short of expectations, this could warrant some comments from the BoJ.

The Nikkei is set to open above 18,000 with nearly a 1% gain as USD/JPY edges higher. Elsewhere in the region, China will be closed as the Lunar New Year break commences. Several other markets around the region will also be closed, resulting in reduced activity for the region.

Toll takeover to dominate trade

Ahead of the open we are calling the ASX 200 up 0.6% at 5878. This will leave us eyeing a move back up towards the 5900 handle. After yesterday’s weakness, I’ll be watching the financials closely to see if we can get a bounce in the sector today.

CBA was ex-div yesterday and ANZ was sold off on disappointing earnings. Bothe stocks remain in a strong uptrend and I suspect investors will be looking to take advantage of the weakness. We could also see a rebound in energy underpinned by the recovery in oil prices.

Gold and iron ore both struggled and this will set the tone for the materials space. Reporting today, we have Woodside Petroleum, Arrium, IAG, Primary Health and Toll Holdings.

TOL will be an interesting one to watch given it has just received a takeover offer from Japan Post Holdings. The deal is worth around $9.04 a share which is a 49% premium to Toll’s previous closing price.

Japanese companies hold an enormous amount of cash on their balance sheets and, given the two-way trade between Australia and Japan, this is a solid move. This deal is also likely to have some bearing on how other transportation stocks like Asciano trade today.

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