Despite Greek uncertainty, European equities push higher

Optimism appears to be overruling common sense this morning as European equity markets seem determined to remain upbeat. 

City of London
Source: Bloomberg

The City is almost always supplied by a healthy dose of cynicism, but this morning traders appear to be reluctant to fall back on this mindset. Considering we are still seeing a sizeable gulf between Greece and its creditors as to what constitutes an acceptable reform package, equity markets have set off at a healthy pace. Assuming that Syriza can produce something those in Brussels deem acceptable, it is far from certain the party will then be able to get those measures passed through the Greek legislative system.

We are fast approaching the point where the IMF and ECB are going to have to turn a blind eye to some of the more optimistic projections that Syriza bring to the table if there  is any chance of Greece meeting demands in order to receive the next tranche of funding. History would suggest that these targets will not be met, yet an ability to delay the inevitable will be found, enabling the can to once again get kicked further down the road.

Just less than twenty four hours ago the government confirmed that it had sold off a fresh tranche of Lloyds shares, taking the tax payers’ holding to below 17%. This was followed by the Royal Bank of Scotland holding its AGM where CEO, Ross McEwan – a Kiwi, not a Scot – stated on four occasions during his speech that the company is working towards re-introducing a dividend. This succinctly demonstrates how eager the government is to unshackle itself from the ‘banker’ tag.

Stagecoach has posted full-year figures in line with expectations as the company has benefited from its network of train franchises. Slightly less successful has been the company’s European exposure with its Megabus  brand, as Europe is yet to fully appreciate the delights of that particular service. Following yesterday’s breaking news that Tesco was the worst of the big four food retailers in complying with industry code of conduct, both Morrisons and Sainsbury’s have found themselves as the highest climbing equities in the FTSE this morning.

Yesterday’s speech from FOMC voting member Jerome Powell has seen currency analysts scrambling to reassess their predictions of the first US rate rise. His comments were widely perceived as shifting the expected September rate rise back closer to December. With the pace that this start date has been moving, it might not be too long before the market consensus points toward a 2016 start as opposed to anything happening this year.

Events in Europe will, no doubt, have even US investors showing a little more restraint regardless of how this afternoon’s quarterly GDP figures might be. Ahead of the open we expect the Dow Jones to start 11 points lower at 18,133.

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