Markets Steady Despite Threat Of Greek Default
Trading has been a bit more measured on Tuesday after the lurch downward on Monday in reaction to the curtailment of the Greek debt talks.
By Peter Martin
Tuesday, June 30, 2015
The German DAX and French CAC 40 traded in the red earlier in the day, but were little-changed by mid-afternoon in Western Europe. Greece’s €1.6-billion repayment to the IMF becomes due today, tying up problematically with the expiry of the European portion expiry of its international bailout. There have been reports of a last-minute reforms-for-cash deal offered late on Monday by the European Commission, but for a deal to be struck it would require a complete about-face by Greek Prime Minister Alexis Tspiras and time is now so tight that such a contingency would come as huge surprise.
Greece is set to vote on July 5 in a referendum on whether or not to accept the demands of its creditors — though it is unclear if its creditors will be even willing to offer any deal by then. There has been speculation that the plebiscite is in effect a vote on whether Greece remains in the euro, but both Mr Tsipras and Finance Minister Yanis Varoufakis insist a no vote will not mean an exit from the shared currency. ‘The EU treaties make no provision for euro exit and we refuse to accept it,’ said Mr Varoufakis, warning that the Greek government would consider an injuction at the European Court of Justice in order to obviate such an eventuality. ‘Our membership is not negotiable,’ he added.
Eurozone inflation has slowed this month, easing to +0.2% from May’s change of +0.3%. The result was in line with expectations and is the second-highest level since last November, so is far from a disaster, but given the level of liquidity being added to the financial system by the ECB it is likely a disappointment for the central bank.
Another sign that QE may not be achieving the wanted gain in momentum for the eurozone economy is in the stagnancy of the jobs market. Data released today shows the eurozone unemployment rate was unchanged at 11.1% in May, with the number looking for work falling just 35,000 to 17.726 million. The unemployment rates in Germany and Italy were steady, while an improvement in Spain was offset by deterioration in France.
On the domestic front, the Case-Shiller home price index showed rising prices for April, but at a disappointingly slow pace. The 20-city price index rose a seasonally-adjusted 0.3% in April, following a 1.0% jump in March, lagging expectations for a 0.8% increase. The unadjusted year-on-year change slowed a tick to +4.9% from the +5.0% reported for March. The housing market has been one of the bright spots of the economy in recent weeks, so the slight softness in today’s report comes as a surprise, though its impact is softened by the strength of May’s home sales data, which were released last week (existing home sales spiked 5.1%, while new homes sales grew 2.2%).
US stocks opened positively this morning, recovering some of Monday’s Greece-driven declines. Shortly after the open in New York, the Dow Jones was up 100 points or 0.57% at 17,696, while the broader S&P 500 Index boasted slightly stronger gains, rising 0.65% to 2071.0.
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