Europe
Better than expected manufacturing and services data from France and Germany alongside continuing optimism for a Greek debt deal helped European equities rally for a second day on Tuesday.
Purchasing managers in France and Germany responded more positively to surveys than expected helping Markit’s Eurozone composite PMI rise to 54.1 in June from 53.6 previously, better than the 53.5 estimate.
It is the pension reforms, a sales tax hike and a new business tax included in the latest reforms proposed by Athens that keep markets encouraged that a deal can finally be agreed upon. Greece needs creditors to agree to the reforms to unlock aid the country desperately needs to pay its debts, wages and pension obligations.
A deal still faces the significant hurdle of Greece’s own lawmakers with the parliament's deputy speaker warning that the proposals might get rejected. Should that happen, Prime Minister Tsipras may have to put it to a referendum or even call a snap election which would likely mean no deal before the June 30 IMF payment deadline and threaten a default.
Broker upgrades and more merger activity kept UK share markets buoyant on Tuesday, helped still by a perception that Greek debt talks have turned a corner.
Ladbrokes (LONDON:LAD) confirmed it was in talks for a deal with rival Gala Coral that would create the UK’s largest bookmaker. The hope is that their combined resources and any cost efficiencies from a merger will put them in better stead to fight off competition from online and mobile gambling.
The FTSE 100 was led higher by Sports Direct (LONDON:SPD) which traded to its highest levels since January after a broker upgrade. Broker upgrades for Smith & Nephew (LONDON:SN), Johnson Matthey (LONDON:JMAT), Vodafone (LONDON:VOD) and Diageo (LONDON:DGE) saw the respective stocks trading higher. Outsourcing business Bunzl (LONDON:BNZL) was hugging the bottom of the index after reporting an organic growth slowdown in the fourth quarter.
US
US stocks opened higher on more relief over events surrounding Greece but durable goods data and hawkish comments from Federal Reserve governor Powell took the edge off by stoking fears of an imminent rate hike.
Durable goods orders fell more than forecast by -1.8% when -1% was expected but core goods orders matched expectations with a 0.5% gain, much better than the -0.3% fall the prior month.
Federal Reserve governor Jerome Powell gave the chances of a rate hike in September a 50/50 chance and forecasted that there would be two rate hikes this year with the second taking place in December. Mr Powell also said that the Fed will not reinvest in its balance sheet after rates lift off, this counters comments from the likes of Bill Dudley that implied the Fed would continue to reinvest for some time after a hike.
FX
The US Dollar gained across the board on Tuesday thanks to relief selling in the euro and hawkish comments from the Fed’s Powell.
Having gained on expectations a deal will finally be reached, as it looked more likely, the euro fell on a combination of profit-taking and fears the plan would struggle to win approval in Greek parliament.
Commodities
Brent and WTI crude oil rebounded back from early losses in early New York trading ahead of the latest inventories data from the API on Tuesday. Oil remains in a tight range with market dynamics largely unchanged; US production is slowing slightly but OPEC production is rising slightly. On balance, if supplies remain evenly balanced but the dollar begins to strengthen, then the risk is to the downside for oil.
Copper rebounded off the lowest levels since February gaining as much as 2%, helped by better than expected manufacturing data in China.
Dollar strength tore into precious metals again on Tuesday with silver feeling the brunt, down over 2%.
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