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European Shares Sanguine On Greece, Tesco Leads FTSE

By CMC Markets (Jasper Lawler)ETFsJun 26, 2015 18:35
uk.investing.com/analysis/european-shares-sanguine-on-greece,-tesco-leads-ftse-3309
European Shares Sanguine On Greece, Tesco Leads FTSE
By CMC Markets (Jasper Lawler)   |  Jun 26, 2015 18:35
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Europe

After a poor start, European markets gained on Friday despite no resolution to the crisis in Greece with positive rhetoric from officials including European Commission boss Jean-Claude Juncker helping to abate concerns.

A leaked version of Athens’ updated proposal shows there is still a number of key differences with the latest proposal from the three institutions. Pensions and taxes remain the main problem areas. German Chancellor Merkel was quoted as saying that creditors have made concessions to Greece, so it’s now up to Greece to step in direction of its Eurozone partners.

With relatively little movement in the euro and higher European stocks, market reaction to the June 30 deadline has been relatively sanguine. Part of this reflects optimism that a deal will be worked out in the 11th hour, but also simply that a missed IMF payment may not actually amount to much.

Missing an IMF payment is strictly speaking not the same as missing a payment to private bondholders. A missed payment to bondholders means a default but to the IMF, an international institution, the debtor technically goes into in arrears.

If Greece can’t pay the IMF on June 30, this doesn’t necessarily mean there will be capital controls or a run on the banks, at least no more than what has already been happening. If capital flight out of Greece does accelerate, the ECB is theoretically able to increase the ELA again. The one benefit of five months of negotiations is that it has bought time for other European banks to reduce their exposure to Greek banks, so contagion should be limited.

Also underlying it all, the European Central Bank is still doing QE which should put a floor under European risky assets including equities.

The FTSE 100 was lower on Friday with broad-based selling across sectors led lower by massive drop in ARM Holdings (LONDON:ARM) after a broker downgrade and resource stocks which took a beating after the big sell-off in Chinese equities and commodity prices.

Supermarkets were a ray of sunshine in the UK’s benchmark with shares of Tesco (LONDON:TSCO) lifting the sector after announcing a smaller than expected drop in first quarter sales. The fact that sales are still falling despite all the investments in price cuts demonstrates the scale of the problem Tesco faces.

US

US markets opened mixed on Friday with the Dow Jones Industrial Average outperforming other indices, led by a strong performance from Nike (NYSE:NKE) after impressing with its quarterly earnings.

Shares of Nike gained 4% in early trading on Friday after the sporting goods-maker reported better than expected quarterly results and an upbeat tone for the coming quarters. Revenues gained 5% on the year but this would have been 13% had exchange rates remained constant.

Data from the University of Michigan showed consumer sentiment picked up again in June, having unexpectedly fallen in May. Better spending and confidence from the US consumer is good for US growth prospects and puts a rate hike back on the table for September’s meeting of the Federal Reserve.

FX

Currency markets were dead on Friday with the US dollar slightly stronger across the board after the better data. An exception was the Swiss franc which bounced back from SNB comments which sent the currency lower on Thursday.

The China-sensitive Australian and New Zealand dollars came under pressure on Friday thanks to the huge sell-off in Chinese equities which saw the Shanghai composite fall over 7%, the worst daily drop in five months

Commodities

Crude Oil prices slipped back on Friday ahead of Baker Hughes rig count data which has become a little less relevant of late. Despite the fall in rigs, US production remains well above the average of the past five years and OPEC is pumping more to maintain market share. On the demand side, China and Europe have shown some improved economic conditions but probably not enough to justify $70 per barrel.

Grain prices have been moving higher this week, and saw another big jump on Friday with Wheat gaining over 4%. The El Nino weather system has brought a lot of rain into the US grain belt and its threating crop yields.

Having dropped nearly 2% to its lowest since March, silver rebounded sharply off its lows while gold drifted from early gains to losses. Gold has had competing forces of increased safe haven flows amidst fears over a Greece default and a stronger dollar as a result of better US data.

CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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European Shares Sanguine On Greece, Tesco Leads FTSE
 

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European Shares Sanguine On Greece, Tesco Leads FTSE

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