Europe
European shares rallied today on the prospects of Greece moving closer to a deal on its debt bailout with a new proposal from Athens apparently demonstrating a newly-found desire for compromise. The new offer from the Greek government to reorganise its debt without the use of a write-down in a four part program and a 6-month extension apparently on the table from the EU reduces the chances of an imminent Grexit.
The increasingly volatile Greek banking sector led the gains in hopes that the new proposals from Greek politicians mark the beginning of a departure from a war of words towards a solution to Greece’s unmanaged debt-pile that suits both Greece and its creditors.
There is an emergency Eurogroup summit taking place on Wednesday in which it has been reported that the EU will propose a six-month extension of the existing bailout program. Greek politicians have repeatedly said they do not plan to enter back into the existing bailout program so this appears to be of limited use in itself. The offer of an extension shows some sense of concession on the part of the EU and could pave the way to a bridge program more favourable to the demands of the new Greek government.
Greek politicians are walking a tightrope of shouting condemnation of the previous bailout package loud enough that their voters can hear but also whispering compromises to EU bureaucrats to try and get a deal done. In the meantime, markets are getting pushed around on every report that indicates a move towards or away from compromise by either side. As markets closed, sources were suggesting EU officials are getting “infuriated” by some of the Greek claims.
UBS N (SIX:UBSN) shares sank by over 5% after the bank warned the Swiss National Bank’s move to remove the Swiss franc peg to the euro will hurt profits.
Tyre-maker Michelin hit the skids as shares declined over 4% after missing earnings forecasts.
UK
An improved outlook for a resolution in Greece as well as rallying supermarkets was needed to undo commodity-related declines in UK markets after disappointing inflation data from China sent mining and oil companies lower.
Chinese consumer prices came in at a five-year low overnight. This comes on the back of falling import and export data that together suggest all is not well in the world’s biggest global consumer of industrial metals.
The latest set of Kantar Worldpanel data triggered big moves in the supermarket sector; Morrisons rallied over 4% after it saw its best performance in a year with only a 0.4% drop in sales.
Tesco was a top riser after Kantar data showed the grocer grew sales but lost market share as the overall market increased. News that Tesco has appointed investment bank Goldman Sachs to find a buyer for its credit card company Dunnhumby was also welcomed.
Coca Cola HBC AG (LONDON:CCH) benefited from stronger than expected results from Coca-Cola.
Royal Mail shares dropped after a broker downgrade while Marks and Spencers shares benefited from a broker upgrade.
US
After two days of declines, US markets managed to look past another set of weak Chinese data after earnings from Coca-Cola impressed and Greece appears to be stepping back from the euro-exit precipice.
Coca-Cola gained over 3% on the open after beating earnings estimates thanks to a turnaround in soda sales in North America after four quarters of declines.
Coca-Cola is undergoing a restructuring and announced 1,800 lay-offs in January to help the company reposition itself around slowing soda sales in its core US market. Coca-Cola now owns water, tea, energy drink and now even milk brands to help it diversity away from fizzy drinks that are increasingly being associated with unhealthy lifestyles.
FX
The US dollar was mostly higher on Tuesday having dropped the prior day despite wholesale inventories that missed forecasts.
UK industrial production declined -0.2% while manufacturing production increased by 0.1% in January, both less than forecasted. The data is surprising given the recent PMI data suggesting a pickup in the private sector, consumption and manufacturing in the UK.
GBP/USD managed to trade slightly higher in the face of the disappointing data. This demonstrates strong relative strength and could open up another run at 1.53.
USD/JPY gained alongside equities markets and US treasuries aided by disappointing Japanese data overnight.
Commodities
The slowdown in the Chinese economy as indicated by the slowdown in consumer price inflation as faster deflation at the factory gate sent growth-sensitive commodities oil and copper significantly lower on Tuesday.
A report from the IEA indicating that the decline in the US production will be limited and the resulting bounce in oil will be small had a particularly pronounced effect of US-derived WTI crude oil while losses in Brent were less severe.
Gold and Silver prices were weak again with silver dropping below $17 on reduced safe-haven demand as the situation in Greece looks momentarily more hopeful.
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