Europe
It had started to look so promising with markets trading in buoyant mood for most of the trading session in Europe today, with markets hoping against hope that we were closer to some form of deal with respect to Greece’s debt negotiations. Certainly the mood in Brussels appeared more conciliatory than it was 24 hours ago, lifting expectations that we could get some form of interim deal that gets Greece over its funding hump in June and July.
Any new deal if there was one, is unlikely to be the final word, but as a means of pushing out some form of final decision the perception is that any deal, however short term, is better than no deal at all, though we may have to wait until June 18th was the next Eurogroup meeting for the finer details.
The mood was soured somewhat late on though, when the IMF broke ranks by announcing that a deal remained as far away as ever, citing major differences in key areas with Greece. This announcement has punctured all of today’s optimism, pulling equity markets sharply off their highs. The IMF cited difficulties particularly surrounding pension reform, and in the process called a halt to talks until further notice, and returning to Washington.
Equity markets have also been buoyed by a slide back in yields after the gains of the last few days as bond markets rebound from their recent sell-off.
Events at Mansion House last night have dominated proceedings today with Royal Mail (LONDON:RMG), falling sharply after it was disclosed that the government sold 15% of its remaining holding at 500p late last night, for £750m.
On the plus side the news that the Chancellor was looking at starting to sell down the government’s 80% stake in Royal Bank of Scotland (LONDON:RBS) appears to have been well received by the market, even if the political fallout has been less enthusiastic, with some accusing the Chancellor of a reckless fire sale, with the prospect of a £13bn loss on the initial bailout of £45bn.
Whatever anyone’s view on the wisdom of a sale right now, the fact is that taxpayers are unlikely to ever fully get their money back, given the bank is much smaller now than in 2008, and for anyone to suggest otherwise is indulging in a spot of wishful thinking.
No one knows what the counterfactual would be to waiting. It is equally probable that the share price is just as likely to go down as well as up, and the bank is still facing a shareholder lawsuit in the US with respect to its 2008 rights issue, which might add further uncertainty.
Irrespective of the rights and wrongs of today’s announcement there is unlikely to be an optimal time for paring down the government’s stake. Furthermore the fact remains that the bank would have to have been spun out eventually, and by serving notice now the Chancellor has given himself plenty of wriggle room to slow the sale down, or speed it up as circumstances dictate, with some reports suggesting the first tranche could be released for sale in September this year.
Also doing well today J Sainsbury (OTC:JSAIY) PLC (LONDON:SBRY) has continued to rebound after yesterday’s gains buoyed by a broker upgrade, pulling the rest of the sector higher with it.
US
US markets opened higher today, maintaining their buoyant tone of yesterday as the a more optimistic tone out of Brussels raised hopes that we could, even at this late stage still get some sort of deal to enable Greece to fulfil its next repayment obligations.
On the economic data front we got a rebound of 1.2% in May retail sales, which markets had more or less priced in, up from a revised 0.2% gain for April.
Weekly jobless claims rose to 279k from 277k and import prices rebounded from the 0.2% fall seen in April, rising 1.3%.
On the company front news that the European Commission has opened an investigation into Amazon (NASDAQ:AMZN), e-book business could well drive prices in the internet retailer.
For those with a sweet tooth it was good news from Krispy Kreme Doughnuts Inc (NYSE:KKD) whose latest profits improved on the quarter, beating expectations by 2c a share.
FX
The New Zealand dollar has been absolutely battered today after the Reserve Bank of New Zealand unexpectedly cut rates to 3.25% and signalled there could be more to come.
The US Dollar has also had a good day after retail sales for May signalled a rebound from the disappointing numbers in April. The overall reaction after the number was somewhat muted given that the number came in as expected but it does suggest that after a prolonged soft patch we could well be seeing the beginnings of a rebound in demand.
By itself it doesn’t make a rate rise more or less likely in September, but it does shift the dial ever so slightly, and makes next week’s FOMC meeting that much more important in the context of tone about the economic outlook for the rest of the year.
Commodities
A stronger US dollar has helped push down on commodity prices today with Oil prices sliding back despite yesterday’s bigger than expected draw on inventories.
When the size of the draw smashes expectations and oil prices are unable to rally strongly, it rather begs the question what will drive the price up, and the fact remains that while inventories continue to fall, oil supplies still remain at fairly high levels by historical standards, relative to demand which continues to give cause for concern.
This morning’s downgrade of the global economic outlook by the World Bank, following on from last week’s downgrades by the IMF and OECD reinforced that narrative.
Copper prices also slid back after this morning’s fairly weak Chinese industrial production data.
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