THE LACK of progress on Greece’s debt and austerity negotiations unsettled US and European stocks yesterday, although the modest declines – particularly after last week’s hefty gains – suggested risk appetite in the markets remained relatively solid.
“While we think the risk rally is in its advanced stages and that selectivity is warranted, we do not think it is necessarily over,” said Jose Wynne at Barclays Capital.
On Wall Street, the S&P 500 equity index was down just 0.2 per cent, having climbed 2.2 per cent last week to a six-month high, while the pan-European FTSE Eurofirst 300 shed 0.1 per cent.
However Jamie Dannhauser at Lombard Street Research took a bearish view.
“An ongoing recession in the euro zone, not to mention the fragility of the situation in Greece, leave us less than convinced that risk assets are the place to be in 2012,” he said. “Until the euro crisis is resolved, and it is far from being resolved, we will continue to favour treasuries and bunds on fundamental grounds.”
Recent gains for stocks have been underpinned by central bank commitments to accommodative policy and by signs that the US and global economic recoveries have gained some traction.
“We have moved from a world in which both fiscal and monetary policies were being tightened last year to a world in which the policy mix is more favourable,” said Pierre-Olivier Beffy, chief economist at Exane BNP Paribas. “The key concern for many investors is whether US data will be the source of negative surprise for markets.”
However with no US economic data to provide direction, the focus was clearly back on Europe.
There was certainly plenty of tension in Athens yesterday as pressure mounted on Greece to accept the terms of a new €130 billion bail-out.
“While Greece’s talks with its private sector creditors dominated recent weeks – with a deal on the parameters for a debt exchange seemingly largely in place – the public sector creditors are now playing tough,” said Chris Scicluna at Daiwa Capital Markets.
Erik Nielsen, UniCredit’s global chief economist, said: “The Greek negotiations are getting down to the wire with probably no more than one or two weeks left to get all the agreements in place if we are to avoid a messy default in March.”
However, the euro recovered from an early sell-off against the dollar and non-core euro zone government bonds held relatively steady.
Andrew Wilkinson at Miller Tabak said it appeared that investors were losing their appetite for staying short of the single currency.
“Despite the fact that bad news continues to stick its head up out of the water so frequently, to its credit the euro has not traded below $1.30 for nine days,” he noted. “It strikes me that the pedestrian introduction of hints that Greece or Portugal will default is fast becoming factored in by investors.”
Concerns over Greece however did show up in the form of demand for US and German government bonds. – Copyright The Financial Times Limited 2012
