Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
European stocks rose for a third day after Greek Prime Minister Alexis Tsipras presented a new plan of reforms, while deals activity intensified. Euro-area finance ministers will meet at 12:30 p.m. in Brussels to prepare the gathering of government leaders set to begin at 7 p.m, in order to discuss and possibly resolve the Greek question. This would probably be one of the ultimate or even the last attempt to solve this problem. Yesterday was marked by a series of telephone conversations between the Greek Prime Minister and some European leaders. According to the first rumors, the points where there is a closer approximation are those relating to VAT and the primary balance of public accounts. European countries argue that Greece should have only two levels to the VAT level (11% and 23%) compared to the three current levels (6.50%, 13% and 23%). Regarding the State primary balance (income less expenses, excluding the payment of debt interest) Greece aims to achieve a surplus of 0.75% of GDP, which is confronted with the 1% defended by lenders. To reach a larger primary balance Greece will have to reduce expenses. It is the pensions and the labor market the issues of major difficulties in the negotiation process. For example, lenders claim that the cost of the pension system should have a reduction of 2700 M. € between 2015 and 2016, whereas the Greek plan provides only cuts of 200 M €. Despite the unsuccessful Eurogroup meeting from last week, European equities managed to overcome the negative effects of this outcome. After troubled days, major European stock indexes ended the week with modest variations. This behavior is not surprising, first, because the Greek crisis has now lasted for more than five years, and investors have developed some immunity to the various hazards that have followed, second the eurozone is now more prepared for extreme events. European Economies in general, the Spanish and Portuguese public finances are better than a few years ago and the ECB has a bond purchase plan which provides an important cushion for the public debt of these countries. Even if yields from these countries rise, very unlikely will reach the levels recorded at the height of the European crisis, while Spanish yields exceeded 7% and Portugal 18%. It is recalled that the yields of peripheral countries reached as recently as their historic lows, so they can include an ascent even a marked one. The big unknown is whether this is temporary or resilience takes on a more solid character – only the coming days will tell.
The expiration of futures and options as well as the problematic Greek situation, gave rise to a rather volatile session on the New York Stock Exchange. These two factors mitigated the positive sentiment in recent days that had led the Nasdaq to its historical highs. The situation in Greece has little impact on the US economy. What worries US investors is whether the Greek situation reached an extreme level that infect other European countries, undermining the ongoing modest economic recovery in the eurozone. At this stage, the US economy has essentially depended on “inboard engines” (consumption and investment) due to the slowdown of the Chinese economy, the modest upturn European crisis and many emerging markets. Still, the US economy, as demonstrated in the 1st quarter of this year, is not immune to external shock. During this period, the strength of the dollar, bad weather and strikes in some ports caused a GDP bending of 0.70%. Early indications for the 2nd quarter point to economic growth between 2.50% and 3%. Hypothetical bad news from across the Atlantic could jeopardize this recovery. Today, attention will focus primarily on developments in Brussels.
Asian indexes closed higher, with emphasis on Japanese equities. The Nikkei led the Asian session, basing its performance on the valuation of the financial system. The Chinese markets were closed. Last Friday recorded losses of more than 6%, exhibiting high volatility, which is a warning sign.