On Wall Street, stocks chiefly advanced Tuesday; all the three major indices having posted some gains at the close. The S&P 500 touched its new record high, having added 0.13% at the day’s end. News from Greece arrived at that point, which may have hinted at a possible resolution to the stalemate between the recently elected left-wing PM Alexis Tsipras and an international pool of the nation’s creditors. However, the latest round of talks eventually crashed, with Greece explicitly seeking a simple solution – a prolongation of its borrowing agreement with its ‘troika' of creditors: the IMF, the EU and the European Central Bank (ECB), without undertaking any serious reform. A structural reform, most of Greece’s creditors believe, would help the nation overcome its long-term weakness and eliminate the necessity for extensive external borrowing, while the left-wing Tsipras government is reluctant to adopt painful austerity measures that will most likely have a devastating effect on popular support for his party, Syriza, the Coalition of the Radical Left.
Early on Tuesday in his address to the nation’s parliament, Tsipras said Greece would not tolerate "being threatened" and that he will not "take a step back from his promises to the people" of Greece. Apparently, it will take some time for the newly-elected left-wing populist to realize the urgent need to take action, as Greece is facing the real possibility of being expelled from the Eurozone, which would take a heavy toll on its already-ragged economy.
"The costs of a Greek exit are so great for Greece, they will eventually strike a deal. Yesterday's meeting should not be seen as a failure, but more part of a necessary process," James Butterfill, an equity strategist for Coutts, told Reuters.
"While… the impact on euro zone economic growth of Greece leaving would be minimal, the concern is that a Greek exit could undermine confidence in the whole euro project."
In the US, thus, money people are generally optimistic regarding the Greece situation. The Dow Jones Index also gained, adding 0.16%. Demand for risky assets and operations has been higher than just the day before, hitting the US Treasuries with yields which reached 7-week highs and pushing the US dollar FX rate further up. The dollar advanced to over 119.0 yen from some 118.235 yen. The euro gained to $1.1406, thus creating a precondition for Asia’s rally Wednesday.
The FTSEurofirst Index of top European shares added 0.2%. However, the banking sector retreated 0.3%, dragged down by Greek banks, which lost 9.4% of their valuation during the day. Better performers have been telecoms and mining shares, with Danish jewelry maker Pandora skyrocketing 16.9% after posting good Q4 profits. However, French cell phone operator Orange retreated 1.7% after strong gains just the other day, due to its less-than-optimistic profits stats.
Asian trades opened with robust growth Wednesday as the news of the previous day from the US fueled bullish sentiment in Japan and beyond. Warren Buffet’s corporation Berkshire Hathaway pulled its $3.7 bln worth of investment money out of the oil giant Exxon Mobil due to lower oil prices. Underinvestment in the oil industry has already been acknowledged as one of the key factors affecting crude’s slight rebound in recent days, and Buffet’s move just might support the trend. However, there’s no sign of a major exodus of capital from the energy sector.
“There was clearly no edict that says, ‘Oil is terrible, let’s get out,’” Jeff Matthews, a prominent shareholder of Hathaway’s told Bloomberg. “Someone has a different opinion about it.”
Buffet still has a large stake in PetroChina, the listed arm of state-owned China National Petroleum Corporation, the country's largest oil producer.
"We expect the European and Japanese equity markets to outperform the US in the coming year," Leon Cooperman of Omega Advisors told Bloomberg, having added that US stocks are set to grow as well, but at a more moderate pace.
As a consequence of the activity of such bigshots, the Stoxx Europe 600 Index fared better this January than at any point since 1989, when Germany reunited, adding 7.3%; it is up 10.3% YtD.
Another troubled sector in the US is real estate, which has seen a decline in managers’ confidence in February due to seasonally low consumer demand. According to a National Association of Home Builders/Wells Fargo estimate, confidence in real estate decreased to 55 in February from 57 the previous month. However, this has been attributed to higher-than-average snowfalls in many regions, which is preventing effective home sales.
“Solid job growth, affordable home prices and historically low mortgage rates should help unleash growing pent-up demand and keep the housing market moving forward in the year ahead,” the NAHB statement reads.
In Asia, stocks rallied Wednesday; MSCI Asia-Pacific added 0.3% and Japan’s Nikkei rose 0.9% due to the weaker yen, bolstering the nation’s exporters. Australian shares rallied as well, with the Aussie dollar rising after the Japan Post Holdings acquired the Australian freight enterprise Toll Holdings for some $5.1 bln. "We had soaring US bond yields and a sharp fall in iron ore prices overnight, but the Aussie still went up," Sean Callow of Westpac told Reuters.
In China, however, the issue of regional debt was further exacerbated, with some townships seeking foreign funding to restructure their debts. China has overall debt of roughly $28 trln (280% of GDP) outstanding; $10 trln more than the US, and Beijing might not be able to ensure the repayment of some of the provincial debt.
About 50,000 auditors have been hired by China’s authorities to probe into the provincial debt, as the true scope of the issue is yet largely unknown due to a lack of transparency.
It became known that the city if Qingdao is seeking a $800 mln offshore loan.
“Investors are worried about the uncertainty that will come out of the debt reclassification exercise,” James Su of the Hong Kong-based Haitong Intl Securities told Bloomberg. “They are waiting for more clarity to assess the risk of those bonds.”
Japan’s broader Topix Index rose 0.4%, the yen retreated further by 0.7% due to the Bank of Japan’s decision to keep monetary stimulus in place. Australia’s S&P/ASX 200 added 0.4%, New Zealand’s NZX lost 0.4%. Markets in China and Korea are shut down on holiday.
The US Federal Reserve has just released its’ January meeting’s papers, which reflect the regulator’s confidence in the US growth. Investors, anticipating the gloom of the Fed interest hike, started selling on the news.