22:08 GMT26 January 2021
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    Greece's Gordian Knot: Syriza Tackles Austerity (404)
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    US stocks are likely to follow their overseas counterparts into the green on Monday, however, chances are major headwinds still could stop or reverse the rally.

    Kristian Rouz — Financial markets outside North America mostly rallied on Monday after the left Greek government put forth yet another cash-for-reform proposal to its creditors during today’s seminal negotiations.

    However, traders faced increased market volatility after the Eurozone’s financial ministers warned against excessive optimism in regard to the Greek deal, a possibly bearish sign for US stocks. Wall Street is still likely to open in the green though after bullish futures bets prevailed overnight.

    Monday’s emergency summit of the Eurozone leaders spawned a renewed hope for Greece not leaving the common currency area, in the nearest future, at least, as the cabinet of Alexis Tsipras bowed to the creditors’ demands of higher taxes, later retirement and an overall decrease in budget spending.

    In exchange, Greece will receive another tranche of international funding, provided by the IMF and EU financial institutions, allowing the struggling nation to service its excessive debt, exceeding $300bln and accounting for over 175% its GDP.

    The deal is within reach, EU Economic Commissioner Pierre Moscovici made clear after the summit.

    Consequently, the Greek ASE Index skyrocketed by some 6.32%, supporting a robust rally elsewhere in Europe. Preceded by the mostly bullish session in the Asia-Pacific, the news propelled US stock futures well into the green overnight, Wall Street is likely to open in a rebound from Friday’s losses.

    The S&P 500 stock futures were 0.76% up with roughly 150,000 shares changing hands, Nasdaq 100 futures added 0.83% on just above 20,000 contracts, while the Dow Jones’ e-minis advanced 0.74% with 17,138 contracts traded.

    Further supporting the US stocks before the open, expectations of more solid macro data are driving the market. National Association of Realtors is anticipated to report a 4.4% increase in pre-owned home sales for May, up to 5.26 mln. The actual report is due later today, and, only if confirmed, will push Wall Street higher.

    More merger and acquisition (M&A) activity is likely on Monday as well amidst such a favorable environment. M&A activity is an upward market factor more often than not, and among deals queued up is the acquisition of the Okeh-based Williams Cos by Energy Transfer Equity for some $48 bln, indicating a persisting optimism in the US energy sector despite rather low crude prices.  

    However, a higher turbulence, noticed during Monday’s trading in Europe, might easily knock over the promising Wall Street rally. Among factors to beware of, the most important, the recent controversial statements by several finance ministers of the Eurozone member states.

    The Dutch FM Jeroen Dijsselbloem noted the Greece-proposed deal is still “impossible to have a final assessment” of, mainly because it was delivered in an untimely manner. The Irish FM confirmed that it will take a yet another meeting on Thursday to finalize the details of the deal.

    That said, the markets’ optimism of the Greek accord is very preliminary, for “there’s no official paper on the table,” as revealed by Finland’s FM Alexander Stubb.

    Although the market confidence in Greece is strong, as evidenced by the rapid rebound in stocks and fixed income of Southern Europe, investors in North America should be wary of the remaining uncertainty.

    The most concerning signal arrived from the 10-year Deutsche Bond, the Eurozone’s benchmark fixed income paper, with yields having risen 9 basis points to 0.84.

    German debt fell in price slightly as investors rushed into the more profitable Spanish and Italian debt on the Greek relief, resulting in higher volatility.

    Nonetheless, the Greek situation will remain very unstable until the official accord between Greece and its creditors is announced. Expected Thursday, it still might snap by then should something go wrong.

    Greece's Gordian Knot: Syriza Tackles Austerity (404)


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