The markets have picked up following the falls from earlier in the week assisted by the prospect of the required PSI on Greek debt for the country to avoid default.
By the deadline tonight we will have a better idea of just how much of the €206 billion of private sector loans will be swapped for longer dated and lower yielding bonds. This should finally get Greece out of the firing line and as more PSI has become apparent the markets have become perkier. Equities have also rebounded well in particular across the pond where they recouped some of Wednesday’s losses as they’ve been assisted by comments from the Chairman of the Federal Reserve Ben Bernanke who said there is a chance that further quantitative easing is required. Despite downbeat comments on the prospects for stimulus earlier in the week which were partially to blame for the large sell off, the world’s largest central bank has moved to try and calm investors fears that it will not leave them on their own when it comes to keeping growth going.
The other boost for markets yesterday was the decent ADP employment figures which will give the bulls hope for a good number tomorrow at the non-farms payrolls.
So this morning the FTSE is in recovery mode following on from yesterday’s little bounce. Once again a retracement has proved short lived and presented the bulls with a buying opportunity. But the index is still yet to get beyond the major psychological level of 6000 which at this point in time now seems quite a way off. At the time of writing we’re some 30 points in the black at 5820. As mentioned in yesterday’s comment big sell offs can often come in twos, but that doesn’t seem to be the case this time. But this doesn’t mean that investors’ concerns are completely over as this week has highlighted that the current engines of global growth are starting to just stall a little following the falls in GDP for Brazil and Australia and the downgrade by China to their GDP forecasts. The rallies across European indices are quite mixed this morning with the likes of the Dax and Cac doing slightly better than their counterparts.
Economic data comes in the form of interest decisions from the BOE and ECB. No change is expected from the Bank of England following their increase in QE last month and when that comes to an end in May this is expected to be the more important decision as to whether they go ahead with further asset purchases or leave it for now. The ECB has been doing its fair share of QE as well recently and so it won’t lower rates from 1% for now, possibly saving such a move up for later down the line if required.
The euro was back in favour with FX traders as risk assets rebounded. If just 66 percent of bondholders agree to the deal, it would mean they can force the remaining who disagree to take a loss. The expectation is that the Greek government will get at least 75 percent of them to agree and the positive news is pushing the single currency higher this morning. It is currently trading at 1.3179 against the dollar this morning and we could see this move higher if the outcome is a positive one for Greece.
With the greenback finding little strength in yesterday’s session, gold prices were given a leg up, sparking a bout of buying after the recent sell off from 1790.0. The boost was limited though to 10.7 dollars, meaning that the yellow brick closed up at 1684.8. Traders will be looking to the US Non Farm payrolls on Friday for further direction. Currently, the rally hasn’t lost steam, and the price of gold is trading at 1693.1.
Much like gold, crude was driven by the highly anticipated Greek swap deal, as investors believed that this will save the euro from any further mayday calls and thus keep the demand for the black gold up. Support was provided from the weekly inventories report that showed a lower than estimated build in crude stocks, combined with a fall in oil consumption. At time of writing, Brent trades at 124.97.