July 13, 2024

Markets Rise on Optimism Over Greek Vote

Concerns over the euro zone debt problems have been a focus of the financial markets for weeks. Investors had been bracing for the Greek Parliament’s decision on the package, which included unpopular wage cuts, tax increases and privatizations.

In Europe, the DAX index in Frankfurt closed up 1.7 percent, while the FTSE 100 in London rose 1.5 percent. National Bank of Greece slipped, closing down 1.9 percent; before the vote, it was up as much as 5.5 percent.

Although approval of the Greek plan took place shortly before the markets opened on Wall Street, the Dow Jones industrial average took some time to find its direction. By early afternoon, the Dow was up 76.40 points, or 0.6 percent. The Dow has been on a higher track for the past two days, and its 145-point gain on Tuesday was its biggest one-day increase since April 20.

The Standard Poor’s 500-stock index was up 10.59 points, or 0.8 percent, and the Nasdaq composite index was up 13.48 points, or 0.5 percent.

Analysts said that by the time the voting took place, investors had already taken positions. “This is classic ‘buy the rumor, sell the news,’ ” said Phil Orlando, chief equity market strategist at Federated Investors. “The equity market was up in anticipation. We priced it in ahead of time.”

In other news, Bank of America, which said it would set aside $14 billion to pay investors who bought securities it assembled from mortgages that later soured, was 3 percent higher. The company expected the agreement would lead to a second-quarter loss of $8.6 billion to $9.1 billion.

In Tokyo, the Nikkei 225 closed 1.5 percent higher.

Yields on benchmark 10-year Spanish, Portuguese and Greek bonds declined, while those in safer equivalents issued by Germany and France rose, indicating investors were willing to switch back into riskier securities.  The euro stood at $1.4426 in late trading in London, up slightly from $1.4371 late Tuesday.

The agreement by Greek lawmakers on the austerity measures was a crucial step in the international rescue of the crippled economy, but the relatively muted market reaction to the vote showed that investors know that the country’s financial troubles are far from over.

“Today’s vote will certainly give some short-term relief to markets, but concerns about the long-term feasibility of Greece’s fiscal plans still remain in place,” said Diego Iscaro, an IHS Global Insight senior economist, in a research note after the vote.

A second vote was scheduled for Thursday on enabling legislation to set the timing of the privatizations, especially of the state-owned electric utility.

“What’s really important is not the vote itself,” said George Magnus, senior economic adviser at UBS in London, “but the implementation of what they’re voting on, and that’s where the programs will come unstuck.”

The vote was critical to unlocking near-term financing, specifically the disbursement of the fifth installment of the original 110 billion euro, or $140 billion, bailout for Athens agreed last year. That installment would be worth 12 billion euros and would enable Greece to meet obligations like bond coupon payments in July, while paving the way for a new international lending program to provide financing through 2014. Details of that program is expected to be provided by euro area ministers on July 3.

Regardless of the votes, some analysts cautioned that the problems for Greece and the euro zone remained far from resolved. Private creditors were still discussing their involvement in a second bailout and many investors thought Greece would still have to default.

“It’s like a terrible form of torture,” Mr. Magnus said. “Everyone knows Greece will default  —  it’s just a question of whether it’s orderly or disorderly.”

In a research report released Tuesday, Citigroup analysts said: “Despite the aid package, eventual Greek haircuts may be inevitable, with estimated private sector haircuts of 65 to 77 percent,” referring to the write-downs that bond holders will be required to accept.

“In other words, a bailout package addresses the liquidity issue much more than the solvency issue,” Citigroup said.

Two Commerzbank analysts, Benjamin Schröder and Peggy Jäger, said early Wednesday that “even if the bills are passed, worries could still linger on for longer, if no broader consensus across Greek political parties forms.”

Article source: http://www.nytimes.com/2011/06/30/business/global/30markets.html?partner=rss&emc=rss

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