Optimism diminished once again yesterday following further caution around the situation in Greece. Equity markets in New York and Europe dipped by 0.75% and 0.4% respectively, while they remained flat in London. However, borrowing costs and the bond markets remained relatively steady, which was somewhat unexpected amid the uncertainty of the situation in Greece. Perhaps the risks are already priced into these products or investors are not as concerned about the outcome the failure to reach agreement on the Greek debt will have on the markets as expected.
Greek 10 year yields remained flat at slightly above 10.60%, with the majority of others trading at a similar level. Despite the fact the deadline to reach a decision looms large, German bunds and US Treasuries remain strong.
As yet another day of negotiations with creditors ended without a resolution, it seems that, once again, the bailout negotiations will be going right down to the wire. The Greeks, who now have until the 30th June to make a loan repayment, appear unwilling to budge on their demands. Analysts are positive that an agreement will be reached, and Greece will remain in the Euro, even if they don’t quite meet the month-end deadline for repayment. Even in the worst-case scenario that Greece leaves the single currency, the debt will remain. While major reforms to pensions and tax initiatives are all great on paper, they will be insufficient to generate the amount of reserves required to repay a debt of this scale.
Not much action is expected on the markets in the UK and Europe today. Although the UK CBI Reported Sales figures will be released, they are unlikely to cause any major movements. Perhaps the US unemployment figures will cause a stir? With Greek negotiations continuing in the background, the status of the US economy and succeeding effects on interest rates are equally, if not more likely, to impact currency movements. However, there are no doubts that everyone will be keeping a firm eye on developments in Europe. Today has been relatively quiet so far, and currency markets are trading steadily. The dollar strengthened as the day progressed, exhibiting half-cent improvements against the GBP and EUR. Sterling has increased against the DKK but, as I write this, it looks pretty lackluster overall.