SCOREBOARD: Greek redemption?

Greek stocks rallied on news of bank funding while a political poll set the euro on a wild ride.

US markets were closed overnight for the Memorial Day Holiday but there was plenty of action over in Europe. The good news, in the bizarre twisted way that we’ve become accustomed, is that four Greek banks got some cash – €18 billion from the Hellenic Financial Stability Fund, which was approved by the European Financial Stability Fund last week. Bad because they even needed it in the first place, but good because they got it, I guess. Greek stocks got a boost from that, rising 6.8 per cent, and this with recent polls showing pro-reform parties in the lead – it's nail-biting stuff.

That, unfortunately, is where the sort of good news ended though, because the market is getting more nervous about Spain. Spanish bond yields, for instance, shot up overnight, with the 10-year up to 6.48 per cent (from 6.31 per cent) and the 2-year up to 4.46 per cent from 4.34 per cent.

Why? Two reasons. Firstly there are estimates flying around that the Spanish government may have to spend another €30 billion in bailing out its banks – and this is after Bankia requested additional state funds Friday. Then there is talk that the central Spanish government may also have to help out indebted regional governments – usual stuff. For their part the Spanish government said that any further demand from banks would not affect their debt reduction strategy and that Spain’s banks would not need outside support – read ESM or ECB. Investors may not have been convinced however, given the rise in bond yields and also the fact that Spanish equities tumbled – 2.2 per cent – lead down by financials. Elsewhere, the Dax was off 0.3 per cent, the CaC was 0.2 per cent lower, while the FTSE rose 0.1 per cent – tech, basic materials and industrials lifted the index, utilities, energy and telecoms weighed. In the futures market, S&P futures fell 0.6 per cent (1315), while the SPI was off 0.4 per cent (4050). As for commodities, crude had a modest bid with both WTI and Brent up about 0.3 per cent (to $91.1 and $107.1 respectively). Copper then rose 0.8 per cent while gold was off smalls ($1579).

The euro had an interesting session, receiving a bid for most of yesterday on the back of that Greek poll. The peak (1.2625) was hit just before 1700 (AEST) and from there it was all downhill. As it is, the unit finished up at 1.2542 which is a solid fall. The Australian dollar managed to avoid the worst of that in following a similar pattern, but magnitudes were smaller. The peak (0.9889) was reach at 2000 (AEST) and from there the currency lost 37 pips to sit at 0.9852 currently. Sterling bounced around but settled almost 20 pips lower at 1.5682, while yen is at 79.47.

That’s largely it. Over in the debt space there was very little action. Gilts sold off marginally, bunds pushed a little higher but moves overall were negligible. Aussie futures then moved 1 tick higher, with the 3s at 97.57 and the 10s at 96.88.

With that done, the calendar today doesn’t appear too heavy. HIA release the new home sales data at 1100 AEST and I think that’s it for the Aussie market. This afternoon it’s probably worth having a look at German CPI for May, while in the US we get S&P Case Shiller house prices, the Dallas Fed manufacturing index and the conference board’s estimate of US consumer confidence (May).

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

Follow @AdamCarrEcon on Twitter.

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