Greece’s proposal to its European creditors appears to significantly improve the prospects for a weekend agreement on extending further credit. European creditors still need to stomach the unpalatable prospect of restructuring debt so agreement is not a certainty. However, the fact that Greece has proposed a fiscal package along the lines of the one recently proposed by the EEC looks a significant step in the direction of compromise.
The improved prospects for agreement on Greece coincide with a rally in Chinese stocks and the iron ore price. This means traders who may have been contemplating a safety first approach heading into this weekend’s European negotiations may now have to consider making a start on increasing risk weightings prior to the meeting.
The fact that China’s stock markets and the spot iron ore price have stopped falling will be a relief for market mood. Its market impact may be heightened by the fact that this news comes at the same time as potentially positive developments on the Greek negotiations.
However, relief about the situation in China is likely to be tempered by the fact that the significance of any rally may be dubious given recent limitations on trading. With iron ore seemingly caught up in the recent volatility in China’s markets, investors will also be conscious of the potentially weak underlying fundamentals for the commodity with demand growth limited and seaborne supply forecast to rise substantially.For further comment from CMC Markets please call 02 8221 2137.