Market Comments

Heading into the close the FTSE 100 is marginally lower, but once again eurozone indices are retreating thanks to Greece.

UK markets

When, at last, the history of the Greek crisis is finally written, historians will wonder how anyone kept their sanity during the endless back-and-forth headline battles that have characterised each twist and turn. Today has been a repeat of previous sessions, with deal and denial following swiftly upon each other’s heels. In London the FTSE 100 is drifting, while the mid-cap 250 has actually made small gains, but the action has been in eurozone indices, which have rallied and slumped on each successive headline. For all the drama of recent weeks, the actual situation seems to have changed very little, with a deal still apparently far off. In London there has been a bonfire of dividend stocks, as US Treasury yields climbed for a second day. Tobacco names led the way, after a Canadian ruling that signals more pain for cigarette producers, but overall it looks like we are undergoing a mini-panic in high-yield names, one that could replicate itself throughout the summer if Fed tightening looks to be on the calendar by the end of the year.

US markets

Trench warfare between bulls and bears has been the order of the day on Wall Street for some weeks now, with neither side able to gain the upper hand. The Greek crisis is playing its part here, but the focus is still on the US’ own long-running saga, that of interest rate hikes. Factory orders were weaker, but below-par numbers have not really been able to put a dent in the theory that a rate increase is on its way this year. Q1 seems to have been, once again, an aberration, and with yields on the rise as well there is less incentive to hold on to stocks that have shown little inclination to push on beyond their recent highs. Friday’s non-farm payrolls number could be the moment that triggers a broader sell-off, if it points towards further strength in job creation.

Commodities

Crude oil continues to advance ahead of the OPEC meeting, as the traditional ‘buy the rumour, sell the fact’ trade rears its head once again. OPEC ministers continue to talk up demand as a reason for oil to go higher, and for the moment the market seems content to ignore the supply fundamentals. We may see a different story emerge post-meeting, when the market realises that OPEC’s words do not match the underlying reality.

FX

One of the curious features of the Greek crisis is that the euro has always taken a sunnier approach to the situation. Perhaps markets think a Grexit will be euro-positive, removing the most troublesome member, or perhaps FX traders are more willing to believe ‘deal near completion’ headlines. Either way, EUR/USD breezed past $1.10 this afternoon, while against the pound the single currency continued its strong form. A second winner of the day was the Aussie, which seems intent on reversing much of its recent downward move after the RBA stood fast and left rates unchanged, coupled with a monetary policy statement that rowed back on apparent determination to engage in further easing.