Greece: default is in our stars

Heading into the close the FTSE 100 is down 60 points, as Greek worries continue to drag down European markets.

UK markets

Greece is living in its final hours before passing into the unknown territory that lies beyond the bailouts of the past five years. It is a journey that even Jason and his Argonauts might balk at venturing on. Appropriately enough, at this late hour, Alexis Tsipras’ plane sits on the runway in Athens, waiting to take the Greek leader to another last-minute summit. Equity markets clearly believe that we will sail past the deadline tonight without any developments, as the mad game of brinksmanship that has dominated the news for so long enters its final hours. Greece has asked for a two year extension to the ESM, but this would need approval from Germany, and jolting German MPs out of their
afternoon naps is unlikely to win Athens many friends. The weekend referendum is still expected to yield a ‘yes’ result despite the government’s plan to campaign for a ‘no’ vote. IG’s new Greek referendum binary suggests a 67% chance of the pro-austerity side emerging victorious at the weekend.

In London supermarket giants Tesco and Sainsbury's sat at the bottom of the index – not because of their exposure to Greece but because of more woeful price data. Margins continue to be eaten away thanks to price wars, while the surge in sales at Aldi and Lidl underscores the fact that the established firms have yet to find a real answer to the budget retailers.

US markets

The US has its own debt crisis in the form of Puerto Rico, but this appears to be troubling US traders in only a modest fashion. The greater distance from Greece also lessens the impact of this never-ending crisis, and thus dip buyers have been emboldened once again. Crucially, the number of S&P 500 members trading at four-week lows has hit its highest level since mid-December, raising the prospect that we could see a mid-summer rally for equity markets. Over the past year this indicator has been handy in calling the dips, and a sudden announcement of Greek progress could be the catalyst for a big move higher. With US markets off on Friday, the potential for a pre-holiday rally is there.

Commodities

Precious metals continue to be shunned by the market despite the swings and roundabouts of the Greek crisis. In this market gold and silver have been left friendless, as investors have preferred the attractions of a rising US dollar. If even capital controls in a eurozone country can’t prompt an outbreak of gold buying, it seems difficult to imagine what will.

FX

Weak Canadian GDP meant that USD/CAD was a big mover in the afternoon session, pushing out to a three-week high as the sunnier prospects for the US economy continued to put new life into the long USD trade. After its gains yesterday the euro has found it hard to push higher versus the US dollar, and crucially it is still not fully clear as to whether the euro thinks a Grexit will be a good or bad thing. Nonetheless a move back above $1.12 in coming days would signal that the euro bulls are in charge again.