Greek deal hopes keep European stocks at seven-year high

By Sujata Rao

LONDON (Reuters) – European share markets hovered near seven-year highs on Friday as investors grew more confident that euro zone finance ministers would reach a deal that would allow Greece to receive funding and stay in the euro zone.

U.S. stock futures indicated a slightly firmer opening on Wall Street, with the tech-heavy Nasdaq index closing in on the all-time high touched 15 years ago < 1YMc1> <.IXIC> as investors also focused on signs of economic improvement across the developed world.

Germany’s DAX index <.GDAXI> hit a record high while Europe’s leading index and MSCI’s world index <.FTEU3> <.STOXX> <.MIWD00000PUS> stayed just below seven-year highs and five-month peaks respectively. The highs were reached on Thursday when it seemed international lenders would approve a Greek proposal for extending its loan agreement.

Germany rejected that plan but appears to have softened its stance, with a spokeswoman saying the talks “would hopefully lead to an agreement with Greece.”

Greek Prime Minister Alexis Tsipras told Reuters he was certain his government’s request for a six-month loan extension would be accepted. The meeting is due to start at 1400 GMT (10:00 a.m. EST) in Brussels.

“I think there is going to be a resolution on Greece. We’re not favoring the scenario of Greece exiting the euro zone,” Thames Capital Markets’ chief market strategist Nav Banwait said.

Most observers, including Banwait, expect a last-minute deal to prevent a disorderly exit by Greece from the euro zone. That was reflected in bond markets across the lower-rated southern European countries.

Greek bonds rose across the curve, with three-year yields down 74 basis points to 16.39 percent, pulling further away from highs above 22 percent struck last week. Ten-year equivalents were 20 bps lower at 10.04 percent .

Spanish and Italian 10-year yields inched lower .

“The expectation that there will be an agreement eventually is providing relief to Greece, and it also makes sense to have peripheral markets outperforming,” said Cyril Regnat, a strategist at Natixis in Paris.

Greece needs financial support to remain solvent beyond late March, but it rejects any bailout extension that would maintain previously agreed austerity measures. Over 1 billion euros have fled Greek banks in the past two days on fears of a euro zone exit.

Currency markets stayed jittery, with the euro down for a third consecutive day, losing 0.5 percent to $ 1.1365 against the dollar, which got a boost from better-than-expected U.S. jobs numbers. Against sterling, the euro hit a seven-year low of 73.40 pence.

The Danish crown hit a three-week low to the euro on talk of intervention by the central bank, which wants a weaker currency.

ECONOMIC CHEER

Anxiety over Greece was countered by signs of economic improvement in the euro zone. Purchasing managers indices (PMI) on Friday showed France’s private sector growing at the fastest rate in 3 1/2 years while German PMIs suggested solid growth in the first quarter.

Japan, meanwhile, has emerged from recession, data this week showed.

All that has boosted world stock markets, with MSCI’s world equity index <.MIWD00000PUS> on track for its third straight week of gains and Japanese stocks at 15-year highs on Friday. U.S. indexes are also near record highs <.SPX> <.DJI> .

European company earnings paint a relatively cheerful picture, with over half the results beating forecasts. Fourth- quarter earnings are expected to grow 19.5 percent, which would make it the best quarter in 3 1/2 years.

For the S&P 500, earnings for the quarter are up 6.5 percent from a year ago, above a Jan. 1 estimate for 4.2 percent growth, Thomson Reuters data showed.

“In the short term, we may be consolidating around these levels, but in the medium term, the markets look strong,” Banwait of Thames Capital Markets added.

(Additional reporting by Emelia Sithole-Matharise, Alastair Smout and Jemima Kelly; Editing by Larry King and John Stonestreet)

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