World stocks cautious after Greek deal

Wednesday, 22 February 2012 00:01 - - {{hitsCtrl.values.hits}}

Reuters: The euro steadied after an initial jump and European stocks were lower after the agreement of a second bailout deal for Greece removed the threat of a disorderly bond default but left markets unconvinced it could avoid further turmoil.

After 13 hours of talks, euro zone ministers finalised measures to cut Greece’s debt to 120.5 percent of gross domestic product by 2020, securing its second rescue in less than two years and allowing it to meet a bond repayment due next month.

The euro initially jumped over half a cent against the U.S. dollar to a two-week high of $1.3293 on news of the deal, before stabilising in early European trading at around $1.3250, about 0.1 percent higher.

“It’s a relief for markets, broadly speaking, but it doesn’t mean that this is the end of the line,” said Thomas Lam, economist at DMG & Partners Securities in Singapore

Reaction from share and commodity markets was more cautious, after rallies in recent days on hopes of an agreement on Greece combined with an easier monetary policy stance in China.

European stocks, which hit seven month highs on Monday ahead of the deal, edged down 0.2 percent to 1088.55 points, while the MSCI world equity index was also down 0.2 percent.

Safe haven German Bund futures fell at the open on Tuesday after but the losses were limited by concerns about the country’s ability to implement painful austerity measures. The main Bund future contract was 14 ticks down at 137.83 compared with 137.97 at Monday’s close.

In Asia the euro jumped and Asian stocks pared losses on Tuesday after euro zone policy makers agreed to a second bailout package for Greece in marathon talks that went deep into the Brussels night.

The single currency jumped around half a cent after euro zone finance ministers approved a 130-billion-euro rescue, with strict conditions, that averts an imminent default by Athens.

Reaction from share and commodity markets, which had rallied in recent days on hopes of an agreement on Greece combined with an easing of monetary policy by China, was more muted.

“The Greece bailout agreement has already been priced in by the market,” said Yoshihiko Tabei, chief analyst of capital markets at Kazaka Securities, before the announcement.

MSCI’s broadest index of Asia Pacific shares outside Japan pared losses to stand down 0.1 percent after two European Union officials told Reuters an agreement had been reached.

Tokyo’s Nikkei share average was also 0.1 percent lower at the mid-session break.

Both indexes have started 2012 strongly, with the MSCI benchmark up 13.5 percent and the Nikkei up 12 percent for the year-to-date, outperforming an 8 percent rise in Wall Street’s S&P 500.

The euro raced up 0.3 percent to around $1.3285, having been down around 0.3 percent before the deal.

In commodity markets, Brent crude futures hovered near $120 a barrel after reaching an 8-month high on Monday, partly driven by Iran’s cutting off of oil exports to Britain and France.

Copper, which had posted strong gains on expectations of more lending for infrastructure projects in China after the central bank’s weekend move to loosen monetary policy, gained another 1.5 percent to around $8,360 a tonne. Gold edged up to around $1,735 an ounce.