By Josie Cox
Relief stemming from a last minute agreement struck Friday
between Greece and its international creditors to extend a bailout
program, continued to reverberate through European markets Monday,
buoying equities and bonds.
By early afternoon, the Stoxx Europe 600 index, which on Friday
hit its highest level since November 2007, was up 0.6%, in line
with Germany's DAX. Almost all other country's indexes rose too,
mirroring a climb in the government bond prices of many European
countries. Greek markets were closed in observance of a public
holiday.
Under a deal clinched late Friday, Greek officials agreed to a
four-month extension of the country's bailout program, removing
immediate concerns over a potential exit from Europe's currency
union. The euro rose sharply against the dollar on the news. On
Monday, the single currency was trading around $1.1320 to the buck,
0.5% lower on the day, but still above Friday's pre-agreement
level.
Market watchers said that Friday's agreement buys Greece time,
but shouldn't be treated as a conclusive solution.
It is more of an "interim agreement" and is "not really a
victory for anyone," said Gary Jenkins, credit strategist at
London-based asset manager LNG Capital. Economist François Cabau at
Barclays agreed, saying: "While this is obviously a positive
outturn, it should by no means be considered an end-game."
"Political risk is likely to remain non-negligible for Greece
and Europe in the months ahead," he added.
Geoffrey Yu, senior currency strategist at UBS, said, "the
agreement is nowhere close to a structural solution."
Greece is confronted with its next test on Monday, when it faces
a deadline for presenting a list of budget cuts and economic
overhauls which has to pass the scrutiny of the supervisors of the
bailou:, the so-called troika of the European Commission, the
European Central Bank and the International Monetary Fund. Finance
ministers will review the proposals Tuesday.
Elsewhere in currency markets Monday, the Russian ruble softened
against the dollar after Moody's Investors Service Friday
downgraded the country's debt rating to junk status.
Moody's said in a statement it believes "the government's
financial strength will diminish materially as a result of fiscal
pressures and the continued erosion of" Russia's foreign exchange
reserves due to capital outflows and restricted access to
international capital markets.
One dollar now buys just above 64 rubles which is around 3.5%
more on the day and 5.8% more on the year. Over the past six
months, the dollar has appreciated almost 80% against the
ruble.
The yield on bonds issued by Russian companies rose too,
signaling a fall in prices. The yield on debt issued by Gazprom
OAO, for example--due to mature in March 2017--was around half a
percentage point higher Monday at 6.78%, according to Tradeweb.
Back in equity markets, the European earnings season remained in
focus. Shares in Dutch postal services provider PostNL NV climbed
to the top of the pan-European index after the group reported a 4%
rise in revenue for the fourth quarter of 2014. Shares in
U.K.-based recycled packaging provider DS Smith PLC also rallied
after the company said it is acquiring Austrian peer Duropack
GmbH.
At the other end of the spectrum, shares in HSBC Holdings PLC
were close to the bottom of the pan-European index, weighing on
London's FTSE 100, after the bank reported a sharp fall in
full-year net profit.
Chief Executive Stuart Gulliver was dragged into a tax-avoidance
scandal swirling around the bank Sunday after a newspaper alleged
that he had held funds in a Swiss account via a Panamanian
company.
Mr. Gulliver held around GBP5 million ($7.7 million) in a Swiss
account and is domiciled in Hong Kong for tax and legal reasons,
the Guardian newspaper alleged in a report on Sunday night.
In a statement on Sunday, HSBC said Mr. Gulliver has a Swiss
account and is domiciled in Hong Kong. The Panamanian company was
used for privacy reasons, the bank said. HSBC shares have now
fallen more than 9% over the last six months and more than 4% since
the start of the year.
Additionally weighing on the U.K.'s FTSE 100, Brent crude
suffered a fresh beating Monday, falling 1.9% to $59.11 per barrel
with traders citing fresh global oversupply concerns. Gold lost
0.4% to $1,200 per troy ounce.
Write to Josie Cox at josie.cox@wsj.com
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