Markets rally on promise of Greek rescue
INVESTORS flooded back into European equities yesterday as expectations that Greece would pass its austerity budget built throughout the day.
The Eurostoxx 50 gained 1.89 per cent, the FTSE closed up 1.54 per cent and the Dax rose 1.73 per cent, though all of them dipped after the Greek vote was confirmed, with observers attributing the movement to a market adage to “buy the rumour and sell the news”.
The euro followed a similar pattern, rising and then dipping over one cent against the greenback after Athens passed its budget. However, it regained the lost ground and was at $1.44 by evening.
US markets were also buoyed by the Greek vote, and by good news for large-cap stocks such as Bank of America’s settlement with investors who lost money on mortgages during the financial crisis.
The S&P 500 gained 0.83 per cent, the Dow Jones Industrial Average rose 0.6 per cent, the Nasdaq was up 0.4 per cent.
The optimism is unlikely to last long, however, as Europe faces a run of hurdles throughout the summer. Most crucially, the EU must strike a deal on a second rescue for Greece, or else organise an orderly restructuring of the sovereign’s debt – though economists see the latter as highly unlikely this year.
Carl Astorri, head of economics at Coutts, said that the crisis is far from over for Greek Prime Minister George Papandreou: “He now faces unrest in the country and like the mythological Greek king Sisyphus – condemned to roll a boulder up a hill only to have it roll back down again… – will have only survived one crisis to face the next.”
But fund manager Charles Montanaro said: “Contrarians should buy when others are afraid to do so… The likelihood is that Greece will not be allowed to fail in the next two years. Europe has enough money to bail out Greece a second time.”