While you were sleeping: Optimism on Greek deal

Thursday 4th June 2015

Wall Street moved higher amid optimism Greece will reach a deal with international creditors soon, while the latest US economic data kept alive expectations the Federal Reserve won’t raise interest until at the earliest September.

In late trading in New York, the Dow Jones Industrial Average rose 0.53 percent, the Standard & Poor’s 500 Index added 0.36 percent, while the Nasdaq Composite Index climbed 0.54 percent.

Gains in shares of JPMorgan Chase and those of Goldman Sachs, recently 1.5 percent and 1.49 percent stronger respectively, led the Dow higher.

"As the risk around Greece is starting to significantly reduce, investors are putting back money into US equities," Marshall Gause, chief executive officer of Geneva Fund Partners in Denver, Colorado, told Reuters.

To be sure, risk remains and investors are wary. Europe’s Stoxx 600 Index ended the session with a 0.1 percent decline from the previous close. The UK’s FTSE 100 Index rose 0.3 percent, France’s CAC 40 Index increased 0.6 percent and Germany’s DAX gained 0.8 percent. In contrast, Greece's ASE Index jumped 4.1 percent.

“Whilst the balance of probability suggests that some sort of solution will be reached, which is why markets aren’t really selling off, the cost of being wrong here is potentially quite high,” Daniel Murray, head of research at EFG Asset Management in London, told Bloomberg. “That’s why there’s this underlying tone of nervousness.”

Meanwhile, President Mario Draghi reaffirmed plans for the European Central Bank's monthly 60 billion euro bond buying program to continue through September 2016.

"The latest survey data to May remain consistent with a continuation of the modest growth trend in the second quarter. Looking ahead, we expect the economic recovery to broaden," Draghi said in Frankfurt on Wednesday following the ECB's latest policy meeting at which it kept rates steady.

“However, economic growth in the euro area is likely to continue to be dampened by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms,” Draghi noted.

In the US, the latest economic reports offered cautious optimism about the pace of growth.

“Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded during the reporting period from early April to late May,” according to the Fed’s Beige Book.

“Outlooks among respondents were generally optimistic, with growth expected to continue at a modest to moderate pace in several districts,” the Beige Book noted. “Manufacturing activity generally held steady or increased over the reporting period.”

Separately, ADP Research Institute said US companies added 201,000 jobs in May, after a revised 165,000 increase in April. And other reports showed the US trade deficit shrank to US$40.9 billion in April, after it ballooned to a revised US$50.6 billion in March, while the Institute for Supply Management’s non-manufacturing index slid more than expected to 55.7 in May, from 57.8 in April.

"This is consistent with modest growth," Christopher Low, chief economist at FTN Financial in New York, told Reuters. “ It's enough for the Fed to consider tightening. September is very much on the table.”

BusinessDesk.co.nz

Comments from our readers

No comments yet