Global mkts ahead: Growth-led rally fights Greek headwind
Greece will once again be the single biggest risk factor overshadowing financial markets in the coming week, but investors are also on the alert for signs of recovery in Europe to support the strong rally in riskier assets seen this year.
The big numbers to watch will be the purchasing managers’ surveys for Germany and euro zone and the German Ifo business climate index, while US data on the housing market is seen as key to confirming the recovery in that giant economy.
But a cloud of uncertainty hangs over the market as the battle to secure a deal to provide Greece with a second bailout and avoid a disorderly sovereign debt default when bond repayments come due on March 20 rages on.
“The markets will still be on tenterhooks until a final agreement is in place, not just the agreement from national governments to provide additional funds, but also finalising the private sector involvement as well,” said Lee Hardman currency economist at Bank of Tokyo-Mitsubishi UFJ.
Hopes are high that a meeting of euro zone finance ministers on February 20 will seal the second bailout, seen as worth at least 130 billion euros, and that this will pave the way for parallel restructuring of privately held Greek debt.
However, markets fear that the decision maybe postponed again, possibly until a European Union council meeting on March 2, and that delays could occur because national parliaments have to approve the bailout. The German Bundestag is set to meet to discuss the deal on February 27.
There are also questions over the participation of private sector bond holders in their deal, and over the implementation by the Greek government of the agreed austerity measures as social unrest grows.
“Our base case is that this second bailout package will eventually be agreed but it will take much longer than the markets would like, and there will be even more strings attached,” said economist Nicholas Spiro of London-based Spiro Sovereign Strategy.
