The four day losing trend on European markets, driven by fears related to the possibility of a default or even worse, an exit from the Eurozone by Greece, was reversed on Tuesday as markets turned slightly higher.
Despite falling by as much as 1.1%, with the negative trend continuing in early trading, the Stoxx Europe 600 Index (SXXP. +0.64%) rallied later to end at 385.49, showing an increase for the day of a shade over 0.6%.
European markets seemed to be following the U.S. lead after better than expected housing data was released on Tuesday. Figures showed an increase of 11.8% to a 1.28 million unit rate in permits granted for future home construction in the U.S. the highest figure since August 2007. Gains by U.S. stocks, SPX, +0.57% and DJIA, +0.64%, are indicative of sentiment following the housing data release.
This was the first increase in three trading sessions for the pan-European index.
Markets had fallen earlier on Monday after the talks between the government of Greece and European officials collapsed. This came in the face of insistence by the Greek Finance Minister that the lenders are not taking the announced reforms seriously and that Greece has no intention of making further concessions.
European officials on the other hand referred to the Greek proposals as “vague and repetitive”, adding nothing to the negotiations. The Greek government in turn is hamstrung by having to maintain the policies on which it was elected earlier this year, promising to end austerity measures, and taking a hard line with the lending countries.
Naeem Aslam, chief market analyst at Ava Trade said, “The childish behavior continues on both sides as each party is blaming the other side for their unreasonable demands and their reluctance not to give up”. He added that the only party that could improve the situation at this point is the ECB (European Central Bank) which holds the lifeline for emergency liquidity assistance (ELA) to Greece. The position of the bank that there is no ceiling to ELA encourages a continued stubborn approach to the situation by the Greek government.
The fear is that should no deal be reached by Friday, capital controls could start being imposed as soon as this weekend. Reports to this effect which were published in Germany’s Suddeutsche Zeitung, were denied by Greek officials.
With investor confidence at a low, Greece’s Athex Composite Index (GD, -4.77%) fell further on Tuesday after closing 4.7% off on Monday. A further indication of the lack of investor confidence was shown by an increase of 32 basis points on the yield on 10-year Greek government bonds to 12.77 percent; this according to Tradeweb, an electronic trading platform.
A clearer view of the EU position should be forthcoming after the meeting of European Finance Ministers in Luxembourg on Thursday which will also be attended by IMF (International Monetary Fund) Managing Director, Christine Lagarde.