World stocks, euro rise on hopes Greece ditches referendum
London, Reuters: World stocks and the euro rose on Friday, boosted by expectations that Greece will avoid a referendum on a new bailout package, easing imminent concerns of a Greek default and its potential shockwaves through the euro zone.
Copper and Brent crude also rose, while prices of safe-haven U.S. Treasuries and German Bunds eased.
However, political uncertainty in Greece continued to unnerve investors and markets were also watching developments in Italy, which has agreed to have the IMF and European Union monitor its progress on long-delayed economic reforms, senior EU sources said on Friday.
U.S. monthly jobs data, due at 1230 GMT (8:30 a.m. EDT), was also keeping investors on tenterhooks. The S&P index futures and the Dow Jones Industrial average futures were both flat.
Greek Prime Minister George Papandreou faces a cliff-hanger confidence vote later on Friday. But government sources said even if he survives the vote, his days as Greek leader looked numbered following a deal with his cabinet under which he agreed to stand down after negotiating a coalition with the conservative opposition.
“It seems a Greek drama has been avoided for the time being as there are some signals that the proposed referendum on the bailout package will be scrapped,” Koen De Leus, strategist at KBC Securities in Brussels, said.
“But the situation is far from clear yet and there is a possibility that the Greek government might fall, which would mean that no bailout money will be available to them for some time. Any such outcome would create more uncertainties.”
Financial markets were rocked earlier this week when Papandreou announced Greece would hold a referendum on whether to accept the new bailout plan. After a tumultuous day in Greek politics on Thursday, the chances of the referendum being held looked unlikely.
The euro was up 0.2 percent at $1.3842 on Friday, extending the previous session’s 0.5 percent rise on hopes the Greek referendum would be called off. That outweighed the impact of the European Central Bank’s surprise 25 basis point interest rate cut on Thursday.
Europe’s FTSEurofirst 300 .FTEU3 added 0.4 percent, while yields on Italy’s 10-year government bonds steadied at 6.205 percent after hitting 6.4 percent on Thursday.
REFERENDUM OFF, RISK ON
“This referendum seems to be off the table and as there was a case for a disorderly default and Greece leaving the euro, this has been prevented for the time being, that’s why we’re seeing a pickup in risk appetite,” said Rainer Guntermann, a rate strategist at Commerzbank.
In Asia, Japan’s Nikkei average .N225 climbed 1.9 percent on Friday.
World stocks measured by the MSCI All-Country World Index advanced 0.8 percent, though the benchmark is down 2.9 percent for the week after being whip lashed by Papandreou’s referendum call and is on track to snap a five-week winning streak.
According to Nomura, global mutual funds were net buyers of equities, with a net inflow of $4.6 billion for the week of October 27 to November 2 after a net injection of $2.9 billion in the previous two weeks. Prior to that, mutual funds had cut equities, with a net outflow of $25.7 billion in four weeks.
Copper prices put on 1.3 percent to trade above $8,000 a tonne on Friday, while Brent crude rose 1.1 percent to top $112 a barrel.
However, the impact of Greek debt problems on the real economy will probably last for some time, while many European banks write off their exposure to Greece and try to insulate themselves if Italy and Spain are further sucked into the crisis.
Data on Friday showed euro zone services business contracted even more than initially reported in October as the debt crisis sapped new business and soured sentiment.
Germany’s Commerzbank said on Friday it would accelerate a pullback from euro zone countries and cut risky assets to avoid another state bailout after a 798 million euro impairment on Greek assets pushed it to a third-quarter operating loss.
Of the 158 European companies that have reported third-quarter results so far, only 49 percent of them either beat or met analysts’ expectations, with the remaining coming in below forecasts, data from Thomson Reuters StarMine showed.
That compared with 76 percent of U.S. companies beating or meeting estimates.