Europe
Stocks in Europe traded with more positive overtones on Tuesday when it was confirmed that the four-month extension to the Greek Bailout was approved by the Euro area whilst economic growth in Germany was finalised at 1.6% in January.
European shares have essentially gone nowhere since the beginning of the week while awaiting the final sign-off on the Greek bailout-extension. News of the extension had already been priced in on Friday so by Tuesday when it was finally agreed; questions were being raised about what happens when the four months are up.
IMF Head Christine Lagarde said she thought that Greece’s list of intended reforms was a valid starting point but went on to say that there are as of yet no commitments on Greek pensions or tax reforms.
The list has been accepted as a basis for further negotiations but the devils in the details. The details in the next set of negotiations have plenty of scope for disagreement. Even if there is agreement between Greece and its creditors; there is also potential for political fallout in Greece if the public begins to feel the new government has given in to its ‘bailout masters’.
European stocks got a late boost after US Federal Reserve Chair Yellen confirmed that a change to forward guidance away from use of the word patience would not necessarily mean the first US rate hike in another couple of meetings. Ongoing central bank accommodation in the US should be supportive of global asset prices including European stocks.
UK
After 15 years of market ups and downs since the peak of the dot-com boom, the FTSE 100 did it, a new all time-high at 6,954.
Quantitative easing by the European Central Bank is set to unleash more liquidity into UK markets next month so with the bailout in Greece rolled over for now, the UK’s benchmark was off to the races.
It’s perhaps not coincidental that on the same day the FTSE 100 broke its record, earnings from Bhp Billiton (LONDON:BLT) revealed the huge drop in commodity prices appears not to have hit the heavyweight mining sector as much as some had feared.
Mark Carney left markets unshaken after reiterating the Monetary Policy Committee’s outlook for inflation from last week’s inflation report. UK stocks saw some relief from the temporary solution to the Greek debt debacle while a number of companies including miner BHP Billiton impressed in quarterly earnings.
Bank of England Governor Mark Carney told the Treasury Committee on Tuesday that inflation would return to its 2% target in a “reasonable time” describing the current drop in food and energy prices as a “one off”. MPC Member Martin Weale who had voted for a rate-hike in December said that it may be appropriate for the Bank of England to hike rates "rather earlier than financial markets currently anticipate".
Persimmon (LONDON:PSN) brought forward its dividend payment after reporting a 44% jump in annual profits. Shares traded lower by as much 3.5% on fears that the company may have seen its best as house price growth slows ahead of the Bank of England raising interest rates.
GKN (LONDON:GKN) shares were big fallers after the company missed revenues and profit targets which the company blamed on currency movements. The declines were perhaps limited by the fact the company boosted its dividend by 6% ahead of an expected strong year of growth in 2015.
US
The announcement of share buyback plans from Home Depot Inc (NYSE:HD) and Comcast Corporation (NASDAQ:CMCSA) lifted US stock markets early on but investors largely remained on the sidelines ahead of the semi-annual Humphrey Hawkins testimony from Fed Chair Janet Yellen.
Yellen generally reiterated a positive stance on the US economy but said despite the considerable progress, there was room for more improvement. She described the increase in the average pace of jobs growth from the first to second half of 2014 but tempered it by describing wage growth as sluggish due to some cyclical weakness.
The language that had the biggest impact on markets was what a change in forward guidance would mean for the timing of the first rate-hike. Specifically "The FOMC's assessment that it can be patient in beginning to normalise policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings."
So while the patient language remains, we’re still at least two months away from a rate-hike. Firstly, the patience language is still there and secondly Yellen was careful to say that once the forward guidance was changed, the timing of a lift-off in rates would not necessarily be at the next meeting.
FX
The US Dollar initially strengthened after Yellen’s pre-prepared remarks were released but then sank back on the realisation a mid-year rate hike is far from a guarantee.
No new ground was broken by Carney in the inflation report hearings so the British pound was left hanging under its recent peak of 1.5480. The BOE governor played the middle ground again saying that inflation should return to target over the long haul, but if it didn’t then the bank could always ease policy further.
German Q4 GDP and Eurozone final CPI stayed the same as flash estimates leaving the euro mostly unchanged in both dollar and pound terms.
Commodities
Oil prices picked back up on Tuesday amid speculation OPEC may have an emergency meeting should prices continue to drop in which it would be decided whether to cut oil production. A cut from OPEC could help reduce the current oversupply in markets but risks encouraging increased production from non-OPEC members. However, there is no plan to hold an emergency OPEC meeting before June a delegate told Reuters.
Gold was trading near seven-week lows ahead of Yellen’s testimony but got some slight respite as the dollar weakened. Separately, the IMF reported that Russia sold gold for the first time last month since March 2014. Some of the biggest consumers of gold in 2014 were central banks of which Russia was one of the most prominent.
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