New York/London - The euro turned lower after an
initial jump and global stock markets eased on Tuesday after a long-awaited
agreement on a second bailout for Greece removed the threat of a disorderly bond
default but left markets fearful of further problems ahead.
Stocks on Wall Street opened slightly higher but European share
prices retreated from near-seven month highs as investors booked profits on
lingering concerns over the outlook for Greece and Athens’ implementation of
painful austerity measures.
The euro hit a session high of $1.3292 after news of the deal, but
traders said an agreement had been widely flagged and the euro may struggle to
rise above resistance around $1.3307.
The euro was down 0.1% at 1.3232.
“While the Greece deal removed a temporary risk, the good news was
largely priced in ahead of the weekend, ” said Camilla Sutton, chief currency
strategist at Scotia Capital in Toronto.
“There are still many hurdles to jump before Greece becomes a
non-issue for markets and broader European problems should keep the euro weighed
to the downside over the near term,” she said.
Wall Street pared early gains to hover around break-even.
The Dow Jones industrial average was down 2.23 points, or 0.02%, at 12 947.64. The Standard & Poor’s 500 Index was up 0.67 points,
or 0.05%, at 1 361.90. The Nasdaq Composite Index was down 2.61 points,
or 0.09%, at 2 949.17.
The broad FTSEurofirst index of top European companies was down 0.7% after touching seven-month highs on Monday.
After 13 hours of talks, eurozone ministers agreed on the Greek
deal early on Tuesday by forcing Athens to commit to unpopular budget cutbacks and
private bondholders to accept deeper losses on their holdings.
While the deal averts a default by Greece next month, which
potentially could have disrupted financial markets worldwide, it has left major
doubts over the prospects for implemention given looming elections in April and
rising social unrest on the streets of Athens.
“Greece is increasingly trapped in a vicious circle where ever more
austerity comes with an ever higher price tag on growth. Consequently,
implementation risk will remain high,” analysts at French bank Societe Generale
said in a note.
Yields on Spanish and Italian bonds, seen as a gauge of risk for
other peripheral eurozone nations, fell slightly on relief that Athens had at
least sealed a bailout deal, but Portugal’s debt came under pressure on fears it
could be the next in line after Greece.
The yield on 10-year Italian debt fell to a low of 5.371%,
while 10-year Portuguese bonds yields traded at 12.50% after falling to
However, Spain was able to sell new short-term debt on Tuesday at
the lowest cost in over two years, in the first test of appetite for debt issued
by a country at the fringes of the eurozone since the deal for Greece was
Risk asset rally halted
Reaction in the share and commodity markets was also muted after
rallies in recent sessions in anticipation of the Greek rescue deal, and as
easier monetary policy stances from the world’s major central banks have boosted
demand for risk assets.
“The bailout bandage is on, but it won’t take much to unravel,”
said David Miller, a partner at Cheviot Asset Management.
“The lack of economic growth in peripheral Europe and structural
imbalances are slowly being mixed into the crisis.”
The MSCI world equity index slipped by 0.4% after the Greek
bailout but is still over 10% higher for the year to date.
“Until we can see a path to growth (in Greece), there will be a
draining away of the confidence that was coming back into the market. People
will take a defensive posture in terms of stocks,” said Justin Urquhart Stewart,
director at Seven Investment Management.
Gold has drifted between $1 700 and $1 750 in the past two weeks,
following the ups and downs in Greece’s struggle to secure its bailout package.
Brent crude oil was steady at around $120 a barrel though US
crude was slightly higher at $104.39 as potential supply disruptions and demand
from a recovering US economy supported prices.