Stocks rally on reports Greece close to deal

Stock markets in Europe rallied strongly on Wednesday (July 1st) as reports Greece was edging closer to agreeing a fresh bailout deal with its creditors boosted sentiment.

The FTSE 100 climbed 1.3 per cent in morning trading, while Germany’s DAX and the French CAC 40 both rose by more than two per cent amid growing optimism an agreement could be reached.

Improving market sentiment came despite Greece missing a key loan repayment to the International Monetary Fund on Tuesday.

A sharp sell-off in stocks and peripheral bonds on Monday and Tuesday was turned around as the Financial Times reported that Greek prime minister Alexis Tsipras was now prepared to accept creditors' demands for a bailout.

Yields on Spanish, Italian and Portuguese bonds fell, while the German 10-year bond yield rose as risk appetite returned to the market.

In the foreign exchange market, the euro was flat against the dollar having stabilised following Monday’s sell-off.

Sterling was down against the dollar, with GBP/USD at a two-week low after UK manufacturing data missed its mark.

Britain’s manufacturing PMI for June was the weakest for two years, calming expectations the Bank of England will seek to raise rates sooner rather than later.

Rob Dobson, senior economist at survey compilers Markit, said: “Growth trends in output and new orders were the weakest since the opening quarter of 2013, as a strong sterling exchange rate and subdued demand from mainland Europe offset the continued solidity of the domestic market.”

Oil prices fell, with crude for delivery in August dropping one per cent in New York. Brent crude also dipped on soft Chinese manufacturing data and a report that showed a rise in US stockpiles.

The American Petroleum Institute said inventories climbed by 1.9 million barrels last week, while the US Energy Information Department reported that crude production rose by 9,000 barrels a day to 9.7 million barrels in April, the highest level since May 1971.