Greek deal optimism continues to buoy markets

Global shares continued to rise today on Tuesday June 23rd on further signs that Europe was inching closer to agreeing on a Greek debt deal. However, Monday’s exuberance was more muted today as some European leaders warn that much work remains to be done.

Stocks on Monday roared higher on optimism over a Greek deal in the making. Germany’s DAX, the French CAC 40 and the Euro Stoxx 50 were all more than three per cent higher at one point, and Tuesday’s further gains saw stocks hit a three-week high. 

Meanwhile, the Greek main ATG index surged eight per cent higher on Monday and was up nearly two per cent today. 

The fervour was fuelled by signs that Greece had conceded ground on a number of “red lines” that had previously caused negotiations to be deadlocked. These positive steps stoked the upbeat mood, which further improved following Monday night’s late emergency summit. 

At around midnight in Brussels, European Council president Donald Tusk said: “Today’s proposals are a positive step....they will be assessed in the coming hours.”

However, International Monetary Fund chief Christine Lagarde tempered the excitement by noting there was “a huge amount of work to do in the next 48 hours”. 

Investors are now hopeful that a deal could emerge as soon as Wednesday, and funds could be released to Greece on Thursday, which would put the lid on a possible default in the immediate-term. But many experts continue to call for caution.

“If recent history is anything to go by, there is likely to be a few more twists and turns before a deal is concluded but this is at least a positive sign,” said Jameel Ahmal, chief market analyst at FXTM.

“The strong gains in global markets just shows how much investors want a deal to be reached and everyone would much prefer it to be this way, rather than for the uncertainty over a looming default,” he added.

According to Reuters, the European Central Bank is continuing to support Greek banks by providing them with another €1 billion of emergency liquidity today, which takes the total to €89 billion. Without this support, Greek banks would have run out of funds by now and negotiations would have not been able to continue as Greece would likely have had to rush to deal with a much dreaded bank run. 

Despite this, if a deal is confirmed by Thursday, the next step will be for Greek prime minister Alexis Tsipras to pass any reform package past his parliament, which could prove tricky. After years of battling austerity and recession, Greece and its citizens could take a lot of convincing to back an offer that includes higher taxes, welfare changes and plans to push back the retirement age.

Greece’s future in the eurozone remains uncertain for time being, despite the recent wave of optimism. Tsipras may yet be forced to call a snap election or a referendum, while European officials may find the recent reform proposal wanting. The next week should at least hold some answers.