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06 December 2023

Markets gain as Greece passes austerity bill

By Reuters

Asian shares and the euro gained on Monday after Greece came a step closer to securing a much-needed bailout fund and avoiding a messy default, though most of the recent optimism appeared to have been already priced in.     

European shares were seen following Asia higher, with financial spreadbetters expecting Britain's FTSE 100, Germany's DAX and France's CAC-40 to open up about 0.5-0.7 percent.     

The Greek parliament approved on Monday the deeply unpopular austerity bill, while serious violence broke out on the streets of Athens and spread across the country, highlighting the tough challenge the government faces to pursue with the reforms.      

A rise over the past few weeks, partly on expectations of a Greek deal, has brought many Asian equities markets to levels that would require further positive news to break higher, analysts say.     

MSCI's broadest index of Asia Pacific shares outside Japan  rose 0.8 percent by early afternoon, but at one point dipped into negative territory, reflecting market worries about the many hurdles still facing Greece and other heavily indebted countries in the euro zone.     

The index hit a six-month high on Thursday on optimism that Greece would clinch a deal on austerity measures, only to pull back on Friday when global lenders demanded that more steps be taken to show Athens' commitment before they agreed on a crucial second bailout.     

Japan's Nikkei added 0.6 percent, shrugging off data showing Japan's economy shrank a bigger-than-expected 0.6 percent in October-December.       

"The recent risk-taking sentiment has been based on an assumption that a disorderly default will be avoided, (so) the approval confirms this assumption is still valid and will support sentiment," Junya Tanase, chief currency strategist at JPMorgan Chase in Tokyo.     

"As long as other riskier assets respond positively, the euro will also keep a relatively firm tone. But this is just one of the many issues Greece still must solve, and markets will remain jittery over headline risks on Greece," he added.    
The euro climbed to a session high of $1.3262 on the Greek parliamentary approval and last stood up 0.4 percent at $1.3254.     

Along with the parliamentary approval, Greece must also find a further 325 million euros of spending cuts and political assurances must be given that the plan will be implemented, in order to gain approval from global lenders.             

Euro zone finance ministers are scheduled to meet later this week to discuss giving a seal of approval for the new 130 billion-euro bailout, a lifeline for Greece to ride out a major bond redemption on March 20.     

Many Asian stocks indexes and currencies have risen in recent weeks to test key resistance levels after the U.S. Federal Reserve pledged to keep interest rates very low for longer than first indicated, on encouraging U.S. economic data and on signs that China will likely avoid a hard landing.     

Markets now need more positive economic news and concrete steps from Europe to contain its debt crisis in order to extend those gains, analysts say.     

One red flag for the risk rally may have emerged on Friday as the CBOE Volatility index VIX jumped nearly 12 percent, the biggest percentage rise in three months. The index measures expected volatility in Wall Street's S&P 500 over the next 30 days, rose to a three-week high.     

The Nikkei volatility index hit a two-week high on Monday, also indicating increased wariness among market players.     

Some Asian equities markets were capped by profit taking, such as Seoul shares which trimmed earlier gains.     

"The Greek news helped improve investor sentiment earlier, but institutional investors are selling after recent surges," said Bookook Securities analyst Eom Tae-woong.     


With markets expected to remain nervous about Greece, a slew of debt auctions this week by Italy, Spain and France will be watched closely as a gauge of investor confidence in the euro zone's high-yielding sovereign debts.         

Spot gold added 0.5 percent to $1,728 an ounce, helped by gains in the euro and equities after the Greek vote.     

Oil also recovered, with U.S. crude up 1 percent at $99.64 a barrel and Brent gaining 0.8 percent to $118.21 a barrel.     

"I don't expect we're going to rally ahead in a big way ... with protests raging everywhere in the country (Greece), it's not exactly an image of confidence," Victor Shum, senior partner at oil consultancy Purvin & Gertz.

Asian credit markets firmed, with the spreads on the iTraxx Asia ex-Japan investment grade index narrowing by four basis points from Friday.