LONDON – European stock and bond markets steadied before a eurozone leaders summit to discuss the Greek debt crisis while a further fall in Chinese shares reminded investors of other dark clouds on the horizon.
Oil recovered some ground after Monday\’s stomach-churning selloff prompted by Greeks\’ overwhelming rejection from the terms of a bailout deal and the Chinese stock markets turmoil.
Eurozone leaders meet in Brussels, awaiting proposals from Greek Pm Alexis Tsipras as his country\’s banks rapidly exhaust cash and the European Central Bank tightened the noose on funding. Failure to achieve a deal would boost the likelihood of Greece leaving the single currency.
The Euro STOXX 50 index of euro zone blue-chip shares rose 0.2 per cent after falling 2.2 percent on Monday. Germany\’s DAX index rose 0.3 percent while Italy\’s FTSE MIB was up 1.4 percent.
\”The rest of Europe is ring fenced from what\’s going on in Greece. We would see further volatility having a Grexit, but not as severe once we saw previously,\” said James Butterfill, global equity strategist at Coutts.
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Yields on German debt, which fell on Monday as investors sought the low-risk asset, dropped further. Ten-year yields fell 4.8 basis points to 0.73 percent.
However, yields on government bonds from Italy, Spain and Portugal, the countries viewed as most susceptible to contagion from Greece, also fell.
Italian 10-year yields, which rose on Monday, were down 3.3 bps at 2.34 per cent.
German Bund futures exposed sharply after the ECB on Monday raised the discount it charges on collateral that Greek banks must present in exchange for funds. Sources said the move was largely symbolic as the amount Greek banks can borrow is capped.
\”It is difficult to say whether this soft reaction happens because the market isn\’t too concerned about Grexit now or if the headlines over the course of the day have led the market to believe that the deal will be forthcoming eventually,\” said RBC strategist Peter Schaffrik.
The euro fell 0.3 percent to US$1.1005 but held well above Monday\’s low of US$1.0967. The dollar rose 0.4 per cent against a basket of currencies.
Many asset managers believe a Greek exit from the euro can nonetheless be avoided while others say the ECB would part of to limit contagion.
\”It is a drift lower for that euro with things likely to get interesting if it drops below US$1.0970,\” said Jeremy Stretch, head of currency strategy at CIBC World Markets. \”The financial markets are reasonably relaxed at this time because they believe the ECB will part of to take action to contain any contagion, should Greece step out of the union.\”
Earlier, Asian shares drooped after further losses in China despite the authorities there unveiling a number of measures at the weekend intended to halt a slide of almost 30 per cent since mid-June.
China\’s CSI 300 index of the biggest listed companies in Shanghai and Shenzhen closed down 1.8 percent, having fallen a lot more than 5 per cent earlier within the day.
MSCI\’s broadest index of Asia-Pacific shares outside Japan fell 0.5 percent, though Japan\’s Nikkei rose 1.3 % after a sharp fall on Monday.
Oil prices rose. Brent crude, which fell a lot more than 6 per cent on Monday, rose 53 US cents a barrel to US$57.07, though analysts said the outlook remained weak.
\”Macroeconomic headwinds are rising – be it in the form of the collapse in the Chinese stock market, Greece\’s potential exit in the eurozone or a stronger dollar. So downside risk to Brent flat price persists,\” Energy Aspects said .
Gold, which has failed to attract a safe-haven bid within the latest flare-up over Greece, dipped to US$1,168.15 and ounce.
? Thomson Reuters 2015