Market commentary: Stocks continue to rally as Greek banks open

European stocks extended their highest level since May on growing optimism over a resolution to Greece’s crisis and amid deals activity. Dutch fertilizer maker OCI NV rallied 11 percent after CF Industries Holdings Inc. said it’s in preliminary talks about a combination with certain businesses of OCI. Aveva Group Plc jumped 29 percent after Schneider Electric SE agreed to merge its software business with the U.K. company. Julius Baer Group Ltd. slipped 2.5 percent after Switzerland’s third-largest wealth manager said first-half profit declined after the bank took a provision to settle a tax dispute with the U.S.

The risk-aversion sentiment that dominated markets has definitely eased. More M&A activity is among things showing that confidence is returning after the worst seems to have been avoided. The Athens Stock Exchange is still shut.

German Chancellor Angela Merkel held out the prospect of limited debt relief for Greece, where banks are reopening after three weeks. The nation gave an order today for 6.8 billion euros of repayments to creditors, according to a Greek finance ministry official. The payments ordered include money owed to the European Central Bank, the International Monetary Fund and Greece’s central bank.

While Greeks are seeing the first signs of stabilization, talks on the aid program lie ahead and German Chancellor Angela Merkel said any debt relief has to wait until Greece meets the terms of the first round of the new bailout. Greece’s creditors seem to be taking a more pro-active role in the monitoring of actions of reform by the government, and are looking to ensure that any conditions tied to the agreement are met.

Greece’s financial strain eased after the ECB approved emergency financing and the European Union completed plans for a bridge loan. The stopgap funding will shore up the Greek economy during talks on a full three-year rescue program worth as much as 86 billion euros.

Attention is turning towards Ukraine where the Financial Times is reporting that the nation has extended talks with creditors amid precautions that the country could default as soon as Friday if no agreement is reached.

A deal to restructure Ukraine’s $70bn debt load has still yet to have been reached with Ukraine reportedly looking for a 40% haircut on its’ bonds in order to make the debt load sustainable, however the group of four creditors, much like the Greek situation, continue to insist that a haircut is not needed and instead have proposed maturity extensions and coupon reductions.

European banks and asset managers are seeking to sell 74 billion euros of real estate debt and foreclosed assets, the most ever, as they trim their soured loan books. Vendors sold 23.5 billion euros of property loans in the first half, 42 percent less than a year earlier, New York-based broker Cushman & Wakefield said in a report today. The report said that Italy, Romania and Poland will probably set up bad banks to help sell off soured property loans because others around Europe have proven successful and investor demand remains high.

This article was issued by Simon Psaila, Trader/ Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.