European shares and peripheral euro zone bonds rose on Wednesday and the euro held its own as some investors kept faith with expectations that, despite defaulting on an IMF loan, Greece will find a way to stay inside the currency zone.
While an unwelcome milestone for Athens, the default came as no surprise to markets after weeks of debt-talk brinkmanship, and news that the bloc’s finance ministers were to hold another teleconference later, show the drama is far from over.
Stocks in London, Paris and Frankfurt as well as Italy, Spain and Portugal opened 0.6 percent to 0.9 percent higher, while the euro hovered just above $1.1110 versus the dollar.
There was plenty of uncertainty though. The failure to reach a deal kept Greece on course for a referendum at the weekend on whether to accept the euro zone/IMF demands for more swingeing spending cuts.
Arguably the biggest focus of the day was whether the European Central Bank would begin cutting the emergency funding it is providing to Greek banks following the missed payment to the IMF.
“It is very difficult to see how one could conclude that banks that are basically closed because they have no access to cash, operating under a government that has just defaulted to the IMF, could possibly be solvent,” said Gary Jenkins, chief credit analyst at LNG Capital.
“So it really becomes a political decision as to whether the ECB sticks to its rules or decides to keep everything as it is.”
With the feeling that the ECB would not want to deliver the fatal blow to Greece and investors still harboring hopes of a deal at some stage, Italy, Spain, Portugal and Ireland — the other high-debt countries that were in the crosshairs of the euro zone crisis a few years ago — saw their bonds hold firm.
Currency markets were also relatively rangebound.
The U.S. dollar index was up 0.08 percent at 95.568, having bounced from Tuesday’s low of 94.847. Against the yen, the dollar stood at 122.57, up from a five-week low of 121.93 plumbed on Tuesday.
There was a flurry of European economic data too.
France’s manufacturing sector grew in June for the first time since early 2014 while the equivalent data from Spain and Italy dipped as factory growth remained tepid in the euro zone overall.
Underlining Greece’s woes, manufacturing activity there shrank for the 10th month in a row, as export orders and production slumped anew.
“The accelerated contraction in goods production in June ended the worst quarter for the Greek manufacturing sector for two years,” said data complier Markit economist Phil Smith.
Asia had been generally calmer overnight after two days of wild swings.
MSCI’s broadest index of Asia-Pacific shares outside Japan bounced 0.6 percent. Malaysian shares rallied 1.8 percent after Fitch unexpectedly raised the country’s outlook to “stable”.
Japan’s Nikkei added 0.4 percent, a second day of modest gains as it stabilized after Monday’s steep fall.
There was unexpectedly upbeat news from the Bank of Japan’s latest survey of manufacturers which improved in the three months to June, supporting the bank’s view that growth is gathering momentum.
Chinese shares went on another rollercoaster ride. They had looked like they had recovered from another erratic start before a late plunge left them down 5 percent in their fourth fall in the last five sessions.
Data was mixed from China where surveys showed sluggish factory activity but a pick-up in the service sector, a sign the transition to a more consumer-led economy remained on track.
Beijing’s efforts to stem recent market selling are struggling to gain traction. A combination of cuts in interest rates, allowing local government pension funds to buy stocks and talk of behind-the-scenes “window guidance” to institutional investors, has yet to calm a skittish mood.
In commodities, safe-haven gold nudged up while oil fell after bouncing strongly on Tuesday to end the second quarter with hefty gains. Brent was quoted down 55 cents at $62.84 a barrel, while U.S. crude eased 89 cents to $58.57.