European stock markets took news of Greek concessions as a reason to party. Meanwhile, John Authers points out, the euro barely responded to a sharp drop in bond market nervousness over a possible ‘Grexit’.
JOHN AUTHERS: Hello, and welcome back to The Note. Well, there was only really one big story on world markets today, and that was in Greece. We had the latest make or break meeting of European finance ministers.
The bottom line-- you'll read plenty more about this elsewhere on FT.com-- but the bottom line is that although there was no deal, there were significant concessions from Greece for the first time in a while. As a result, it does appear that the chances of a resolution, or at least of successfully kicking the can down the road for a while longer, have improved significantly. As a result, as far as the markets are concerned, it was time to party. You saw very dramatic increases across Europe in stock markets, most noticeably, obviously, in Greece, but also perhaps where more money's at stake-- in Germany.
What's perhaps more interesting is if we take a look at this chart, which compares the spread of Spanish government bond yields over German bond yields. A very good, I think, measure of the perceived risk that the periphery is going to be leaving the core, and you can see that there was indeed a very dramatic reduction in that spread today. It does look as though the market thinks this is quite a big deal.
Also, however, compare that to the euro over the last year and you can see that the perceived risk of a euro breakup of a Grexit is almost irrelevant to how the euro has been performing. As worries about the periphery reduced last year, so the euro weakens, and the euro has actually recovered somewhat as those worries have returned. The single biggest reason for all of this probably is QE from the ECB that's acted to allay fears about inflation. It's also acted as some kind of an anaesthetic on concerns about a break up of the euro area.
The bottom line for today is that the markets, at any rate, are already beginning to celebrate some kind of a resolution to the Greek situation. And as far as the foreign exchange markets are concerned, it was never that big of a deal anyway.