World markets react to Greece bailout deal

The announcement of a new agreement in Brussels on Greek debt comes amid recognition that the country’s woes are far from over.

An elderly woman walks past graffiti beneath a freshly-written 'What's next???' message in central Athens, on 13 July 2015. Eurozone leaders have unanimously agreed to a new bailout programme for GreShow more

Analysts urged caution after world stock markets bounced on a new agreement in Brussels over Greek debt, stressing that the country’s woes are far from over.

Julian Jessop, the chief global economist at Capital Economics in London, said that “Greece is still in limbo, and so are the markets”, reflecting concern over whether the Greek parliament will be able to approve the tough reforms demanded of it by the deadline on Wednesday.

Eurozone leaders announced an agreement of a third bailout for Greece on Monday morning after 17 hours of talks, averting the prospect, albeit temporarily, of the country’s exit from the euro.

The €86 billion (Dh349.48bn) bailout is contingent on the Greek parliament agreeing to sweeping economic reforms, including the streamlining of pensions and increasing tax revenues, many of which were rejected by Greek voters little more than a week ago in a referendum.

European stock markets rose sharply in response to the announcement of the deal, news of which came just before 11am UAE time . The CAC 40 gained 1.9 per cent in Paris, while Germany’s DAX closed up 1.4 per cent.

Asian markets, further encouraged by the bounce in Chinese equities, had previously finished in positive territory on news of the deal, Japan’s Nikkei 225 closing up 1.5 per cent.

American markets also gained, with the S&P 500 rising nearly 1 per cent in early trade.

Such positive sentiment did not extend to currency markets. Despite rising sharply on news of the deal, the euro failed to hold on to gains against the dollar, weakening during the day.

Elsewhere, Spanish and Italian bond yields rose amid fears that implementation of the deal would prove challenging.

“The uncertainty over Greece’s membership of the single currency has not ended, and people are ultimately going to want to see a more definitive outcome before they respond one way or another,” said Mr Jessop of Capital Economics.

Of particular concern is the requirement that Greece deposit €50bn worth of state assets into an Athens-based fund for future privatisation, the proceeds of which will be used to recapitalise Greek banks and help to pay down the country’s debt.

“The privatisation target seems extremely ambitious for an economy that is still immersed in the worst depression of its modern history,” said Diego Iscaro, senior economist at IHS analysts.

“This raises the very real prospect of Greece being unable to meet the targets demanded by its lenders.”

Stock markets across the GCC ended in positive territory , led by the Dubai Financial Market. Dubai’s headline index rose by as much as 1.3 per cent in early trading, before closing up 0.9 per cent at 4,052.97, its largest one-day gain in two weeks.

“There was some impact [from the Greece deal] in that it probably gave people who were sitting on the sidelines some confidence to put some money back into the market,” said Muhammad Shabbir, the head of equity funds and portfolios at Rasmala Investment Bank in Dubai.

Emaar Properties ended the day up 2.1 per cent at Dh7.76, its highest close for a week.

However, Mr Shabbir noted that the impact of the Greek deal on UAE equities was likely to be short-lived, as the market prepares for the Eid Al Fitr holidays at the end of the week.

Abu Dhabi’s headline index closed up 0.5 per cent at 4,757.74 as Etisalat, the index’s second-heaviest weighted stock, rose 1.78 per cent to Dh14.30.

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