Markets calm before the Greek storm

European markets were settled on Monday, with indices posting small gains as traders eyed the crucial vote on the Greek €28 billion austerity package later this week.

The trading week is all about Greece and it is going to be hard to turn traders attentions away from what is happening in the Greek parliament. To that end, with little happening in today’s session, it could be viewed as the calm before the storm.

There are two parts investors are likely to focus on when it comes to the passing of the Greek austerity package. The first part is a successful vote on the package itself, likely to come on Wednesday, and then the bill on how the austerity package is implemented, likely to come on Thursday. Both parts require success for the EU and IMF to feel comfortable enough to sanction the next €12 billion tranche of loans and subsequent second bailout.

It is the Greece situation that is likely to determine whether traders are in risk on or risk off mode this week. Currently, we have seen the US Dollar Index retrace from resistance levels at 76.0, which the index hit last night, and this is giving rise to a picture whereby investors are cautiously seeking risky asset classes in the morning session. If the Dollar Index can consolidate above the 76.0 level, this could spell a warning sign to European stocks of risk aversion.

Equally price action for the euro, which is suffering its fourth straight day of declines against the dollar, is likely to be dictated by the Greece situation. There is every chance that a successful vote and implementation of the austerity package could spark a short term relief rally for the single currency in the near term.

Today we have seen investors bargain hunt some of the UK banks that were badly burnt by the oversold situation in Italian banks on Friday, when traders heavily sold off their banking holdings as some Italian banking stocks suspended trading. It is this bargain hunting that is lifting the UK banking sector 1% in trading, providing the platform for the FTSE100 to push 0.5% higher.

Ocado shares fall 9%
Shares in online grocer Ocado fell 9% in trading on Monday despite the firm issuing an interim pre-tax profit for the first time. The grocer also announced a deal with French peer Carrefour to market a range of French goods later next month. However shares slumped as investors continued to fret about greater competition from Waitrose’s online business, which begins a free delivery service this week for orders of above £50. There is also a bit of caution seeping into the market as the one-year lockdown agreement for Ocado directors nears its expiry, about whether they will cash in on their holdings.