Europe close: Stocks higher on strong Eurozone data and Greece optimism

European stocks ended higher on Tuesday amid increased optimism that Greece will strike a deal with its creditors, and following solid Eurozone data.

The benchmark Stoxx Europe 600 index closed up 1.16%, France’s CAC 40 ended 1.18% higher and Germany’s DAX finished up 0.72%.

In the periphery, Greece was the standout performer, with the ASE Composite ending up 6.11%, while Spain’s IBEX 35 rose 0.30% and Italy’s FTSE Mib gained 0.35%.

Greek 10- and 2-year government bonds extended Monday’s gains, while yields on the corresponding Spanish and Italian bonds were also lower. Bond yields move inversely to prices.

In currency markets, the euro slid to trade down at $1.1181.

Jane Foley, senior currency strategist at Rabobank, said the soft tone of the euro since the start of the week and its correlation with other risk assets adds weight to Rabobank’s view that the single currency has been acting as somewhat of a safe haven given the Eurozone’s large current account surplus.

“It follows that once risk appetite is restored that investors will again take advantage of the low interest rates that are prevalent through much of the Eurozone and use the euro to fund riskier trades in higher-yielding assets,” said Foley. “The removal of the Greek risk factors thus raises the likelihood that EUR/USD will once again be dominated by the fundamental factors which led EUR/USD lower at the start of this year,” added Foley.

The emergency summit in Brussels on Monday yielded no deal, but Athens has been given 48 hours to make changes to the original plans it submitted, and Eurozone finance ministers will hold fresh talks with Greece on Wednesday.

Athens is due to repay around €1.5bn to the International Monetary Fund at the end of this month.

Meanwhile, the European Central Bank has reportedly raised the amount made available to Greece under its Emergency Liquidity Assistance facility, although no exact figure has been revealed.

“With time for a deal truly running out, Greece finally appears to be willing to compromise on crucial points like pensions and VAT allowing ongoing negotiations to enter a crucial state with a deal now much more likely than just a few days ago,” said Markus Huber, senior analyst at Peregrine & Black.

Despite the move higher in equities, some analysts were sceptical. Guy Foster, group head of research at Brewin Dolphin, said investors shouldn’t be drawn in to trading this market, “which gaps higher and lower in the short-run on soundbites alone.”

He added: “A benign outcome to the crisis is the most likely outcome and as today’s Eurozone Purchasing Managers’ Index figures reiterated, the underlying story of the Eurozone economy remains one of an entrenched recovery with plenty of headroom to grow into.”

Data releases added to the upbeat tone, showing that Eurozone manufacturing activity grew at its fastest pace in four years in June.

Markit’s flash Eurozone composite output index, which measures the combined output of both the manufacturing and service sectors, rose to 54.1 in June from 53.6, compared with expectations for a reading of 53.6.

German and French figures released earlier were also encouraging. Germany’s manufacturing purchasing managers’ index came in at 51.9 in June from 51.1 in May and better than expectations for a reading of 51.3.

French manufacturing and services data for June also beat analysts’ expectations. Investors also had to a raft of US data to digest.

Figures from the Department of Commerce showed that durable goods orders dropped by 1.8% in May, falling short of economists’ expectations for a decline of 0.5% month-on-month.

Other data were more encouraging, however. Sales of new homes in the US rose at the fastest pace since 2008 last month; new home sales jumped 19.5% year-on-year in May to an annual rate of 546,000, topping forecasts for a reading of 525,000.

Meanwhile, the Federal Housing Finance Agency monthly House Price index for April was up 0.3% on a seasonally-adjusted basis from March, while house prices rose 5.3% year-on-year.

On the corporate front, shares in betting company Ladbrokes rocketed in London after the company responded to recent press speculation by confirming that it is in merger talks with Gala Coral.

On the top-flight index, Johnson Matthey was the standout gainer after an upgrade by Citigroup.

On the downside, business supplies distributor Bunzl fell the company announced four new acquisitions and said organic growth slowed I the first half.