LONDON MARKET CLOSE: Stocks Up On Greek Optimism, Focus On Eurogroup

LONDON (Alliance News) - Optimism over the Greek debt situation and another session of gains in Chinese equities boosted stocks across Europe and the US, as investors now focus on another Eurogroup meeting scheduled for Saturday.

The FTSE 100 index closed up 1.4% at 6,673.38, up 1.3% for the whole week. The FTSE 250 ended up 1.1% at 17,486.27, while the AIM All-Share finished up 0.7% at 749.82.

European stocks once again outperformed London, with the CAC 40 in Paris up 3.1% and the DAX 30 in Frankfurt up 2.9%.

In a move seen as Greece's final bid to keep the euro, the government placed a cash-for-reforms proposal before creditors late Thursday. It comprises spending cuts and tax hikes in exchange for a third bailout, acceptance of which will pave the way for further negotiations between both sides.

Eurogroup President Jeroen Dijsselbloem received the proposal from Greece, his spokesman Michel Reijns said in a Twitter message. Eurozone finance ministers will meet on Saturday in Brussels to review the Greek request.

That was meant to be followed by a summit attended by 28 national leaders of the EU on Sunday to reach a final agreement. However, an EU official said Friday morning that no EU summit will be held on Sunday if the Eurogroup of finance ministers agrees with the Greek offer on Saturday.

"A negative decision by EU leaders would effectively seal Greece's exit from the Euro," says UBS. "A positive decision would pave the way for negotiations on a third bailout, including debt restructuring."

Prime Minister Alexis Tsipras' request for at least EUR53.5 billion in bailout funds for the next three years will be presented in the Greek parliament for approval on Friday. The new list of reforms makes concessions to creditors' demands in key areas including VAT and pension reform, according to a copy of the document seen by dpa.

The Greek program is "serious, credible" and shows "a determination to remain in the euro area", French President Francois Hollande said in a message on Twitter. Nothing is decided yet, everything can be done, he added.

"Decision makers will be faced with a number of very difficult problems," says UBS. "Firstly, a decision will have to be taken whether the package proposed by the Greek government is far-reaching enough. Secondly, EU leaders will have to decide how to tackle the issue of debt sustainability." Thirdly, the bank says the "EU leaders will have to decide whether and how to fund Greece over the coming weeks as negotiations over the upcoming programme extend."

"This should be concluded ahead of July 20, when European Central Bank-held bonds mature," writes UBS. "Importantly, EU leaders will also need to give political backing to the ECB – either sending a signal for the ECB to switch off Extended Liquidity Assistance if negotiations fail, or by signalling that ongoing ECB support for the Greek banking sector has the necessary political backing."

Outside the Greek saga, European and US stocks benefited from a second consecutive session of strong gains by Chinese stock markets following successive declines. The Hang Seng closed up 2.1% in Hong Kong and the Shanghai Composite rose 4.5%. The gains came as China's securities regulator banned senior management and investors who own stakes in businesses exceeding 5% from selling their shares for the next six months, and China's central bank injected CNY35 billion into the money market by buying bonds.

Wall Street was on the path to close Friday higher, in a week that saw Wednesday the suspension of trading on the New York Stock Exchange due to a technical problem, provoking declines in all major US indices.

When the European stock markets closed Friday, the DJIA was up 1.1%, the S&P 500 was up 1.2% and the Nasdaq Composite was up 1.3%.

The most important event in the US will be later in the afternoon, as US Federal Reserve Chair Janet Yellen is due to speak about the economic outlook in Cleveland, Ohio, at 1730 BST.

In London, Standard Life, up 4.0%, making it the best performing stock in the FTSE 100, with St. James's Place, up 3.8%, and Prudential, up 2.4%, amongst the best blue-chip performers.

Barclays expects updates on Solvency II implementation, together with mergers and acquisitions, to be at the centre of attention when European insurers start publishing second quarter results, as the bank updates its target prices on all the insurers in its coverage.

The bank says that as the implementation date for Solvency II on January 1, 2016 approaches, the second-quarter results announcement from insurers should provide updates on unresolved or unclear issues, including transition measures, matching and volatility adjustments, and internal models. While it remains too early to expect major newsflow, the bank sees solvency numbers likely improving amid rising interest rates, though widening spreads, falling equities and modest foreign exchange headwinds will offset some of this.

Meanwhile, International Consolidated Airlines Group ended up 3.2%, after Irish budget carrier Ryanair Holdings said its board has voted unanimously to accept IAG's offer for its stake in Aer Lingus Group, removing the final barrier in the way of IAG's takeover bid and paving the way for the protracted transaction to go through. Ryanair shares closed up 2.5%, and Aer Lingus ended up 2.1%.

InterContinental Hotels Group closed up 3.0% after it has agreed to sell its stake in the InterContinental Hong Kong to Supreme Key for USD938 million. Nomura says the sale price is at the top end of its appraised value of USD783-940 million, with Numis calling the price "very acceptable" and some USD150 million above what the broker had expected.

IHG will retain a 37-year management contract for the hotel, with three ten-year extension rights. It expects to be paid management fees of around USD8 million a year, which will increase after refurbishment is completed.

Amongst a handful on stocks ending down in the FTSE 100, Weir Group finished down 0.1%. Panmure Gordon believes that, while Greece and China have been dominating the headlines, another potential problem is on the horizon in the shape of the US shale industry. The broker says its analysis shows the US shale industry has yet to undertake the kind of "brutal" cuts which will be required to ensure its survival, and says investors "should not be fooled" by the actions of operators which are adding rigs in order to maintain the illusion of a viable business model.

Weir and peer Fenner have the most exposure to the US shale industry, Panmure Gordon says, and, assuming that US shale-related sales declines may hit around 70%, the broker cuts its earnings per share forecasts on both companies by between 9% and 25%. Shares in Fenner closed up 0.3%.

In the corporate calendar Monday, Genel Energy and Telit Commications issue trading updates, while Sthree releases half-year results. Collagen Solutions and Conviviality Retail publish full-year results.

In the economic calendar, Japanese industrial production is due at 0530 BST while Bank of England's Credit Conditions Survey is expected at 0930 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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