Fearing Greece Crisis

Investors danced in the market after Eurozone granted extension and Fed delayed interest rate.
                                                                                            Source: Bloomberg
Greece’s debt had been a significant factor to euro currency dropping in value.

By: Brandon Peng

Date: February 20, 2015

Market indices jumped globally as the European Union agreed to give Greece an extension to repay its loan, while the Fed continued to be “patient” on raising interest rates.

Throughout this week, the US market wobbled as Greece’s Prime Minister Alexis Tsipras and his Finance Minister, Yanis Varoufakis, and the eurozone finance ministers disagreed each other’s proposal to aid Greece’s debt repayment. In response, the S&P 500 and the Dow Jones Industrial Average were volatile as their talk progressed. After criticism from Germany officials doubting repayment from Greece, their meeting ended off today with eurozone granting Greece the repayment extension, but only for four months until June 2015.

This week had no trading on Monday, but the Dow Jones Industrial Average ended it by climbing 154.67 points to 18,140; an all-time record with 0.86 percent gain. S&P 500 closed at 2110 after climbing 12.85, a 0.61 percent gain. And Nasdaq finished at 4956 after climbing 31.27, a 0.63 percent gain.

Based on indexes, the global market were in relief that Greece didn’t make a euro exit, a discontinuation of Greece using euro as its national currency. If the agreement was not made before Greece’s debt repayment date, after Feb. 28, then Greece’s euro exit would have unsettled the global market. According to AP business writer Ken Sweet’s interview with Christopher from Wells Fargo, Greece’s euro exit could have disrupted the global market despite its small economy.

Other issues that had an impact on trading this week, the Fed released its FOMC minutes but the details on when interest rates will rise were not specific, and the Fed kept replying back “patient”.

According to Lindsey M. Piegza, chief economist of Sterne Agee, the Fed was concerned about factors slowing the US economic recovery, such as “international developments” from Greece’s financial crisis. “Furthermore, some participants wanted to see further improvement in the labor market. Some participants believed that considerable labor market slack remained”, said Piegza.

In the upcoming week, Greek officials’ successful deal left them making economic reforms by Monday, for eurozone officials to judge. Meanwhile, the Bureau of Labor Statistic will update the consumer price index and jobless claims, and the Bureau of Economic Analysis will release the latest GDP (gross domestic product). Based on the results, they may affect the Fed’s next FOMC meeting on March 17-18, 2015.