It’s said that the darkest hour is just before the dawn but with very real fears now that capital controls are the next step for Greece we could be in for a wait before any optimism prevails in these markets.
Any hopes that Draghi might soothe the recent ebullience were left unfounded yesterday so a lack of liquidity and indeed certainty is clearly something we’re going to have to get used to. For a change Draghi failed to talk the euro down from its perch too. The hazard of low and interest rate policies globally are now being felt and with speculation also ramping that the Fed will hike it’s rates soon based on a fairly buoyant Beige book update last night bond traders these days no longer have an easy ride.
Gyrations in debt markets, generally renowned for a lack of volatility and excitement has succeeded in hampering any risk appetite in equity indices.
A mere two companies are registering meagre gains on the FTSE 100 this morning.
easyJet Plc (LONDON:EZJ) saw increased passenger numbers in the 12 months to May. Rising to 66.6 million, a rise of 6.1% on the year recent weakness in the euro will have certainly helped to bump up the passenger numbers. The share price has been in decline since the early part of May, predominantly on the back of higher oil prices. Present levels (1597p) have in the past provided a buying opportunity.
Kingfisher (LONDON:KGF) is also flying higher on the back of a broker upgrade – the shares have gained 1.55% and could well be on track to tackle the recent all-time highs.
The Dow is expected to open below the 18,000 level again today. Despite the decent ADP employment numbers yesterday, this market is clearly too spooked to make any headway. Unemployment claims today won’t offer anything in the way of any direction. We stand pat for the Non-farm payrolls release tomorrow.
Germany pays the bill
Greek negotiations are going nowhere as PM Tsipras rejected proposals saying that the ‘realistic’ proposals are those of the Greek government. Tsipras’ efforts to avoid ‘past mistakes’ is all positive, however Greece still needs to come up with a solid plan to make sure that avoiding past mistakes doesn’t lead to bigger mistakes in the future, such as an exit from the Eurozone or a further deterioration of diplomatic relations with its leading trade partners. The EU patience is now running low as Tsipras is preparing a so-called ‘realistic’ proposal. Yet Greece is no longer in a position to ask for free lunch.
The hefty sell-off in Eurozone bonds continues; German 10-Year yields are set above 0.90% escorted by unusually high volatilities. German bunds are paying the bill, first for the ECB QE set to sustain peripheral recovery, and for Greece, stepping away from its obligations. The Eurozone is on shaky ground. Euro is holding the ground however against the majors. If the rise against the Aussie has kept the single currency well sustained overnight, EUR/USD stepped lower as European traders came back to their desks. Fading hopes on Greece could keep the euro rallies capped as we have started seeing early indications that the bullish demand is waning. At this point, any compromise with Greece should be good news and bring the bullish momentum back on the market.
Fundamentally, there has been no change in ECB policy, the bank will continue its aggressive QE until September 2016 as scheduled, which should in the mid-run continue weighing on EUR/USD via the classical ECB/Fed policy divergence. The question is where EUR/USD will top. The key resistances stand at 1.1467 (May 18 high) and 1.1500 (key resistance since February).
Brazil hikes Selic rate by 50 basis points
As expected, the Brazilian Central Bank raised the Selic rate by an additional 50 basis points to 13.75% aiming to temper the inflationary pressures and the real’s depreciation. Further tightening on rates is seen on the horizon, despite the heavy recession knocking on the door. Combined to efforts to tighten the budget, charming the investors is the only way to face the economic challenges in Brazil. Improvement in government’s budget, a more transparent business environment, tempered currency volatility and stable price dynamics should attract investors back in the country. Despite tighter monetary policy, the Real is expected to stretch toward 3.50/75 with Fed hinting at the first rate hike before the end of the year.