Yesterday’s late surge in US and European markets saw between two and three days of losses wiped out in a single stroke, as talk of some form of Greek conditional cash for reforms deal started doing the rounds. The crux of the story revolved around a report that Germany might consider releasing some aid in return for one as yet unspecified economic reform. In return Germany might agree to extend the aid program on the understanding that the Greek government present specific proposals to meet the Memorandum of Understanding (MOU) agreed on February 20th. The driving force behind this move by Germany appears to have German Chancellor Angela Merkel’s fingerprints all over it, and while this does appear to be a more incremental approach, it could also be argued that it has all the hallmarks of a parent spoon feeding a petulant child, but only when they behave. While the story was denied soon after its initial circulation it does appear that there might be progress behind the scenes, otherwise why would the ECB raise its ELA ceiling once again, this time by another €2.3bn. Whatever is agreed, assuming anything is, it is clear that Greece will have to give some ground and there is speculation it could be on the primary surplus target. Last night’s late meeting between Germany’s Merkel, France’s Hollande and the Greek Prime Minister Tsipras broke up without any of the parties giving any clues as to progress, suggesting that yesterday’s market reaction may have been a little over optimistic. Despite yesterday’s market strong market rebound the fact remains that any agreement would still need to get past the Greek parliament, which is by no means a certainty, as well as getting agreement from the EU, IMF and ECB. On the data front today markets will be looking at today’s Chinese industrial production and retail sales data for May, which in light of this week’s trade data was not expected to be particularly positive. Over the past few months it has become increasingly apparent that domestic demand remains weak, with cuts to a range of fuel prices by the Chinese NDC earlier this week, reinforcing that narrative. Today’s retail sales numbers for May have done nothing to dispel the weak consumption picture even though they did improve slightly, coming in at 10.1 % slightly above April’s 10% rise. Industrial production also continues to remain fairly lacklustre coming in at 6.1%, slightly above expectations of 6% but still serving to underscore that the recent measures to boost the economy have had a rather muted effect and are taking time to trickle down into the wider economy which suggests that unless we get further improvements we could well see further easing measures in the coming months. It’s also an important day with respect to US economic data today with the release of US retail sales data for May, with expectations high for some form of solid rebound in a year that has seen retail sales come in negative year to date. Given the sharp rebound in payrolls data in May markets will be hoping that the US consumer is ready to start spending again, given wages are rising and unemployment is falling. This may be wishful thinking now that the fiscal boost from lower gasoline prices has gone, but nonetheless expectations are for a 1.2% rise in retail sales, up from 0% in April. There are positive signs in the form if new car sales, which have been rising strongly, but if this weeks Red Book chain store sales numbers are any guide then any optimism about a rebound in retail sales could well be optimistic. EURUSD – currently have support at the 1.1220 area as well as the 1.1050 lows on Friday, which has seen the euro rebound back last week’s high at 1.1380. A break through here has the potential to target the May highs at 1.1480. GBPUSD – the pound continues to push higher closing above the 200 day MA yesterday after last week’s failure to push below the 50 and 100 day MA’s between 1.5170 and 1.5190. Having broken above 1.5400 we remain on course for a move towards 1.5600, as well as the May highs at 1.5815. EURGBP – currently trading in a range between 0.7380 and 0.7270 the risk remains for a move lower towards 0.7220/30, while the 0.7380 level caps. USDJPY – yesterday’s slide below 123.60 opens up the prospect of a move towards 121.80 as the recent topping pattern alluded to yesterday played out. The 123.60 level should now act as resistance on any pullbacks. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
China data disappoints ahead of European open
20:00, 10 June 2015