tronger than expected Chinese economic data helped stabilise Asia markets last week with strong rebounds in Chinese equity markets, but also elsewhere across the region with the Nikkei
also posting its best week since October last year.
We also saw European and US markets rallying in unison despite speculation about the prospects of a US September rate rise continuing to dominate headlines,
as markets continued to second guess the prospects of a move in the next few weeks.
While Fed chief Janet Yellen continues to talk up the possibility of action this year, September still seems somewhat premature given the weakness of the US consumer as reinforced by another disappointing retail sales number last week.
Back in Europe, Greece continues to dominate and will likely continue to do so for several weeks yet.
It is said that the definition of insanity is doing the same thing over and over and expecting different result
s, and while the etymology of the quote is long debated the sentiment is sound, particularly in the context of events in Europe over the past few weeks, its treatment of Greece, and its myriad of economic and political problems.
This week discussions are set to begin on a fresh €86bn bailout,
after approval was granted on Friday in the German Bundestag. It is hard to see how any new bailout will succeed when the previous two have failed, given the measures the Greeks are having to swallow to get the money.
The lack of any type of conditional debt relief as called for by the IMF
, despite a slight softening of position at the weekend by Germany, could well make it much less likely that the IMF will even want to be involved, meaning that any program is much more likely to fail.
For now the agreement of bridging finance of €7bn on Friday would appear to have resolved the previously thorny problem of whether Greece would be able to meet its €3.5bn obligation to the ECB due today
, while the increase in ELA to €89.9bn also appears to have brought the prospects of reopening of Greek banks much closer, with some set to reopen today. It remains quite clear though, that far from resolving the Greek problem, European politicians have merely deferred it.
Capital controls are set to remain in place for quite some time
given that the respective parliamentary votes last week were merely votes to begin talks on a new bailout.
Talking about a new bailout and agreeing on one remain two distinctly different goals,
something investors would do well to remember over the coming days, particularly since the prospect of Greek exit remains a very real possibility over the medium term, given that it remains quite clear that firstly, the numbers don’t add up, and secondly that despite the Greek parliament passing some new reforms last week it is far from clear how any of these new reforms will get implemented
, given the inherent hostility to them within Greece itself.
– the May lows at 1.0820 are an important barrier to a retest of levels last seen in April and a return to 1.0750, trend line support from the lows at 1.0460. The next support comes in at 1.0615, trend line support from the all-time lows at 0.8230. Pullbacks should find resistance at 1.0930.
– the pound remains well supported above 1.5560, the 50 day MA, and while above it could well retest the highs last week at 1.5675, on the way back to 1.5820. A move below 1.5560 retargets the 200 day MA at 1.5420.
– last week’s break below the 0.7000 level opens up the November 2007 lows at 0.6920 on the way to a test of the 0.6740 level. We need to get back above the 0.7030 level to stabilise and argue for a return to the 0.7060 level.
– the recent rebound hasn’t as yet seen the US dollar push back above the 124.50 level, which is needed for a return to the 125.85 highs. Now that we’ve pushed back above the 123.30 level the odds have shifted in favour of a move back higher, but while 124.50 caps we could see the US dollar fall back first.
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