There are three main stories impacting trading to start the week.
1) Crude oil is plunging today with WTI down over 4% and Brent down 2% amid optimism that an Iran nuclear deal could be reached by tomorrow’s deadline that would lead to the lifting of sanctions and enable the country to export oil once again.
2) Greece’s decisive NO vote in yesterday’s referendum has been weighing on European markets to start the week. The strong opinion appears to have shocked the establishment who have been scrambling overnight to figure out what to do next.
In a bid to clear the air and help negotiations get started once again, Greek finance minister Varoufakis resigned his position. It remains uncertain if EU leaders will be as magnanimous in defeat as he was in victory.
The EU has now reached a key turning point that people may look back to 10-15 years from now. From there things could go two ways. European leaders could decide to jettison the failed policies of recent years and start acting like a proper federation where the stronger and wealthier regions support the weaker areas (The end of the beginning). Or, they can keep the hammer on Greece, force it out of the Eurozone and watch the line up to exit from behind them over the next several months and years (The beginning of the end). The next 48 hours should give us a better idea of which way things are heading.
3) China’s stock markets remain highly volatile. Government support boosted the markets on the open, but the gains didn't last and the Hang Seng finished down 2.7% on the day. This suggests that there’s not much anyone can do to stop the artificial rally of March and April that was driven by improved market access not underlying fundamentals from unwinding.
EUR and European markets started the day lower, bounced back a bit but have started to slide again over the last few hours with the Dax down 1.6%, the CAC down 1.9%, the IBEX down 2.4% and the MIB down 3.4%. The FTSE
remains somewhat insulated, down only 0.7% with US markets heading for a similarly moderate decline to the UK to start the week. European treasury yields also suggest a fractured decision with Greece jumping 325 basis points to 17.25% while Italy, Spain and Portugal also have been on the rise. Germany France and the UK are slightly lower so there does appear to be a flow of capital toward the countries considered to be relatively more stable.
Gold, however, was unable to hold on to its initial gains and is down on the day against USD suggesting that traders still don’t expect Greece to devolve into a big contagion. EUR and CHF are lower on the day but the worst performer has been NOK on its sensitivity to both crude oil and Europe. CAD is down more moderately taking the hit from oil but getting some support from its proximity to the currently more stable US economy. Copper, meanwhile, is taking a hit falling 3.2% on its sensitivity to China.
More meetings on both Greece and Iran are scheduled for today and tomorrow, with the potential for comments, rumours and news possible at any time from any direction which may keep trading active and present short term opportunities.
There have been no major corporate announcements this morning
Significant announcements released overnight include:
Greece referendum final results NO / OXI 61.3%
YES / NAI 38.7%
Germany factory orders 4.7% vs street 3.8%
Upcoming significant announcements include:
9:45 am EDT US Markit service PMI street 54.9
10:00 am EDT US ISM non manuf PMI street 56.4
10:00 am EDT Canada Ivey PMI street 56.0 vs previous 62.3
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