Resource currencies slide as markets await Greek referendum decision
With US exchanges closed for a holiday today and the big Greek referendum looming on Sunday, traders appear to be acting like deer caught in the headlights, unclear on which way to turn. Polls suggest a dead heat between the two sides and more conflicting statements from politicians have kept it all as clear as mud.
It does appear from all of this that following the vote, things could move quickly once again. Greek finance minister Varoufakis suggested that talks have continued behind the scenes and that a deal is close but this was denied by the EU side. He also applauded the IMF comments on debt relief and suggested Greek banks could reopen Tuesday regardless of the result.
In possibly the most laughable statement of the week, Eurogroup head Djesselbloem apparently said that the IMF was using outdated models for its analysis. I wonder how outdated the models would be if the IMF had said something the EU wanted to hear? Latest reports have Greek PM Tsipras apparently asking for a 30% debt haircut, so the focus could shift toward debt relief going forward, which could make further austerity more palatable. The stick has certainly been out for a long time, adding the carrot could go a long way toward helping both sides dig out of this mess.
It remains unclear if the ECB will continue supporting Greek banks after the vote or not and if the result will lead to a Grexit or more negotiations. Apparently though a Eurogroup finance ministers meeting has been scheduled for Tuesday the 7th and a leaders meeting for Wednesday the 8th, so we’ll see.
It looks like next week could get off to a very active start just like this week. For today though, traders appears to be sitting in their hands. EUR is flat against USD, European indices are down 0.0-0.5%, gold is up only slightly and European treasury yields are all slightly lower, even Greece!
All in, this suggests a reluctance to commit to either side ahead of the vote, but also there doesn’t appear to be a wave of fear crashing over the markets either, suggesting that a Grexit may have already been priced in by bonds and currencies, and at least partly discounted by stocks.
One area that has been a bit soft today has been commodities and resource currencies although this appears to be related more to internal factors than to the Greece situation. AUD has been slammed after retail sales came in below expectations, stoking speculation the RBA may need to cut interest rates at its meeting next week. NZD fell in tandem but at a slower pace as traders continue to think the RBNZ may need to keep cutting rates too.
Oil has dropped back again as Iran negotiations continue toward next Tuesday’s deadline (which I guess could get extended again if progress continues). CAD and NOK are trading lower in tandem with the loonie taking the bigger hit as traders and economists continue to speculate on whether Canada has dropped into a recession and how much pressure is on the Bank of Canada to cut interest rates again.
There have been no major corporate announcements this morning
Significant announcements released overnight include:
Australia retail sales 0.3% vs street 0.5%
Sweden industrial production 3.3% vs street 2.5%
Norway unemployment rate 2.8% as expected
Eurozone retail sales 2.4% vs street 2.3%
Service PMI Reports:
Australia 51.2 vs previous 49.6
Japan 51.8 vs previous 51.5
China HSBC 51.8 vs previous 53.5
India 47.7 vs previous 49.6
Singapore PMI 51.1 vs previous 49.5
Sweden 54.9 vs previous 58.2
Spain 55.8 vs street 58.4
Italy 53.4 vs street 52.3
France 54.1 vs street 54.1
Germany 53.8 vs street 54.2
Eurozone 54.4 vs street 54.4
UK 58.5 vs street 57.5
Upcoming significant announcements include:
There are no major announcements scheduled for North America later today.
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