Traders go defensive as #Grexit crisis comes to a head
After yesterday’s Eurogroup meeting failed to resolve anything about the Greece situation, traders have been shifting capital toward defensive positions ahead of the weekend just in case something happens.
Amid another round of the same old dire warnings (which have started to get really tiresome IMO) EU leaders have scheduled an emergency summit for Monday to try and salvage the situation, but given the acrimony and contentious public statements from both sides, it could be too little too late. At this point, even talk of extending the bailout program ending June 30th to December may not create much enthusiasm from markets sick and tired of can kicking and foot dragging and eager for more real lasting solutions. Questions over whether Greek banks will be able to open on Monday hasn't helped confidence either.
Greek PM Tsipras is off visiting Russia today where Greece has agreed on a gas pipeline deal with Russia, reminding everyone that Greece may seek other sponsors if negotiations with the EU fall through. Also today, the ECB increased its lifeline to Greek banks in between its usual weekly instalments, indicating the flight of capital has accelerated.
Meanwhile, the line behind Greece of countries looking for another way continues to grow. In an election yesterday, Danish voters kicked out their government and elected an opposition coalition led by the People’s Party on an anti-immigration and Euroskeptic platform. Denmark now joins the UK, Spain, Italy and Poland as countries that have seen parties demanding big changes to either win or make large gains in recent national or regional elections.
Growing disillusionment with the EU project across all corners of the continent and the potential a Grexit decision to go or not to go could come in the next few days has sent many traders heading for more defensive positions. Stock indices in Europe and North America are trading lower today while EUR and the pegged DKK have gone into retreat.
Resource currencies have also been soft today, particularly AUD giving back some of its recent outperformance. CAD is also down as traders focused more on the surprise drop in Canadian retail sales than higher than expected Canadian inflation. This news, along with yesterday’s Norges Bank rate cut has rekindled speculation that the Bank of Canada may need to go more dovish and possibly cut interest rates again this summer. NZD (softer consumer confidence) and NOK (rate cut and falling oil prices) have also been in decline today.
Defensive plays, meanwhile, have been rallying with USD, GBP, JPY CHF and gold the top performing currencies as traders prepare for what could be a volatile weekend.
There have been no major corporate announcements this morning.
Significant announcements released overnight include:
Bank of Japan decision ¥80T/yr target no change as expected
Canada consumer prices 0.9% vs street 0.8%
Canada core CPI 2.2% vs street 2.1%
Canada retail sales (0.1%) vs street 0.7%
Canada retail ex auto (0.6%) vs street 0.3%
NZ consumer confidence 119.9 vs previous 123.9
Upcoming significant announcements include:
1:00 pm EDT US Baker Hughes drill rig count previous 859
FOMC member Williams speaking today
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