Ahead of Sunday’s referendum, that is now in process of delivering a decisive ‘No’ vote (to the terms and conditions under which Greece’s creditors would have extended the now-expired second bailout) German Finance Minister Wolfgang Schaeuble had been reported by German media as telling fellow party members that a No does not mean Grexit. This was not a view being publicly echoed by many other protagonists in this long running Greek saga. As the FTs Peter Spiegel, who has provided some of the most insightful coverage of the crisis in recent weeks, was noting on Saturday, luminaries ranging from French President Francoise Hollande, Italian PM Matteo Renzi to EC President Jean-Claude Juncker, have made clear they would consider a No ‘a breach within Europe and a choice to leave the euro.
For anybody following my new Platinum Service it made 375 points on Friday. Last month the new service generated a total return of 3045 points.
Overnight, German Economy Minister Gabriel is being reported as saying that Greek PM Tsipras ‘has ripped down the last bridge on which a compromise with Europe could have been built’ and that Tsipras is leading the Greek people ‘down the path of hopelessness’. Yet others, such as the Luxembourg PM, are expressing confidence in a solution being found (which presumably keeps Greece in the euro). The ‘no’ vote (61% at last count) is the worst possible outcome from an ‘uncertainty’ perspective. It is hard to challenge the appropriateness of EUR/USD continuing to trade sub-1.10, on sharply higher market risk aversion. This after the AUD/USD had already traded to a new cycle low of 0.7510 on Friday, at the end of a week that saw Iron Ore prices shed more than 10% and the Chinese stock market more than 12%. We are sceptical that Saturday’s announcement of an RMB120bn support fund for equities will do more than temporarily stop the rot. ‘Grexit’ risk has clearly risen sharply, and is now the singularly most likely scenario following the referendum. That said, other scenarios, under which a new deal is eventually agreed, following a protracted period of bank closures/uncertainty/negotiations (and possible fall of the government once it becomes clear Mr Tsipras has sold its citizens a pup) can still sum to a probability of close to 50%.
Of one thing we can be sure: the ‘moral hazard’ risks arising from immediately granting Greece a soft deal with substantial debt relief to a Tsipras/Varoufakis- led Government under which there is no confidence that agreed-to reforms will be adhered to, makes this a less likely scenario than Grexit. This is likely to be the message that emanates from the EU summit that Mrs Merkel and Mr Hollande have just called to take place on Tuesday. (Eventually) deal or no deal, it is hard to see reason why investors should be taking a ‘Grexit is good’ (for the rest of the euro-area) view of developments just yet, even if that is ultimately the case. Equity/credit market weakness and safe haven support for core Government Bond Markets (US and Germany) is the easier call than that the Euro necessarily heads much further south.
One limiting factor here will be the view that the upcoming period of protracted uncertainty in Europe keeps Fed ‘lift-off’ at bay. One immediate question for markets is whether the ECB acquiesces to the inevitable request for an increase in Emergency Liquidity Assistance (ELA) funding, amid indications that the withdrawals that have been permitted since banks were closed a week ago means the current ELA limit is almost certainly insufficient to keep banks technically solvent. A refusal by the ECB to increase ELA limits (highly likely) brings with it the prospect of depositor haircuts (as well as keeping banks shut of course). This may be when voters start to realise that what they think they’ve just voted for is not what is going to be delivered, and social chaos ensues.
It has just been announced that Greek Finance Minister Varoufakis has just resigned saying his presence could hamper aid talks. He has just posted on his personal blog that ‘soon after the announcement of the referendum results, I was made aware of a certain preference by some European participants, and assorted partners from my absence from its meetings, an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today’
This certainly has moved the goal posts and the markets are recovering nicely on the back of this announcement.
This morning on the economic front we have the Euro-Zone Sentix Investor Confidence at 9.30 am. This is followed this afternoon by US ISM Non- Manufacturing Composite and Labour Market Conditions Index which will both be released at 3.00 pm.
September S&P 500
The S&P plan has worked out really well this morning as the idea of buying into the key support and 200 day Moving Average at 2035/2040 after the markets opened following the Greek referendum, proved itself with the market opening at my 2037 buy level. I have just covered this position at 2048 as outlined earlier to my Platinum Members and I am now flat. This is the second consecutive Monday that the S&P has opened with a substantial ‘down gap’. Remember from last Monday we still have an ‘Open Gap’ from 2084/2096 and just like last week we have already closed a large part of this gap. Today I will again be a buyer on any dip lower to 2039/2044 with a tight 2034 stop. I am still reluctant to go short the S&P as I still believe that Greece will not leave the Euro at this time and the fact that Varoufakis has resigned this morning certainly helps this view.
EUR/USD
I am still flat the Euro and today I will raise my buy level to 1.0980/1.1020 with a 1.0940 stop. It is interesting that for the second consecutive Monday that after the Euro opened lower that the market has recovered which to me shows that despite all the negative headlines the Euro is not comfortable in trading below 1.10 at this time. My only interesting in selling the Euro is still on a rally to 1.1150.1.1180 with a 1.1210 stop.
September Dollar Index
I am also still flat the Dollar and today I will lower my sell level slightly to 96.70/97.00 with a 97.30 stop.
September DAX
The DAX plan also worked well overnight as the idea of buying a down opening below 10750 certainly worked out very well. I bought the market at 10740 shortly after the open last night and I have covered this position at 10870 this morning as outlined to my Platinum Members and I am now flat. Today I will again look to buy the market on any further dip lower to 10690/10750 with a tighter 10630 stop. If I am taken long and subsequently stopped out of this long position I will be a more aggressive buyer in front of 10600 with a 10530 stop. I do not want to be short the DAX at this time especially after the 1800 point fall in the market over the past 10 weeks. We are also trading at the bottom of the Bollinger Band which is another very good reason in not been short at this time.
September FTSE
The FTSE plan worked well on Friday as shortly after I posted the market traded lower to my 6520 buy level before having a nice rally which enabled me to cover this position at 6550 as I wanted to be flat ahead of the weekend. Just like the other major Indices the FTSE is recovering nicely this morning after getting hammered on the open following the resignation of Greek Finance Minister Varoufakis. The FTSE is also trading at the bottom of its Bollinger Band and today I will again be a small buyer from 6430/6460 with a 6390 stop. Given how oversold the FTSE is currently trading I do not want to be short the market at this time.
Dow Rolling Contract
The Dow plan also worked well this morning as the market opened last night near the bottom of my buy range at 17505. After a very nice rally this morning following the resignation of Varoufakis the Dow has had a nice rally which has enabled me to cover this position at 17620 and I am now flat. Today I will again be a small buyer on any dip lower to 17490/17540 with a 17450 stop. Just like the other major Indices I do not want to be short the Dow at this time.
September BUND
Very frustrating to have been stopped out of my long position near the lows of the Day last Thursday at 150.80 especially with the BUND trading 200 points higher this morning and I am still flat. Today I will be a small seller on any rally higher to 153.10/153.40 with a 153.65 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1152/1160 with the same 1139 stop.
Silver Rolling Contract
This morning Silver has traded lower to my 15.60 buy level. I am still long and today I will raise my stop on this position to 15.20.
Recent Comments