According to the Guardian’s European correspondent, ‘extensive mental waterboarding’ is one official described the rough ride being given to Greek PM Alex Tsipras by EU President Donald Tusk, German chancellor Merkel and French President Françoise Hollande. He says Tsipras was told Greece will either become an effective “ward” of the Eurozone, by agreeing to immediately implement swift reforms this week in order to qualify for additional aid, or leave the euro areas and watch its banks collapse. This follows the leaking on Saturday of a German Finance Ministry position paper, in which Germany was to demand that Greece immediately transfer €50bn worth of assets to a trust fund, the sales of which would be used to pay down debt, or Greece should take a minimum five year ‘time out from the euro.
For anybody following my New Platinum Service it made 45 points on Friday. It is now ahead 750 points for July. The total generated in June was 3045 points.
Under his Grexit plan, Greece would remain in the EU and receive humanitarian aid (the so called ‘velvet divorce’). There is currently a four page document being circulated but which does not appear to represent a common position among Greece’s European creditor, and with which Greece is said to have ‘problems’. So expect discussions between Finance ministers and heads of state – which a French official has described as ‘extremely violent’ (and requiring German FinMin Schaeuble to be reigned in by Merkel) to continue well into the night. Veteran BBC presenter Andrew Neil, who has followed Greece in huge detail, tweets that he has ‘no idea what is happening’. What we can see is that the optimism with which markets were travelling into the weekend looks misplaced. This was after the institutions formerly known as the troika gave tentative thumbs up to the latest Greek proposal (authored with French assistance, apparently) tabled on Thursday. At the same time, it looks to be a case of ‘twice bitten, three times shy’ in terms of willingness to sell risk and the euro, after the previous two Mondays (first following the Greece referendum announcement, and then the resounding ’no’) result, failed to produce meaningful sell offs.
Greece aside, a speech by Fed chair Yellen was Friday’s main draw. There were no overtones that could be described as in any way ‘hawkish’. Yellen again went to great lengths to argue the case for the current unemployment rate not being fully representative of a labour market now close to full employment. Yellen continues to think that the participation rate may yet turn higher as the quality and quantity of jobs on offer improve, bemoans the percentage of those in work as wanting to work longer hours as still quite high relative to pre-GFC norms, and a ‘quit rate that is still below those consistent with a fully employed economy. She did though admit to seeing some signs of higher wage inflation. The role of the stronger dollar in depressing (manufacturing) activity earlier in the year, and suppressing inflation, was played up, while in stressing uncertainty surrounding the US economic outlooks he noted that “the situation in Greece remains unresolved”.
Yet the fact Yellen confirmed both that her own outlook (for the economy and inflation) was broadly consistent with the central tendency of latest FOMC projections, and that based on her outlook ‘it will be appropriate at some point this year to take the first step to raise the Federal Funds Rate, elicited a sell off across the US rates curve. 2s ended the NY session +5.2bps on the day to 0.6370% and 10s +7.6bps to 2.3972%. Earlier 10yr Bunds had added 17bps to 0.898% on Greece deal optimism.
Note The FT has an interview with Cleveland Fed President Loretta Mester just published, in which she says the economy is strong enough to sustain a rise in US rates, notwithstanding recent turbulence overseas.
This morning on the economic front we have Bank of England Credit Conditions at 9.30 am. On a very light day for economic data the only US data of note is the Monthly Budget Statement at 7.00 pm.
September S&P 500
The S&P plan worked well on Friday as shortly before lunch the market traded higher to my 2070 sell level before having a nice sell-off to 2061 which enabled me to cover this position at 2065 as outlined earlier to my Platinum Members and I am now flat. For the third consecutive Sunday night the market has opened with a large ‘Gap’ to the downside on more Greek exit talks. There is no doubt that the S&P is having trouble trying to close the ‘Open Gap’ from two weeks ago at 2084/2096 and indeed is even having trouble trying to get back above 2075. Today I will again be a small seller on any further rally back to 2075/2080 with a 2082 stop. My only interest in buying this market is still on a dip to 2043/2050 with a tighter 2037 stop.
EUR/USD
The Euro plan also worked well on Friday as the market had a nice rally after I posted which enabled me to go short at 1.1195 before having a nice sell-off which enabled me to cover this position at 1.1145 as I wanted to be flat ahead of the weekend. Surprisingly despite the negative vibes coming out of the EU Finance Ministers Meeting at the weekend the Euro is hold in well and today I will again be a small buyer on any dip lower to 1.1060/1.1090 with a 1.1035 stop. My only interest in selling the Euro today is on a rally to 1.1220/1.1250 with a 1.1280 stop. A break and close over 1.1280 will be positive and will then open up the possibility of a move higher to the major resistance at 1.1440/1.1480.
US Dollar Index
I am still flat the Dollar and today I will lower my sell level to 96.60/96.90 with a 97.20 stop. I still do not want to be long the Dollar at this time.
September DAX
The DAX plan did not work well on Friday as shortly after I posted the DAX traded higher to my 11330 sell level before stopping me out of this position for a small loss at 11380 and I am now flat. Given the negative Greek news at the weekend I taught the DAX would open much lower but so far the market is holding in well. The DAX has major resistance at 11500 and today my only interest in selling this market is on a rally to 11470/11520 with a 11550 stop. I will also be a very small buyer on any dip lower to 11120/11185 with a 11090 stop.
September FTSE
There is no doubt that the FTSE is the downside leader for the major World Indices and is having major difficulty in mounting any real rally just like what happened ahead of the GFC crisis in both 2001 and 2008. I am still flat this market and today I will lower my sell level to 6625/6670 with a 6705 stop. Given the price action I do not want to be long the FTSE at this time.
Dow Rolling Contract
No change as I am still a small buyer on any dip lower to 17550/17610 with the same 17495 stop. I will also lower my sell level slightly to 17800/17860 with a 17910 stop.
September BUND
By the time I posted on Friday the BUND was trading near the bottom of my buy range at 151.15 before stopping me out of this position for a small loss at 150.80 and I am now flat. Despite been stopped out of this position on Friday I still like the BUND and today I will again be a small buyer form 150.50/150.90 with a 150.25 stop.
Gold Rolling Contract
No change as I am still a small buyer on any dip lower to 1142/1150 with a tight 1136 stop. Remember a break and close below 1141 will be short-term bearish.
Silver Rolling Contract
Silver continue to trade stronger than Gold at this time. I am still flat and I will leave my buy level the same at 14.80/15.20 with the same 14.35 stop.
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