After a truly marathon effort, the EU leaders and Greece reached a deal in the early hours of Monday morning Europe time. Another bailout, but with no debt haircut. In return for a three year bailout of €86bn, with bridging finance to help cover loan repayments of €7bn by 20 July and an additional €5bn by mid-August, Greece will agree to spending cuts, pensions and tax reforms which go beyond those which were rejected by 61% of the voters in a referendum last Sunday. Moreover, to help rebuild the broken trust with its creditors, the country will earmark €50bn of projects for privatisation and put these into a separate ring-fenced entity to be based in Athens, the proceeds used to recapitalise the banking system and repay creditors in the event of non-compliance with their demands. All of this must be voted through the Greek Parliament no later than Wednesday this week. Read the full statement here.
Once the Greek Parliament has voted for the programme (the presumption is that Opposition MPs will cast their vote in favour of the bailout, thereby outnumbering the 17 Syriza MPs who either voted ‘no’, abstained or were absent on Saturday) and the proposals are put into law by July 15, then the ESM bail-out parliamentary approval processes can commence across the Eurozone requiring national parliaments in Finland, Germany, Austria, Netherlands, Slovakia and Estonia to approve starting ESM talks. Then, bridging finance will be made available to allow Greece to repay its debt to the ECB which falls due on July 20th.
It’s all a very tight ambitious timetable with lots of execution risk but, having come so far over the weekend, EU leaders are not about to throw away the opportunity to give the Greek can – and its people – an almighty kick. German Chancellor Angela Merkel stressed there will be no debt haircut: “The Euro Summit stresses that nominal haircuts on the debt cannot be undertaken.” European politicians must say one thing to each other, another to Financial Markets and yet another to domestic audiences. Adding another €86bn gross of debt – albeit some will be used to pay off existing loans – takes Greece’s debt/GDP ratio over 200%. The chances of this ever being repaid in part or in full are close to zero. This inconvenient truth will only be hidden for the time being.
In essence, the response of the FX markets to the announcement tells the story for the single currency. After an initial short-lived bounce, it’s been downhill since, the EUR/USD heading south, also damping the AUD in the process back toward 0.74. For the USD, it’s unlocked one potential market stumbling block to Fed rate lift-off before year end, making meetings after July 30 “live”. The Bloomberg spot US dollar index rose 0.64%. Euro bond yields eased, Treasury yields rose and Copper was flat.
This morning on the economic front we have German and UK CPI at 7.00 am and 9.00 am respectively. This is followed at 10.00 am by Euro-Zone Industrial Production and the very important German ZEW Survey. At 1.30 pm we have US Retail Sales and Import Prices. At 2.00 pm we have the NFIB Small Business Optimism while finally we have Business Inventories at 3.00 pm.
September S&P 500
Literally just as I posted the news hit the wires that the Greek bailout had been approved. At this stage the S&P was trading in the middle of my sell level at 2078 before very quickly stopping out of this trade for a small loss at 2082 and I am now flat. There is one certainty with the S&P is that all ‘open Gap’s get filled at some stage and as I mentioned in yesterday’s commentary the ‘Gap’ from two weeks ago from 2084/2096 is nearly filled by yesterday’s price action. However the large move up in the S&P has created another ‘Open Gap’ from last Friday’s close at 2070 to yesterday’s 2086 low print after the US markets opened. Indeed after the initial flurry the market just went sideways for the rest of the trading session. There is no doubt that with such a large ‘Gap’ left to the downside this gap should be filled sooner rather than later. In the overall scheme of things the World Economies are slowing down as shown by the IMF downgrading their economic forecasts for both 2016 and 2017 and that these stock markets are extremely overvalued, but until we get a break and close below 2035 which amazingly has held six times already in 2015 it is very difficult to be short for more than a few hours/days. Today I will again try the sell side on any rally higher to 2099/2104 with a 2109 stop. I will be an aggressive buyer on any dip to 2071/2076 with a 2067 stop.
EUR/USD
By the time I posted yesterday the Euro was already trading near the bottom of my buy range at 1.1065 before very quickly stopping me out of this trade for a small loss at 1.1035 and I am now flat. I am surprised how weak the Euro is trading given the news but probably the fact that Greece are remaining in the Euro-Zone weakens the credibility of the whole Euro project. The next good support for the Euro is from 1.0910/1.0950 and today I will be a small buyer in this area with a 1.0870 stop. Remember a break and close below 1.0850 is short-term bearish.
US Dollar Index
Long after I posted the Dollar finally traded higher to my 96.90 sell level. I am still short and today I will raise my stop slightly on this position to 97.40.
September DAX
The DAX plan worked very well yesterday as by the time I posted the DAX was trading in the middle of my sell range at 11500 and after a nice sell-off I was able to cover this position at 11430 as outlined earlier to my Platinum Members and I am now flat. It is incredible that just last week the DAX was trading at 10600 and we have now rallied over 900 points on the Greek bailout. I still believe that we have had so much technical damage done to the market over the past two months and that it will take more than a Greek deal to sort out. Today I will again be a small seller on any further rally to 11550/11600 with a 11640 stop. I do not want to be long the market at these levels.
September FTSE
By the time I posted the FTSE was already through my sell level and stop. The FTSE continues to trade heavy and today I will again look to go short from 6720/6750 with a 6780 stop.
Dow Rolling Contract
Although the Dow plan did not work out yesterday, luckily by the time I posted the Dow was trading at the top of my sell range at 17860 before very quickly stopping me out of this position for a small loss at 17910 and I am now flat. Do not forget that despite the huge move higher in the Dow yesterday we still have five confirmed Hindenburg Omen’s on the clock and for this reason I will again try the sell side on any further rally to 18040/18090 with an 18120 stop.
September BUND
By the time I posted yesterday morning the BUND was already trading with a 149 handle before re-grouping and having a nice rally into the close. The whipsaw action in the BUND has been incredible over the past six weeks. Today I will be a small seller on any further rally to 151.50/151.80 with a tight 152.10 stop.
Gold Rolling Contract
Gold just missed my 1150 buy level by a few ticks before trading higher and I am still flat. Today I will lower my buy level to 1138/1146 with a 1129 stop.
Silver Rolling Contract
No change as I am still a small buyer on any dip to 14.80/15.20 with a 14.40 stop
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