Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets
Calmer heads prevail
While many market participants are still surprised about the fairly orderly response to the Greek ‘no’ vote, it certainly seems calmer heads have prevailed for now with a glass-half-full approach being taken.
One of the key events following the referendum was the resignation of finance minister Varoufakis and the appointment of the more market-friendly Euclid Tsakalotos. Some feel this improves the chances that a deal will be done given Tsakalotos has significant economic and negotiation experience.
On the other hand, perhaps the fact the ECB will continue to provide ELA to Greek banks and an extension of the Greek bank holiday until Wednesday will also help liquidity as negotiations take place – this is also being viewed as a positive.
French President Francois Hollande said the door for discussions is open and it is up to the Greek government to make credible proposals so that their desire to remain in the euro can be translated into reality. With a new finance minister on board, perhaps this will help bridge the gap.
Focus now shifts to Eurogroup meetings and the euro summit later today. Any fresh Greece headlines could cause some volatility.
Commodities slump a concern
While sentiment has clearly improved, commodities remain under significant pressure with oil, copper and iron ore declining heavily this week. While many are blaming a risk-off tone for these moves, it seems some are overlooking the influence China has in commodities demand.
China continues to introduce emergency measures which haven’t necessarily helped to shore up public confidence. The government is trying to use the stock market as an instrument to shore up growth through the wealth effect but this seems to be failing.
Heading into next week’s Chinese GDP reading, there is also a sense we could be in for a shocking number. This perhaps is what has seen the government act ahead of the data to keep markets stable despite economic reality being dire.
For oil, there are other factors at play apart from China, including signs of rising US oil production and the growing possibility of a nuclear deal between Iran and the West. The Canadian dollar is the currency most vulnerable to oil price movements and we have already seen it lose ground to the majors.
USD/CAD traded at $1.2670, its highest level since April 2015, and is now eyeing March 2015 highs just above $1.2800. The pair has rallied for eight consecutive days with strong momentum going through the system.
RBA remains data-dependent
The ASX 200 has been a significant outperformer today and has managed to ignore some of the noise coming out of Chinese markets. The buying has been fairly broad-based with even some resource companies performing well despite the slump in underlying commodities. While today’s gains are encouraging, I still feel the ASX 200 remains largely range-bound with upside likely to be capped in the 5600 region.
The RBA meeting was also held today and the central bank kept rates on hold as was widely expected. The statement was largely unchanged as the central bank remains largely data-dependent.
On the AUD, the RBA said further weakness is likely and necessary. AUD/USD lost a touch on the back of the statement but nothing significant. The pair remains under $0.7500 and could experience volatility later in the week when we get the FOMC meeting minutes and local jobs numbers.
Ahead of European trade we are calling the FTSE 6550 +12, DAX 10906 +15, CAC 4720 +8, IBEX 10560 +20 and MIB 21630 +29.