Eurogroup At Odds Over Greece

Daily Analysis - 12/05/2015

Greek Discussions with Creditors Conclude Without Agreement


Although officials were quick to highlight progress in the latest talks, no decision has been made to release another tranche of bailout aid as Eurogroup Ministers left unsatisfied. Liquidity conditions continue to deteriorate across Greece as the ECB raises collateral requirements and banks run out of money.

No Deal on Greece

The passing of another key deadline brings Greece one step closer to potential default as Germany seems increasingly prepared to let a Euro Area member leave the Union.   The latest iteration of Eurogroup meetings was unable to bridge the gap between creditors with the institutions requesting delivery of a comprehensive list of reforms from Greece. Absent from the latest discussions was the terminally weakening capital positions of the embattled nation as the ECB raises collateral requirements for Greek banks. Today’s EUR 750 million payment to the International Monetary Fund will prove a big hurdle after the recent difficulties Greece experienced in paying government pensions and salaries on time. Greece meanwhile continues to pivot towards overtures from the East after an invitation yesterday from Russia to join the BRIC Bank, proposing that Greece become the 6th member of the Bank.


Oil Producers Shift East

China’s appetite for black gold is noteworthy considering the latest data which showed that China has overtaken the United States as the largest global importer of crude oil. According to April figures, China is importing approximately 7.4 million barrels per day versus the United States which by comparison is importing 7.2 million barrels per day as the shale revolution increases the nation’s energy independence. China has taken advantage of the recent rout in prices to go ahead and add to record inventories, mainly buying from Iran which has priced output competitively to maintain market-share at a time when OPEC members such as Saudi Arabia and Kuwait have cut prices to protect their own share. Meanwhile, on a fundamental basis, the spread between West Texas Intermediate and North Sea Brent continues to narrow, presently at $5.30 versus normal historical levels of $8-10 with Brent trading at a substantial premium.


UK Leaves Rates on Hold

As was widely expected, the Bank of England maintained monetary policy after the sweeping electoral gains of the Tories last week. The Pound has seen substantial momentum higher against peers as the Conservatives promise more budget cuts in an effort to fight the deficit while assuring negotiations with the European Union will improve the UK’s ability to make decisions independent of the Union. In its decision, the Bank of England cited stagnating inflation and weaker first quarter growth in its decision to leave interest rates unchanged at 0.50%. However, there were some bright spots in the latest data, including strong household earnings growth and an increase in housing prices. The outlook on the economy and inflation report are both due tomorrow from the Bank of England. The Pound is pulling back from recent strength, signaling the potential for a resumption of trend higher.


Crude Oil Equidistant Channel Technical Pattern

Crude oil has retreated from recent multi-month highs as concerns about the state of energy market fundamentals overtake considerations of the budding military conflict in Yemen. The temporary halt to hostilities has seen prices pullback to the downside with the WTI benchmark continuing to hover just around the $60 per barrel mark. The equidistant channel in WTI crude oil prices has been forming since April 10th and has a predominantly bullish bias. The main tactics for taking advantage of the technical pattern is initiation of positions at the lower channel line to be closed at the upper channel line as any resumption in geopolitical conflicts will likely fuel a greater risk premium. However, should oversupply continue, the possibility of a move downwards out of the channel bounds could be viewed as a downside breakout.


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