Greece Resumes Negotiations

Daily Analysis - 20/03/2015

Greek Prime Minister Alexis Tsipras Returns to the Negotiating Table with the Troika


With time running out and bank deposits being pulled at record pace, Greece is desperate to find cash to satisfy loan obligations.  Tsipras has returned to Brussels to negotiate with Euro Area leaders and although the distance between sides is wide, Greece is being asked to implement further reforms to unlock the next tranche of bailout money to avert a total default.

Greek Repayment Due today

Greece has a €2 billion repayment due to the International Monetary Fund today which is expected to exhaust all possible options for the Greek Government as they race to secure more financing from the European Union.  It is rumored that this time the government turned to state owned utility companies to borrow the funds necessary to meet IMF obligations after raiding pension funds the previous week.  According to recent comments from the ECB, the Central Bank is already preparing itself for a Greek exit in which the value of Greek holdings takes a 95% haircut.  The fact that the ECB has drawn up plans for the highly probable scenario is indicative that negotiations with the Troika are unlikely to go far.  With Greek’s pulling funds from banks at a heightened rate once more, the nation will be left without money in mere weeks.  EURUSD retraced all its FOMC gains and looks poised once more to retest major support at 1.0500.


Philly Manufacturing Index Sinks

In another blow to the Federal Reserve’s intentions to raise interest rates in 2015, major manufacturing indices are pointing towards continued softness in the sector.   The Philadelphia Fed Manufacturing Index fell to 5.0 from 5.2 in the prior period on expectations of an expansion to 7.0.  This was the worst print for the index since February of 2014.  The employment, capital expenditures, and new orders components of the index all fell below the prior period’s figures, in-line with what is being witnessed across the American economy.  What is more relevant is that the last time figures like this were recorded the economy was in the middle of entering the financial crisis following the collapse of Lehman Brothers.  Equity indices have managed to hold onto gains after modestly pulling back from the FOMC rally.


Japan Running Out of Assets

The Bank of Japan’s quantitative and qualitative easing program is running into serious headwinds as the supply of available assets to buy is likely to run out within the next two years.  Under the current program, the Bank of Japan can buy exchange traded funds and real estate investment trusts aside from its participation in buying sovereign debt.  However, with the current level of easing likely to exhaust these assets within a short period of time, traders are anticipating that the Bank of Japan will begin openly participating in the equity markets by buying up individual stocks.  There has been a sharp drop in liquidity, especially in bonds as the Bank of Japan corners most of the market.  This is also forcing pension funds into riskier investments as they hunt for yield in a challenging investment environment. 


Gold Equidistant Channel Technical Setup

Since resuming the trend lower in January, gold prices have been steadily declining on the back of a weak inflation outlook and strengthening dollar.  The momentum lower saw a sharp respite on Wednesday after the FOMC statement but continues to trend within a downward trending equidistant channel.  As inflation continues to weaken with the drop in energy prices, the rationale for holding gold is diminished, adding further pressure on prices.  The equidistant channel has been intact for about two months with short positions suggested as the upper channel line to be closed at the lower channel line.  Any move outside the channel lines should be treated as a breakout trade with expectations for increased momentum and volatility.


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