Greek Deadline Looms Large

Daily Analysis - 13/03/2015

Greece Scrambles to Secure Funding Ahead of Potential Default

With mere hours remaining until Greece potentially defaults on payments, there is yet no agreement between the Euro Group and Greece on acceptable reform proposals in exchange from releasing the next set of funds. Any potential default could send ripples felt throughout the entire financial system and notably hurt confidence in the European dream.

Greece and Germany Remain at Odds

Greece and Germany continue to trade barbs ahead of the countdown to repaying the International Monetary Fund debt. Today marks the deadline to unlock the next tranche of bailout funds or invariably let Greece miss debt repayments and be in a state of default. After being called “foolishly naïve” by German Finance Minister Schaeuble, Greek Finance Minister Varoufakis shot back stating the Greeks would not be able to repay their debts. These remarks highlight the distance between the sides at the negotiating table as decision time rapidly approaches. On the macro front, Euro Area industrial production fell -0.10% month over month after expanding at an annualized pace of 1.20%. After squeezing higher, EURUSD is trending back to the downside, trading marginally above 1.0600.

Retail Sales Crumble

Disappointing retail sales figures dominated US macroeconomic data yesterday, increasingly speculation that the rate timeline might need to be revised on the back of poorer spending growth. The one bright spot in yesterday’s economic data was the fall in initial jobless claims below the ever important 300,000 threshold, printing at 289,000 new applications for unemployment benefits. Despite the raft of negative news, the gains in jobless claims sent stocks soaring, led by the Dow Jones Industrial Average which surged 1.47% followed by a 1.26% gain in the S&P 500. The dollar has recovered after sliding against peers, but remains off of multi-year highs. The weakness in the dollar has kept gold prices elevated, but any sharp charge in momentum higher in the dollar could see gold prices retest $1150.

Deflation in China

In a second sign of the growing deflationary threat facing China, wages are falling across the 4 largest Chinese cities. When accompanied by the persistent deflationary forces acting upon producer prices, this is setting up the People’s Bank of China to undertake far more monetary easing than previously bargained. Although the PBOC and Ministry of Finance remain at odds, difficult liquidity conditions will force the decision-making process. Asian equity benchmarks largely carried over the strength from the American session led by the 1.39% gain in the Nikkei 225 which crossed the 19,000 threshold for the first time since the year 2000. Chinese equities also gained, with the Shanghai Composite posting gains of 0.70%. USDJPY is slightly stronger on the session, rising 0.05%, although still trading well below recent highs.

Crude Oil Equidistant Channel Technical Setup

Increasing production and rising inventories are pressuring prices back downwards despite the falling rig count as oversupply remains a chief concern in oil prices. With no imminent shift in output from OPEC or other major producer nations expected, the supply glut will remain until a pickup in demand or shrinking supply lifts prices. In the meantime, revised lower growth forecasts will weigh on prices along with inventory data. The equidistant channel technical pattern is trending lower, meaning optimal positioning is following the trend to the downside with short positions at the upper channel line. Any move below the lower channel line should be treated as a breakout trade.