Major Deadlines Loom Large

Daily Analysis - 03/07/2015

Geopolitical Developments and Drivers the Main Source of Momentum in Lieu of Data


The approaching Greek referendum and potential for an Iranian nuclear deal are going to be the major driving forces to monitor over the coming sessions as markets are quieter today ahead of the American Independence Day holiday. Markets will be closing early in accordance with CME Group holiday hours.

Referendum Vote Split

With less than two days to go until the Greek referendum, many polls are showing the “Yes” and “No” vote neck and neck. Recent revelations from the International Monetary Fund and internal documents add credence to the idea that the Greek debt load is unsustainable and requiring another haircut for Greece to have any shot at recovery. This is a small victory for Syriza’s Tsipras and Varoufakis as they seek to build support for the “no” vote. The divisive nature of the vote continues to create fractures within Greece as banks are bled dry of cash ahead of referendum. According to some estimates, only EUR 1 billion remains available in banks, meaning that at the present pace of withdrawals it could be matter of days before ATMs run dry. The level of anger and discontent is quickly rising and could see another dramatic weekly reopening in the Euro on Sunday.


NFP Slips Below Estimates

The sentiment towards the US employment data release is split after several headline numbers exceeded expectations while others were of a more disappointing nature. According to the Bureau of Labor Statistics, the US economy added 223,000 in June on estimates of 230,000 with May’s figure revised lower from 280,000 to 254,000. Optimism was buoyed by the unemployment rate falling to 5.30%, however, this does not reflect the true nature of the employment situation after it was revealed that labor force participation fell to the lowest level since 1977. Aside from the sheer amount of individuals that left the labor force, wage growth remained stagnant with average hourly earnings staying flat. The dollar briefly sold off versus peers before recovering modestly. The major move was felt in Dow Jones which retreated -0.16% despite continued expectations of a September liftoff.


Gold Ticks Below Major Level

Before the dollar retreated following the disappointing payroll numbers, strength in the US currency versus other global peers briefly pushed gold prices below the key $1162 per troy ounce level before bouncing back higher. Prices fell as low as $1157 before surging on the announcement and continue to trade higher on the back of a softer dollar. With limited inflation present according to PCE and CPI numbers, the case for gold as a haven asset remains weak. Meanwhile, new pressure is facing the oil patch after the Baker Hughes rig count number showed that for the first time since December the rig count rose, bolstered by oil rigs in the western states. The reaction in crude prices was negative, especially after the inventory growth surprise. However, the potential for an Iranian nuclear deal has the real potential to unhinge the market if sanctions are lifted, leading to a tidal wave of new output hitting markets.


Nasdaq Futures Ascending Triangle Technical Pattern

Although slightly weaker yesterday following the nonfarm payrolls figure, Nasdaq futures managed to outperform relative to the Dow Jones Industrial Average as lighter trading volumes meant more limited volatility and momentum. The ascending triangle setup in the equity benchmark has a bullish bias with the index consolidating between a near-term uptrend and horizontal resistance level sitting firmly at 4441. While trading the consolidation does not necessarily encompass strong reward characteristics, should the Nasdaq move above resistance it could be an indication of a triangle based breakout to be accompanied by a renewed uptrend and increased momentum. However, should prices move below the near-term uptrend, it is a signal that the pattern is breaking down and could be a sign of the Nasdaq reversing lower.


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