Obstacles to Deal Remain

Despite proclamations that Greece is saved and will be able to fight for another day of survival, substantial challenges lie ahead as many Euro Area partners are unconvinced of Greece’s ability to implement potential reforms. Alexis Tsipras is busy trying to quell a rebellion within his own Syriza party after agreeing in principle to the creditors proposal after endorsing a deal that contradicts the values the party was elected upon. Tsipras may be able to reach across the aisle for support from other legislators outside the ruling coalition, however, the mutiny within his own party threatens to unravel the existing government and could potentially lead to snap elections. Outside of Greece, Finland is leading the charge against issuing new loans to Greece after it was disclosed that German Finance Minister Schaueble also opposes any further bailout arrangements for the Greeks. Markets have largely written off the prospect of a deal as the Euro continuing to fade lower.

After a short period of deleveraging in the Chinese economy through debt alleviation for local governments and emphasis on reducing margin debt trading in stock markets, leverage is once again on the rise after rebounding since last week’s efforts to prevent a stock market rout. Newly minted Chinese retail traders are back to buying as the sensational volatility and returns attract newcomers to increasingly risky and dangerous markets. While China has made an effort to hunt down speculative and abusive short sellers, the latest bounce in equity indices is reversing as evidenced by today’s continued volatility and mounting losses in the Shanghai Composite with the cash equity trading session approaching the close. Regional peers however are outperforming the softness in China with the Japanese Nikkei and Australian ASX both posting major gains on the back of a perceived Greek resolution. The Australian dollar is now giving back ground won overnight versus peers.