Edging towards a Grexit

The markets will champion the news out of Brussels from the weekend this week.

Greece
Source: Bloomberg

However, if you actually look at the deal, Greece got nothing and Germany got everything and we are now edging towards a Greek exit (Grexit) from the EMU.

The Irish Finance Minister publically stated that Greece wasn’t offered a solitary concession in the ‘negotiations’ from Friday night, and considering Greek banks were on the verge of a Cyprus style run-on, they had no cards to play and were practically forced into accepting.

The deal basically means that over the next four months Greece will be put through serious political pain – Prime Minister Alexis Tspiras will now have to sell the ‘unsalable’ deal considering his party came to power on the mandate of winding back austerity. On the current trajectory, any deal will put the Syriza party’s mandate in jeopardy and the prospect of a snap election will build as the Greek people realise nothing has really changed.

If you really look at what has gone on with Greece over the past three years, they are effectively being ring-fenced – this statement alone brings the idea of a Grexit as the most likely scenario.

The markets seem to agree; there has been benign reaction in the peripheral markets - Portugal, Spain and Italy have not seen anywhere near the kind of volatility of 2012. In 2012, Greek debt was widely dispersed. Now, it’s controlled by the Trioka, which is now called ‘the institutions’ – the only concession given to Greece was its request to change the name. With Greece debt out of the system, Europe looks to have insulated itself from the issues facing the Mediterranean nation. 

This issue is far from over and will be monitored on a daily basis as the consequences of a Grexit are massively unknown.

Chinese New Year

China remains on holidays for Chinese New Year, however Hong Kong and Singapore will return to their desks. US markets were choppy last week, while currency markets reversed some of the trends that have developed in 2015 which may see some catch-up trading from Asia which could be slightly skewed; considering the whole region still isn’t back to full capacity trading may remain slightly lax.      

The Australian Open

Earnings season enters its final week, with BHP being the biggest release of the week. Will it follow the RIO lead and show debt levels have fallen substantially? Will it enter into a buy back arrangement? Will it up its dividend?  

With China closed for New Year, iron ore markets are also closed, meaning there are no real major leads from the commodities markets. However, the Greek deal is likely to take volatility out of the market and based on Saturday’s close of the futures market we are calling the ASX up 19 points to 5900.

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