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Markets in retreat as Greek default looms

Heading into the close the FTSE 100 is firmly in the red due to jitters caused by Greece’s possible exit from the eurozone. 

City of London
Source: Bloomberg

Greece dominates the minds of traders
The London market has lost a lot of ground today, but it is doing better than its continental counterparts. The eurozone equity markets are feeling the most pain over the Greek situation, and without an agreement a bounce back is not likely.

The five-year debt saga for Greece has left traders feeling that something drastic needs to happen, and a default seems as if it is just around the corner. Athens needs to shape up or ship out, and every day that goes by with no resolution makes a default all the more possible.

Traders are fixated on Greece at the moment and that won’t change until a deal has been reached, and even then traders will be mentally preparing themselves for the next round of  Greek negations as the indebted country has several more sizeable payments to make over the summer.

Lower than expected numbers reveal fragility of US recovery
The Dow Jones is down 160 points at 17,740, and the US market is being dragged lower by Greek fears. The disappointing empire manufacturing and industrial production numbers reminded traders that the US recovery is fragile, and not all parts of the economy are strong.

US traders are scared by the prospect of Greece defaulting, and when you add a Fed meeting into the mix, you can tell it is going to be a tough trading week. The Federal Reserve is not going to throw up any surprises, and it will be steady as she goes on Wednesday, but the message won’t be dovish enough for the bulls to take the main stage. 

The lull between reporting seasons has meant that traders are focused on the macro  issues, and Greece’s inability to get its hands on the next tranche of the bailout will keep dealers gripped with fear.

Commodities offer a mixed bag
Copper’s price is crumbling again as the metal can’t seem to get out of the downward spiral it has been in for a number of years. Copper is giving up the gains it racked up in the first-half of the year, and China’s aggressive easing of monetary policy still isn’t enough to reinvigorate the economy.

Gold is trading marginally higher, but given the circumstances the metal should be making more headway. If gold can’t attract buyers when Greece is on the verge of bankruptcy, it means the metal has lost its safe-haven status, and its outlook will only get worse when the Fed move towards raising rates.

US dollar set to remain focus for FX this week
A broad move higher in the greenback has pushed the euro into the red, but the single currency is holding up relatively well. There is a feeling that the euro would benefit if Greece just went its own way, and dealers detest the constant back and forth between the two sides.

Greece’s ‘will they, won’t they’ attitude has kept traders on their toes, but it has been five years now and traders are getting sick of it.

The dollar will be the focus of the foreign exchange market this week due to the Fed meeting on Wednesday, and no change to policy is anticipated; however, an interest rate hike this year has not been ruled out, and recent data suggests 2016 is more likely for the move.

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