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Bid tone maintained in Asia

The main event in global markets is Greece at the moment.

China
Source: Bloomberg

Fears are that the country is running out of time and money heightening. While the Greece situation is at the back of investors’ minds somewhere, a well-balanced Fed has continued to drive global equities. The Fed has done well to supress the greenback while keeping equities stable in the interim. Perhaps a slight miss in CPI also contributed to the price action particularly as the Fed has reinforced its data-dependency. Fedspeak will start to ramp up now with John Williams and Loretta Mester speaking later today. On the Greece front the key eurogroup meeting has been and gone with no agreement reached. This means there is now no chance Greece will make the €1.5 billion payment to the IMF this month. There is now an emergency leaders’ summit on Monday (Tuesday Asia time) on Greece but one wonders exactly what this is looking to achieve. For the time being though, there is no stopping capital outflows as panic sets in. Greece is reportedly now looking for the ELA cap to be raise by €3 billion just to keep the lights on.

Kiwi the big mover

With the US dollar index at a one month low, there are some interesting fx moves taking place at the moment. Naturally, EUR/USD is one of the more closely watched at the moment given the uncertainty on Greece. Traders eyeing shorts will have to be really patient here and wait for a clear confirmation of a change in trend. Meanwhile, NZD/USD dropped to the lowest level since July 2010. NZD is looking like it is the whipping boy at the moment and is under pressure in all crosses. After yesterday’s GDP miss (growing at the lowest rate in 2 years), calls for a back to back cut are heightening. Remember last year the RBNZ tightened by a whopping 100 basis points. This is now starting to look a bit premature but we do know the RBNZ does not hesitate to act. There will be questions around whether all of last year’s tightening will be unwound this year. Goldman Sachs is now calling for three more rate cuts from the RBNZ this year on top of the 25 basis points we’ve already had. While NZD/USD is usually the key currency pair to watch in NZD crosses, there have also been plenty of opportunities playing the kiwi against the AUD and GBP. AUD/NZD came within striking distance of $1.1300, remember the pair was near parity just two months ago. Traders will be looking to buy pullbacks as the pair seems a bit overbought at the moment. GBP/NZD rallied to $2.3000 and the pair was at $1.9300 just two months ago.

Firmer open for Europe

The ASX 200 continues to play the range and after a poor performance yesterday, managed to pop back into the top end of the range today, testing 5600. There is a good chance we could see some traders being sceptical about the gains in this region. A combination of a dovish Fed and a weaker greenback has given some commodities a bit of a tailwind with oil and gold both rallying. This has underpinned the energy sector today and some of the materials as well. Looking ahead to European trade we are calling the major bourses firmer with no significant data releases on the calendar. No doubt traders will remain on Greece watch though.

 

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