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The fact that the EU sceptic parties have polled so well and got such a larger say in how Europe is governed is not a surprise. However what seems most interesting is the extent of the votes the Eurosceptic parties in France (Front National), UK (UKIP) and Greece (Syriza) have polled.
Could Greece cause greater uncertainty?
If I had to whittle this down to one issue here which could have more far reaching implications it would have to be proceedings in Greece, with Syriza leader Alexis Tsipras broadcasting that the fact that his party polled better than the current ruling coalition (New Democracy) was a message against austerity. Mr Tsipras has called for a snap election, and while we haven’t heard a response on this call from the current prime minister, there is potential for Greece to negatively impact markets that have been seeing improvement in its economy, been access to the bond market for funding and even a credit rating upgrade.
Will the days where investment banks put odds on Greece (GREXIT) leaving the European monetary Union (EMU) resurface?
EUR has been modestly offered today, with EUR/USD continuing to hold under the 200-day moving average (1.3638) for a second day. Our clients have been modest net buyers today, although overall 59% of all open positions are sold short. EUR/GBP continues to look really heavy, but the pair is starting to look grossly oversold; however it’s hard to see a change anytime soon, so I would probably stay short and tighten stops or look to sell rallies to 0.8120. It seems fair that the Greek bond market could drive play today, although with the US and UK off-line today flows promise to be light.
In the equity space Asia has held the line and even managed to push slightly higher. There has been no concern around Europe, Ukraine presidential election or Thailand’s military coup. There seems to be a growing view among Western strategists that while Chinese authorities will keep monetary policy steady (prudent), they are starting to look at fairly targeted support for the economy and as Premier Li Keqiang said late last week in a talk in Inner Mongolia, given the downside risks policy could be ‘fine-tuned’. The rhetoric in the Premiers speech has sharpened up a touch and seems in response to the growing concern we are seeing from both officials and economists around the property market.
Calls for stimulus from the PBOC
We’ve seen rebar and iron ore futures push up modestly higher today, with the CSI 300 index rallying 0.5%. The Nikkei has also found a further bid today, but has found a wall of sellers at 14,600. Today’s BoJ minutes gave the JPY bears very little, so it will now all be down to this Friday’s national and Tokyo CPI data. The headline (national) figure is expected to print 3.1%, which is significantly above the March figure of 1.3%, however when adjusted for the effects of the April sales tax hike, the organic price increase should be lower and thus much less alarming for both savers and consumers.
The ASX 200 has pushed up modestly higher, but the interest has been low and in fact between midday and 2pm AEST the index traded in a six-point range.
European markets look set to unwind marginally higher, with the market paying greater attention to commentary from the European Peoples Party candidate Jean Claude Juncker at 7pm AEST, while we also get to hear from Mario Draghi at the ECB Central Banking Forum in Portugal. What’s interesting about the forum is we also get to hear from a number of ECB heavyweights, as well as academics. This new forum seems largely to be Europe’s equivalent of the Jacksonhole Symposium in the US, which we all know has delivered some significant market-moving narrative; most notably from Ben Bernanke in August 2012 when he announced further easing to the world.