Greece relief drives sentiment

The boards have lit up in Asian trade, with investors riding the euphoria from progress on the Greek front.

Source: Bloomberg

A new proposal by Greece seems to have done the trick as leaders feel this is a major step towards bridging the gap. The new proposal will see the elimination of early retirement benefits from next year, some tax measures (corporate and personal), along with some government spending measures in areas such as defence.

Following the meeting, European Commission President Jean Claude Juncker saying he’s of the opinion an agreement will be achieved this week, while the proposal was also deemed broad and comprehensive by other EU officials.

In terms of what’s next, there is a Eurogroup meeting on Wednesday ahead of another EU leaders’ summit pencilled in for Thursday where we could get an agreement in principle.

Risk currencies unwinding

Looking at the price action around Asia, it hasn’t been a clear risk on situation and there have been some interesting moves across the boards. Firstly, looking at the price action in currency markets, the key risk currencies are actually trading lower, with the likes of the AUD losing ground.

Even the euro has yielded ground to the greenback following the developments in Greece and EUR/USD has now dropped below the $1.1300 handle. This move in the euro would have caught traders who expected it to rally on a solution off guard.

In fact, it has become clear in past weeks that a heightening Greek crisis is actually positive for the euro while reduced Greek concerns are a negative. This begs the question of whether euro shorts are back on the table and just how long this renewed weakness can run.

Choppy price action for China

The Nikkei has outperformed the region and managed to post fresh cycle highs, helped by renewed USD/JPY strength. Meanwhile, China has seen wild swings, with equities trading over 5% lower at some stage as confusion around the economy and stock valuations persist.

Investors seem to be growing increasingly anxious after having bought into a hyped market and this is likely to be a source of volatility in the near term. The ASX 200 seems to have managed to nudge through to three-week highs despite economic reality catching up to some of the big household names.

Over the past few weeks we’ve seen profit downgrades from the likes of Woolworths and Seek. The latest culprit is Flight Centre, which is down double-digit figures today. However, the banks are doing their best to hold things together and investors are likely to continue turning to income for some comfort heading into the end of the financial year.

FTSE to underperform

Ahead of the European open, we are calling the major bourses firmer with the exception of the FTSE. Remember UK equities and the sterling had both benefited from the Greek crisis and it now seems we could see some underperformance as focus shifts back to Europe.

While significant progress has been made on Greece, with leaders deeming the latest developments as ‘a step in the right direction’, there are still a number of uncertainties at play. Some analysts have expressed concern that the focus will shift to the Greek domestic political scene.

Remember Syriza was brought in to make some changes and no doubt some will not be happy about yielding. There will also be questions around whether there’ll be enough time for Greece to make the IMF payment on 30 June.

If this payment is not made, then capital controls could be on the radar once again. On the calendar we have a raft of manufacturing PMIs to look out for. Any headlines on Greece will also be closely monitored.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.