Asia cautious on Greece

It’s been a lacklustre day for Asian markets with Greek uncertainty once again keeping investors at bay.

Source: Bloomberg

Optimism around a Greek deal had been driving price action all week but a stall in the negotiation process has put the brakes on the rally. As far as we know, Greece was in negotiations with creditors deep into the night but no agreement was reached.

Creditors rejected the current Greek proposal and the Eurogroup meeting was adjourned until today. Supposedly, creditors have come up with some difficult terms for Greece to contend with and have not really proposed a reasonable counter to the original proposal.

Even if we do get a deal, this does not guarantee that the country can pay the IMF on time. The euro has barely flinched today and EUR/USD remains relatively sidelined around $1.1200. Interestingly, as well, the euro once again managed to regain some ground to the greenback on the back of negative Greek headlines.

Any further strength in the single currency is likely to be an invitation to traders for near-term shorts. While there is a deadlock at the moment, many analysts continue to feel a last minute deal will be reached.

Japan retreats from 15-year highs

There hasn’t been any fresh data in Asian trade but we’ve seen the ASX 200 and Nikkei retreat after recent gains. Investors are likely to be looking for opportunities to buy equities on dips, particularly in Japan where we’ve seen a strong run lately. Out of Japan tomorrow we have household spending, CPI and the unemployment rate.

Apart from Greece, a highlight from US trade was an upward revision in Q1 GDP. Despite this, the issue of frothy valuations in equities will remain a dominant theme as prominent investors/officials have recently warned.

The fear is that equity markets, which have been largely fanned by liquidity, will have to play catch up to economic reality at some point.  The impact of lift-off is still yet to be seen but the fact Janet Yellen herself warned of a potential shock to some asset classes once lift-off occurs is a telling sign.

How US markets perform in the near term will be absolutely key and it feels like we are approaching a point where good data is bad for equities in the US. On the calendar today we have unemployment claims, personal spending and personal income. We also have Fed member Daniel Tarullo and Fed reserve Governor Jerome Powell speaking.

Weaker open for Europe

Ahead of European trade we are calling the major bourses weaker with caution likely to prevail ahead of a raft of meetings. Given how long it took for Greece to come up with the new proposals, it’ll be interesting to see how much more room the country has to move.

The amount of domestic political pressure will also be interesting and the more Greece yields to creditors, the more work ultimately needs to be put in to get the proposal through. Investors will be keeping a close eye on the euro and bond yields for some direction on sentiment.

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