Fading risk momentum

Traders who thought that a bailout deal for Greece will be smooth sailing after Monday’s emergency meeting are now having second thoughts. 

Oil pipes
Source: Bloomberg

In my view, and I’ve highlighted on a few occasions, there are still some sticky points of contention between what Greece think they should concede and what the creditors think they should do.

This was again amplified yesterday when the two sides did not reach a breakthrough in the negotiations.

Much of this headline is testing the patience of market participants, but the lack of progress will continue to resonate until push comes to shove as we approach the repayment deadline on Tuesday 30 June. Or it could also be a shove towards an expulsion.

The reality is that time is running out for Greece and a major part of the problem for the deadlock is that they seem to be playing a zero-sum game. At the end of the day, somebody has to be at the losing end and this will not be a happy end.

A few key meetings on the Greek talks will flow through to Tuesday’s IMF €1.5 billion payment, starting with a meeting of technical teams at 1pm SGT, followed by the reconvene of Euro-area finance ministers at 8pm SGT.

For China, it looks as if last week’s stock massacre has become a distant memory, with bulls back in the driver’s seat. CSI 300 added another 2%. There is still a firm belief that the government won’t allow the stock market to disintegrate.

The path of the least resistance is still ‘up’. In addition, investors were encouraged by the authorities’ intention to scrap the 75% loan-to-deposit limit, which means more credit flows into the economy. The China A50 futures advanced 0.8%, accompanied by a 1.1% rise in the X-trackers CSI 300 A-shares ETF. The prima facie reaction will be this move, if approved by the lawmakers, will be supportive of the banks.

Japan markets came under profit-taking pressure after surging to an 18-year high in the previous session. The Nikkei 225 slipped below 20,800 as of 8.40am SGT, and the pullback makes buying on dips a compelling trade. Away from Chinese indices, the Nikkei is the next best performer year-to-date in Asia.

Singapore heading higher?

Against the backdrop of the Greek debt crisis, the Straits Times Index (STI) seems fairly comfortable within its recent range of 3300-3350. The index has attempted to break free of the trading band on quite a number of occasions but was down on luck. It may be interesting to see if the coming sessions would throw up a stronger move to the upside, given that bulls have taken the reins since Tuesday 9 June.

Market breadth has also improved, with the number of component stocks above the 20-day moving average at 30+%, up from 3% on 9 June. This indicates that participation in the recent upmove is increasing.

Traders will be keen to see if STI can break out of its recent range to the upside. Meanwhile, Noble undertook its seventh share buyback yesterday, purchasing another 14.45 million units, bringing the total to 134.2 million. This is about 2% of the outstanding shares.

Oil moves

WTI prices fell 1.2% in the overnight session and held losses near the USD 60 mark in early Asia after US crude production rose to the highest in almost 30 years. EIA report showed that US stockpiles fell for an eighth week, confirming the earlier API report, but output increased to 9.6 million barrels a day.

From a fundamental perspective, the global glut is likely to persist for a while longer, with the US crude inventories remaining more than 80 million barrels above the five-year average. However, looking at the technical, it suggests a potential upward move. If you look at the four-hour chart of US light crude, a triangle pattern is in play, and we should watch out for a break of $61.60, for a move into $66.00. 

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