Markets price in Greek default
European equity markets took their cues from the bond markets which are pricing in a Greek default, and traders are running for the hills. Greek finance minister Yanis Varoufakis is playing a dangerous game of chicken with the International Monetary Fund, and the high-stakes game has flushed out many of the players in the stock markets.
Christine Lagarde has made it very clear that late payments are not acceptable but Mr Varoufakis appears to have a death wish. Yanis Varoufakis has taken the game of hardball to a new level, but if he flies to close to the sun he could end up like Icarus. Political mind games aside, dealers are taking their money off the table and the hatches are being battened down ahead of the weekend.
CPI data adds to down day for Dow
In the US, the Dow Jones is trading at 17,875 and down 230 points on the session as the market can’t help being dragged lower by Europe; the yearly rise in core CPI didn’t help matters either.
The US doesn’t have much in the way of direct exposure to Greece, but when stock markets across the pond are in turmoil it is difficult not to get caught up in the hype. The US market has enjoyed big rallies in the past couple of years, and traders are very jumpy when it comes to any sign of an interest rate hike. The strong core CPI numbers have sowed the seed that the Fed might raise rates this summer.
Supply issues send oil higher
Gold is holding onto the $1200 handle but the metal stumbled following the US core inflation figures. The fear that has gripped the equity markets over Greece’s questionable membership of the eurozone has kept gold above $1200.
Oil is on the rise again as supply concerns in Yemen squeeze the price of crude higher, and the drop in production at US rigs is beginning to take its toll on the energy market. The disparity between the front month futures contract for oil and the following month indicates it is a short-term squeeze we are encountering, and the medium-term outlook is for a correction.
Inflation data prompts dollar turnaround
The core inflation figures from the US prompted a sharp turnaround in the dollar’s downward trend that it was stuck in recently. The headline inflation figures were glossed over to make way for core inflation data which ticked higher on an annual basis, and the suggestion that consumer demand is on the rise has turned the greenback around.
The decline in UK unemployment has put sterling in good stead, but the UK general election is on the horizon and all signs point to a hung parliament which will punish the pound.
The euro is oblivious to the possibility of Greece exiting the eurozone, but the bond markets are preparing themselves for that scenario.