As previously observed (skeptically), a main reason for the surge in the DAX, and thus the S&P, on Friday was premature hope that the Greek talks on Thursday night were a long-overdue precursor to a Greek resolution, and as we further noted yesterday, subsequent bickering and lack of any clarity as we go into today’s critical “further noted yesterday” meeting between Merkel and Tsipras, is also why the Dax is lower by 1.1% at last check, even if the EURUSD continues to trade like an illiquid, B-grade currency pair whose only HFT purpose is to slam all stops within 100 pips of whatever the current price may be.
Not helping the weak euro case was a plethora of research reports (to follow in subsequent post), which saw the penguin consensus reiterate that despite the Fed’s rhetoric, the strong dollar case is the dominant one for the coming months and well into the summer. As for whether the last few hours’ stop hunt higher in the EUR/USD is credible, one look at where oil is trading (based on fundamentals or rate differentials) suggests the latest spike in the EUR is to be faded. Indicatively, Brent and WTI are trading down ~$1/bbl as talks on Iran nuclear program enter final week before political deal due, with both sides saying agreement is reachable. In addition, Saudi’s Naimi says OPEC would have lost market if it cut output, with the kingdom pumping 10 million barrels per day. Among the soundbites Naimi made was that “oil won’t rebound to $100/bbl because increased prices would draw more shale, and other higher-cost output to market.”
But back to the main event of the day, as focus falls on Greece once again as the Greek PM Tsipras looks to meet with German Chancellor Merkel today after sending a letter to her last week which said it will be “impossible†to service near-term debt obligations. The two will meet from 1600GMT, with a press conference tentatively scheduled for 1800GMT and a working dinner from 1900GMT. Lingering concerns around the periphery has caused some selling pressure in Greek bonds and the 3y yield sits higher by ~40bps, although the domestic Greek stock market remains unfazed and trades with marginal gains.
How big is today’s meeting? As Hajo Funke, political scientist with Berlin’s Free University, told AFP earlier, “two worlds will collide†when Merkel and Tsipras sit down this afternoon:
“There is the political world of Greece, where a left-wing government faces a society in collapse, (of) societal decay… as grave as anything we have seen in western Europe since 1945.”
“The other world is a content country that is dominant in Europe, Germany, which worries about maintaining its economic happiness, and which is now being asked to help the other, under conditions it doesn’t fully understand.â€
So yes: today’s meeting (4:00 PM GMT), the subsequent press conference (6:00PM GMT), could well lead to a symbolic “last supper” for Tsipras at 7:00PM.
Asian equities traded mostly higher after taking the impetus from Friday’s strong Wall Street close, which saw the S&P 500 gain the most since the start of February. The Shanghai Comp (+2.0%) rose for a 9th day, the longest winning streak since Apr’07 as cash flowed back into the market after the end of subscriptions for the recent slew of IPOs. Elsewhere the Nikkei 225 (+1.0%) rose to hit yet another fresh 15yr high led by health care stocks. The ASX 200 (-0.3%) was the session’s laggard after an earlier failed attempt at testing the 6,000 key psychological level.
Positive sentiment from Asia failed to follow through to Europe, with selling seen in the DAX in the first hour of trade, exacerbated by a break below Friday’s low and the FTSE 100 back below 7000 as concerns over Greece weigh on the sentiment and as oil prices continue to slide.
This week sees a downtick in Eurozone supply with EUR 13-14bln on offer. Belgium get things underway on Monday with a trio of OLOs, followed by Netherlands on Tuesday and Italy on Thursday for which sizes are still yet to be announced. Speculation has been that Portugal could come to market on Wednesday but this is still yet to be confirmed. From a redemption perspective there is nothing too significant to report. The US come to market with 2s, 5s and 7s and 2y FRNs. The size of the auctions remain unchanged at USD 26bln, USD 35bln, USD 29bln and USD 13bln respectively although some of the USD 103bln hitting the market will be offset by the prospect of USD 78bln in 2-, & 5y redemptions due for payment on Tuesday 31st March. Supply this week equates to ~500K 10 future equivalent.
Once again FX markets have also been in focus and the USD index saw an early bid which has consequently caused EUR/USD to slide to fresh lows and a lower EUR seen as a headwind for exporters from core Europe. NZD outperformed overnight, underpinned by a sell-off in AUD/NZD as the cross touched a fresh record low, attributed to large fund liquidations and NZD/USD hit a 2-month high after large buy-stops were triggered in the cross at 0.7610. AUD also strengthened in sympathy as AUD/USD reclaimed the 0.7800 handle, further bolstered by selling in EUR/AUD after the earlier break below the 1.3900 handle and medium-term support at 1.3881 (Wed & Thurs low). In EUR/USD large vanilla option expiries are seen at 1.0850 with USD 1.5bln due to roll off at the 10am NY cut.
