After Greece became the first developed nation to default on a payment to the International Monetary Fund news of a last minute letter written by Greece’s prime minister in which he is said to accept the majority of creditor conditions has global capital markets in an ebullient mood. While Greece and the implications of a potential Grexit has been on the minds of traders for months this fresh revelation has sparked hopes that a deal can be reached that will keep Greece in the euro zone ahead of Sunday’sreferendum. These new developments in the Greek saga have markets outside of China in a positively ebullient move as equities bounce off their four month lows in Europe and bond yields on both German and peripheral European debt easing as fears of financial contagion from Greece subside.
Fuelling this optimism is a slew of economic data released today that all showed the manufacturing sector within the eurozone picking up steam as the full effect of the ECB’s asset purchase program is now filtering through to the real economy. The overall impact of these developments on the value of the common currency has been relatively restrained with the Euro slightly lower against the dollar in today’s trading. In contrast, the United Kingdom actually posted an unexpected decline in manufacturing activity, hitting a two year low in June after a long stretch of positive performance. This miss along with BoE governor Carney’s announcement that the bank has ‘eyes wide open’ regarding the possible implications to a continued Greek drama has had the sterling on the back foot, losing half a cent versus the greenback and trading flat against its continental counterpart.
With a backdrop of European optimism, Asia is singing a very different story as the reality of sharply slower economic growth and a precarious financial system have finally caught up with the retail investors that had been fuelling 2015’s outsized performance in Chinese stocks. After entering a bear market shares in Shanghai posted another 5% losson Wednesday, wiping out Tuesday’s gains of 5%. The explanations are varied from changing margin requirements to the multiple rate cuts implemented by Beijing but against a backdrop of a slowing economy and a stock market that is largely driven by retail as opposed to institutional investors the implications from financial market chaos in the world’s second largest economy are likely understated compared to the attention bestowed upon Greece.
Moving onto North America, with a bank holiday in effect as Canada celebrates its 148th birthday the loonie has been knocked back nearly two cents in the last 24 hours against a resurgent USD. With today’s ADP employment figures in the United States beating expectations and the admission that the Canadian economy actually contracted last quarter the stage is set for a resumption in USD strength relative to the Canadian dollar after we have seen periods of strength in the loonie that pushed the value of the northern currency to the low 1.19 level versus the buck on several occasions. Given the national holidays in both Canada and the United States this week the potential for market participants to be caught off side by sharp price movements during these periods of relatively thin trading is pronounced, so while you may enjoy the time off it is still best to remain aware of these dynamics.
Further reading:
ADP employment figures
EUR/USD: Trading the US Non-Farm Payrolls
