European stocks declined and the euro made an early drop as the outcome of the Greek referendum and their rejection of austerity had investors flee to the traditional safe havens of US Treasuries, German bunds and the Japanese yen. Following an “equities bailout” by the Peoples’ Bank of China the Shanghai Composite index lifted after the past few weeks’ $3.2 trillion sell-off.
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The spotlight falls on this week’s Euro Summit, tomorrow 7 July, where politicians and finance ministers will have to decide, over canapes and plenty of soda water, on a course ahead for the Euro zone economy.
Tuesday also sees the release of both Canadian and US Trade Balance figures.
Although published after the fact, Wednesday’s Federal Open Market Committee (FOMC) Meeting Minutes are eagerly pored over by traders and analysts for hints about Fed forward policy. The minutes, pertaining to a June meeting, will not feature any reaction by the Fed to the turn of events in Europe, and may simply feature more vague can kicking talk about waiting for US employment figures to improve before the elusive rates increase.
China releases year-on-year Consumer Price Index (CPI) data on Wednesday, followed on Thursday by UK Official Bank rate and MPC Rate Statements.
On Friday, Fed Chair Yellen speaks publicly and her speech could be the first official statement of the Fed vis-a-viz the implications of Greece.
The market’s eyes are no longer on Greece but, rather, on European and global reaction to the default by referendum.
Yesterday, 5 July, 61% of Greek voters rejected further austerity and debt repayments to the IMF, ECB and EC. Today, Finance Minister Yanis Varoufakis resigned with vague reasons, but clearly not feeling much enthusiasm for the difficult odyssey ahead.
German Chancellor Angela Merkel and others are meeting in an emergency summit, today, and again tomorrow with the rest of the Eurogroup, on Tuesday, to decide an official reaction and to discuss a way forward for quagmired Europe.
The ECB is widely expected to recalibrate its quantitative easing (QE) measures, and may indeed activate OMT bond buying from Portugal, Spain and France, as predicted by Morgan Stanley two weeks ago to prevent “contagion”.
In the view of the Euro zone, the Greek walkout sets a dangerous precedent for other beleaguered nations that may now view EMU membership as reversible.
The European Central Bank will be meeting, today, to discuss salvaging international banks in Greece. These lenders have been closed for over a week as a result of capital controls imposed by Prime Minister Alexis Tsipras on 28 June.
Illustrating the predicament of sucker-punched banks in Greece, Ayako Sera of Sumitomo Mitsui Trust Bank told Bloomberg:
There’s nothing we can do now except lower our risk and wait. The euro was created based on this great dream of a unified Europe, and if they withdraw from the euro then the whole system is going to come into question.
The EUR/USD again gapped down at market open this morning, although the gap, in reaction to “Acropolis Now” was smaller than last week’s gap in reaction to the announcement of the referendum. As is typical (though not guaranteed) of chart gaps, the market trades to close the gap before heading back in the opposite direction. So, a seemingly, stabilizing EUR/USD chart may look very different later today or later this week.
The Shanghai Composite Index was, until a few weeks ago, dubbed one of “the world’s best-performing equity gauges” by the mainstream financial media. Since 12 June the index has tumbled 29 percent. “World equity gauge” takes on a more ominous meaning.
According to Bloomberg, a consortium of Chinese brokers will be injecting 15% of their net assets ($19 billion) into select Chinese equities starting today (Monday). Additionally, many of China’s mutual funds have pledged to hold (and not sell) their long equity positions for the next 12 months.
Yesterday, the China Securities Regulatory Commission confirmed in a press release that the Peoples’ Bank of China (PBoC) will provide capital to China Securities Finance Corp that “will use the funds to help brokerages expand their businesses and reinvigorate stocks.”
In other words, PBoC is financing margin lending businesses; or put another way: the PBoC is now in the business of encouraging and financing leveraged stock buying.
This analysis is provided by xbt.social.
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