Daily Outlook Monday 13th July 2015

Daily Outlook Monday 13th July 2015

There are two market events traders should be on top of (1) Greece ongoing Deal or No Deal? and (2) China stock market volatility

Greece’s debt negotiation is ongoing. A deal was expected over the weekend but nothing came through. Latest news is Greece has until Wednesday to pass new proposals through parliament before negotiations for a bailout can begin. Greece is hard to ignore but market participants seem to grow tired of it. EURUSD’s price action has been in consolidation and intraday range has contracted in the past two weeks.

China so far:

1. Chinese stocks have rallied very strongly past 12 months – fuelled by margin buying by retail speculators, every dip was being brought
2. Last month, the China 50 (top 50 China A shares listed in Shanghai & Shenzhen, financial services is majority sector) corrected around 26% from high to low
3. Last weekend, the government introduced supporting mechanisms including bailout fund and liquidity to brokers to stabilise the sell off
4. First impression was positive but on Wednesday the market panicked as over 50% of the stocks listed were suspended; actions by the government was also seen as desperate measures
5. On Wednesday, the China 50 fell as much as 15%, Hong Kong 40 hit low of 9%; these volatility is unprecedented in stock indices
6. On Thursday, the government introduced more measures including banning of selling, propelling the China50 futures to shoot up 17%
7. On Friday, the momentum continued as China 50 rallied another 10% high and has stabilised lower now

In conclusion: volatility is likely to continue, what is happening in China is unprecedented in terms of responses and analysing how the market will react is one to watch.

The volatility in China is weighing down on commodities currencies (AUD, NZD, CAD). Iron ore was badly beaten last week as waves of margin calls from stocks and dent in confidence led investors to reduce their iron ore exposure.

How will Greece and China affect US Fed rate hike expectation? The market has already priced in lower probability in rate hikes, with only March 2016 as certainty now (previously December 2015). US data has also not been stellar, the data dependent Fed will continue to be on the fence. Don’t forget that at the beginning of the year, the market was expecting June 2015 or earlier, then last month, it was September 2015 and now March 2016.