Overnight in Australia, the RBA kept the target cash rate at 2.75% which came after a warning that the $AUD remains at a high levels (despite falling 10%), this caused multiple $AUD pairs fall apart overnight.
I reamin unconvinced the pair is an actual carry pair, although it may be the risk driver, although I'm skeptical of that (slightly less than the former) as well. However we do have a decent intraday negative divergence on the pair, it the fall and ES falls with them it may be true, but for how long with this being the 4th or 5th flip in 2 weeks, I prefer to stick to the market signals I summarized again last night in the "Daily Wrap".
In China we had some interesting news that could set volatility ablaze. At first glance things seem better, certainly far better than last week's banking liquidity crunch. Overnight there was a plunge in repo and SHIBOR rates presumably because of continues PBOC efforts to talk the market off the ledge, as a result we saw the Shanghai Composite above 2k and closing at session highs of 2,006, up 0.57% for the day.
Here's where it gets interesting...
as the WSJ revealed, "according to a previously undisclosed summary of a PBOC internal meeting on June 19, the central bank was especially concerned that in the first 10 days of June,Chinese banks increased lending by 1 trillion yuan ($163 billion)—an amount the central bank said "had never been seen in history." And about 70% of that amount consisted of short-term notes that mostly don't show up on banks' balance sheets—making it easier for the banks to get around regulatory lending restrictions-—rather than lending the money to promising companies or projects. The PBOC interpreted banks' actions to mean that "some banks thought the government would launch stimulus policies as the economy slows, and positioned themselves in advance,"
Several major banks were directly criticised in the internal PBOC report by name.
China must now effectively de leverage an amount that is roughly CNY 1 trillion. There's VERY little chance this gets done without causing negative volatility in the markets.
Moving to Europe...
More imoprovement in Spain? Jobless Claims dropped 127k on consensus of 100k which is just a continuation of the data yesterday showing the periphery improving while the core still rots in to recession, the great fear of "Contagion", a word that you heard a dozen times a day 2 years ago, but no more, is no longer useful as contagion has been present for some time.
Today, German Auto Sales saw another 5% decline in June, confirming yesterday's data that the "core" or Germany is seeing increasing drag and economic head-winds which doesn't bode well for one country in particular, that would be Greece. In any case, the ECB is expected to take a more dovish tone Thursday as the US is closed which can only add to Friday's volatility when we re-open.
Greece may have been the biggest news overnight, EU officials (along with or more like "joining the IMF") said the country has 3 days to deliver on conditions attached to its international bailout offer or face the consequences.
EUR/USD The European open overnight is at the green arrow, the news about Greece at the red arrow, sent the EUR lower.
It must be ultimatum week, French President Hollande gave Obama an ultimatum to "Stop Spying" on the US's European allies both in the US and abroad along with everyone else they (we) are tracking which seems to be anyone and everyone with any sort of digital communication. If you want to invest in a business, I'd start breeding "Carrier Pigeons", I think you'll see a demand soon.
Yesterday the Egyptian military gave Islamic Brotherhood Egyptian President, Morsi a two day ultimatum to come up with a "Road map" or... The consequences were unclear to me.
Today Greece with a 3-day ultimatum. You may recall on June 20th I published the IMF warning that Greece needs another bailout and the IMF will not participate unless the Eurozone does some heavy lifting first, which won't happen because of Merkel's upcoming elections.
From Reuters:
"Greece has three days to reassure Europe and the International Monetary Fund it can deliver on conditions attached to its international bailout in order to receive the next tranche of aid, four euro zone officials said on Tuesday.
The lenders are unhappy with progress Greece has made towards reforming its public sector, a senior euro zone official involved in the negotiations said, while another said they might suspend an inspection visit they resumed on Monday.
Athens, which has about 2.2 billion euros of bonds to redeem in August, needs the talks to conclude successfully. If they fail, the International Monetary Fund might have to withdraw from the 240-billion-euro bailout to avoid violating its own rules, which require a borrower to be financed a year ahead."
So it seems obvious (although Greece is completely to blame for getting in the situation and accepting the ridiculous bailout terms that do nothing to repair its economy, just pay off European banks they owe money to which was the point of the bailout) that Greece is about to be thrown to the wolves, the Troika will no longer sink any money in to Greece, there are no assets left other than whatever diminished savings the population has so I'd guess the Troika/IMF will be pulling a Cyprus part 2 and impairing Greek citizens this time as it is, in the Troika's view, "Their fault any way".
If I count correctly, 3-days would be Wednesday, Thursday, FRIDAY!!!!
As for Today...
The rest of the news will be made at 12:30 when the F_E_D's Dudley speaks and after market Powell speaks at 5:45, tomorrow is a half day, Thursday when the ECB meets we are closed and effectively closed Friday when Non-Farm Payrolls (and Initial Claims) hit the wire, this is the day we are set for extreme volatility between the ECB, Greece, PBOC liquidity operations, etc and all the day before Friday as we are closed or Friday pre-market such as the NFP in what will be a thin market dominated by vacuum tubes.
Happy 5th of July-the Fireworks will be seen WORLDWIDE!!!
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