Caution to reign ahead of Saturday's Eurogroup

The Day So Far

This morning’s trading has followed on from yesterday’s cautious, directionless action across most markets. We were led on a merry dance yesterday, with contradictions abound and, ultimately another day passed without an agreement between Greece and their creditors. The critical Eurogroup meeting, billed as a make-or-break session for the crisis, was terminated early, which was understandable really given that leaders were faced with three separate proposals; one from the creditors, another from Tsipras, and a final one produced by Greek Finance Minister Varoufakis. Extraordinary scenes must have ensued, with incredulous EU leaders ending the session early with a pledge to re-convene on Saturday morning. The resilience of the markets in the face of pure farce, even by Eurozone crisis standards, is admirable and suggests two things; either that investors remain confident a deal of some kind will be reached ahead of the deadline, or that headline ‘fatigue’ is setting in with regards to Greece and that investors are already looking beyond the crisis , recognising that with the ECB heavily engaged in sovereign bond markets and Greece only representing a tiny fraction of the European economy, perhaps investors have been unreasonably worried about a ‘Grexit’.

The Afternoon View

This afternoon we are still looking for risk-off and investor caution to reign ahead of the Euro group meeting on Saturday. We maintain a short bias on equities and are long t notes, although the lack of buyers in such an environment is a little puzzling and a reflection of traders’ wariness to heavily long fixed income while there is considerable uncertainty regarding Fed policy moves come September and the trajectory of interest rate hikes. Otherwise, the euro has been stuck in a very tight range for the past few sessions, but we are sticking with our short bias, as we do with crude, which has continued to slip lower in recent days, closing below the $60 barrier yesterday.