Greece reshuffle complete

The Day So Far

A near Greece-less day is at hand as we finally see the output of Greek headlines recede in the wake of lowered default risk. We heard news that Greece began implementing structural reforms over the weekend. With an increase in Greek VAT from 13% to 23% it is clear that these reforms will hit Greek small business owners the hardest as dwindling consumer spending begins to squeeze the smallest enterprises with, essentially, a 10% profit cut. With the abating of the Greek default risk, we see another nation lining up to speak with creditors as Ukraine nears breaking point. After a conflict which has devalued the Hryvna, the cost of borrowing remains cripplingly high at 30%. The default could come as soon as Friday and, although progress has been made, Ukraine still holds a $70bn debt which is yet to be restructured. With a debt to GDP ratio of nearly 1:1 it appears the debt-crisis is yet to recede in distressed states. The IMF however have stated that it will stand by its bailout of Ukraine, even in the event of a failed restructuring of its debt.

After stellar earnings from Google and a move higher in its share price by 16%, we have seen the NASDAQ 100 continue to push higher by 0.91%. Although the majority of sectors were on the back foot into the end of last week, the tech sector’s weighting resulted in a continued lift in the S&P 500, the index up +0.11%. US data also served to add some strength to the dollar as both Housing starts and an in-line CPI reading for June at 0.3% for the monthly figure and a 1.8% advance in the annualised Core figure.

The Afternoon View

With fairly little on the calendar expected, I want to take a closer look at the price movement in commodities over the past few weeks. Gold has been the biggest mover in the headlines. After a chilling report from the PBoC, the Chinese central bank announced that their accumulation of the yellow metal had been far slower than markets had anticipated. This resulted in a 5.5% selloff, with Gold hitting prices not traded for five years. The stellar rise of 2011 has all been decimated as prices have fallen from the high of $1921.17 per troy ounce to current levels.

However this move has not been isolated to Gold alone. The stronger dollar has continued to weigh upon the majority of the commodity space. With Platinum and Palladium down on the year 23.2% and 28.15% respectively and oil trading back at the $50bbl handle it is clear that there are two things which are likely to see this trend continue. Firstly an ever strengthening dollar, a trend which is only set to continue with Yellen’s hawkish rhetoric slowly gaining traction, will continue to pressure commodities lower. Secondly, the ever-increasing likelihood of a Chinese hard-landing; Amplify Trading’s Senior Macro analysts see a managed hard landing in the next three to five years as growth continues to slow to a 3-4% norm. Coupled with global demand already peaking for the next five years, it is likely prices are to continue lower and thus see key commodity producers such as Australia affected heavily.