Good morning. I hope you had a good weekend. Well this is some what of a bearish start to wake up to. Greece causing all sorts of issues again with their banks and stock exchange closed today and European Central Bank’s Governing Council agreed on Sunday to freeze the level of emergency liquidity assistance for Greek banks. There will be a lot of smarting bulls today who had taken bets last week on a resolution over the last week, while I bet the EU powers that be are cursing Greece. The Greeks are holding them over a barrel and it will be interesting to see what happens this week. The UK should take a leaf out of the Greek negotiating book about staying in the EU as well…..
This rather massive gap down to open this week from Friday’s closing price somewhat invalidates a lot of technical support and resistance levels, for example the daily channels, which isn’t going to make today very easy. As another fly int he bulls ointment, China is struggling a bit and a rate cut over the weekend has failed to stop the rout. China slows down, the world slows down.
US & Asia Overnight from Bloomberg
Asian stocks tumbled as investors sought shelter in haven assets while they weighed a possible Greek exit from the euro zone. Shares in Shanghai sank even after the central bank cut interest rates.
Japan’s Topix index dropped 1.7 percent as the yen jumped 0.8 percent against the dollar and 2.1 percent versus the euro. The MSCI Asia Pacific Index lost 1.6 percent to 145.43 as of 11:37 a.m. in Hong Kong, as more than 20 shares fell for each that rose. The Shanghai Composite Index slumped 3.8 percent after earlier rising 2.5 percent.
“Markets clearly were not ready” for this, said Evan Lucas, market strategist at IG Ltd. “It will be a sea of red all day today. Risk mitigation will be everything.”
Greece will shut lenders and impose capital controls on Monday after Prime Minister Alexis Tsipras’ decision to call a July 5 referendum on the proposed bailout package spurred savers to start withdrawing money at the weekend. The European Central Bank froze the level of emergency aid available to Greek lenders Sunday. Mainland Chinese investors focused on local stimulus efforts, with policy makers reducing the benchmark lending rate for the fourth time since November after the steepest two-week stock selloff since 1996.
“Chinese policy makers must be quite aware that cutting in response to short-term moves in markets is a dangerous game, but I do think they’ve eased because of underlying fundamental concerns,” Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong, told Bloomberg TV. “We’ve already seen the earlier rate cuts not really gaining the traction we wanted and the economic data hasn’t really improved all that much.”
Broad Decline
Losses across Asia were broad-based on Monday, with all 10 industry groups on the regional measure retreating. Financial and technology shares led declines. Industrial & Commercial Bank of China Ltd., Tencent Holdings Ltd. and Toyota Motor Corp. were the biggest drags on gauge.
Australia’s S&P/ASX 200 Index dropped 2 percent. Slater & Gordon Ltd. tumbled 26 percent, the most on record, after the world’s first publicly-listed law firm said it identified a historical error in its U.K. reporting.
The Hang Seng Index slid 2.3 percent, on course for the biggest loss since December. New Zealand’s NZX 50 Index fell 0.9 percent. South Korea’s Kospi index retreated 1.4 percent, while Singapore’s Straits Times Index lost 1.3 percent.
Greece will probably have to exit the euro zone, according to Mohamed El-Erian, the former chief executive at Pacific Investment Management Co.
“There’s an 85 percent probability that Greece will be forced to leave the euro zone” in the next few weeks, El-Erian said in an interview from New York. “What we are seeing here is what economists call the sudden stop, when the payment system stops. The logic of a sudden stop is a massive economic contraction, social unrest and it’s going to make continued membership of the euro zone very difficult for Greece.”
E-mini futures on the Standard & Poor’s 500 Index sank 1.3 percent. [Ref]
FTSE Outlook
Will be a brave bull that jumps in front of the Greek steam roller today, still, fortune favour the brave! With Greece on lockdown really with the banks and stock exchange closed the pressure is on to sort a resolution and see just how much the Euro-area finance ministers will do after saying on Saturday they’d do whatever is necessary to ensure the financial stability of the currency region. The Dax dipped below 11000 earlier, but has bounced back a little – the pressure will be on to keep that above 11k. Hard one to call today but obviously we have the gap left at 6757 from Friday, and with the daily pivot 6762 and dead cat bounce today that might possibly reach this area is worth a short. There will be some brave bulls going in today I imagine who are betting on a speed response to the situation before it goes to complete meltdown, buoyed by the EU comments on Saturday. Most technical levels are invalid after such a drop, however the fib lines at 6562, 6537, 6521 and 6495 will provide some initial support, with the 6562 one sort of holding so far.
Its going to be a gamble day today really but I have gone for an initial rise from this area that we have dropped to, firstly up to 6620 area but maybe as high as 6690. Bit of a dead cat bounce if you will. A day for the brave really!