With equities having long ago stopped reflecting fundamentals, and certainly the Eurozone’s ever more dire newsflow where any day could be Greece’s last in the doomed monetary union, it was up to gold to reflect that headlines out of Athens are going from bad to worse, with Bloomberg reporting that not only are Greek banks running low on collateral, both for ELA and any other purposes, that Greece would have no choice but to leave the Euro upon a default and that, as reported previously, Greece would not have made its May 12 payment had it not been for using the IMF’s own reserves as a source of funding and that the IMF now sees June 5 as Greece’s ever more fluid D-day. As a result gold jumped above $1230 overnight, a level last seen in February even as the Dollar index was higher by 0.5% at last check thanks to a drop in the EUR and the JPY.
Over in commodities, Brent has extended gains into 2nd day amid heightened geopolitical tensions across Middle East, including resumption of Saudi-led air-strikes against Yemen Houthi because nobody could have possibly foreseen the “Ukrainization” of that particular ceasefire. Saudi air strikes in Yemen fall under rules of engagement, Houthi rebels moved missile launchers to border, says U.S. Sec. of State John Kerry. “Under the rules of engagement, it was always understood that, if there were proactive moves by one side or the other, then that would be in violation of the cease-fire agreement.” says Kerry. Also of note: the previously noted Iranian aid ship is approaching Yemen’s coastline, raising the risk of a showdown with the Saudi-led military coalition that’s blockading Yemeni ports, battling Houthi rebels. Iran’s navy has vowed to protect vessel, the government said it won’t allow any nation involved in Yemen war to inspect cargo.
Looking at stocks, Asian equity markets trade mixed following Friday’s lacklustre Wall Street close, with IPO buying overshadowing demand for equities in the region, as BHP Billiton (-6.2%) declined the most since 2008 after spinoff South32’s debut, which pressured the ASX 200 (-1.33%). The Nikkei 225 (+0.8%) rose amid JPY weakness and also further bolstered by strong earnings. Shanghai Comp (+0.6%) opened negative as several IPO’s drained liquidity in the market to hit limit up. However, some of these losses were paired after Chinese Property Prices showed declines in fewer cities than prior.
The first European session of the week has kicked off with major equities indices in positive territory, with the exception the FTSE MIB which underperforms after a number of Co.’s trade Ex-div, taking 385 points off the index. Elsewhere, Greek assets have seen some softness today (ASE: -2.6%), with Greek 2y yields up +168bps, 4y yields +130bps and 10y +26bps after a leaked IMF memo over the weekend suggested Greece will not be able to make their June 5th IMF payment unless an aid package is reached.
The only Treasury supply to be aware of this week is a USD 13bln 10yr TIPS auction due on Thursday the 21st. Meanwhile, the recent run of large corporate issuance is set to continue with analysts at IFR estimating a potential USD 25bln to USD 30bln, which would tip the volume in May well over the USD 100bln mark. Keep in mind, that the slate will also be front loaded in the week given the FOMC minutes on Wednesday and that earlier close on Friday for Memorial Day on the 25th
The dampened Greek sentiment has also weighed on EUR/USD with the pair falling around 60 pips after European participants came to their desks today, contributing to the USD-index strengthening 0.5% on the day following last week’s greenback weakness. This comes alongside comments from Fed’s Evans stating that if the Fed are confident in the strength of the economy, there is a possibility that rates could still rise at the June meeting.
Elsewhere, antipodean currencies have weakened today with NZD coming under pressure after the government’s announcement of tighter tax rules for residential properties, which follows on from the RBNZ’s plans to conduct lending restrictions on Auckland housing, while AUD/USD fell following comments from RBA Deputy Governor Lowe stating that scope remains for the RBA to cut rates.
In the commodity sector, gold printed fresh highs heading into the European open to reach its highest levels since Feb 17th, breaking above the 50% Fib from Jan high to March low at USD 1225.27 and consolidating a break above the 200DMA seen last week. The energy complex has also seen upside today with both WTI and Brent in positive territory, this comes after last week saw the former print its 6th consecutive week of gains, the longest such record in the US benchmark crude in history. Today’s strength in energy has been attributed to the ongoing conflict in Yemen after the cease-fire reportedly ended with no further agreements being announced.
