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Markets showing the strain as the Eurozone stands on the brink

Last updated: May 3rd, 2017 at 09:59 pm

A supposed deadline has been imposed no Greece. By Friday a proper proposal needs to have been put together and presented in writing (an unsubtle dig at yesterday’s lazy schoolboy presentation by the new Greek finance minister Euclid Tsakalotos). With this done, the leaders can then consider the proposal at the summit on Saturday and Sunday in order to make a final decision on  deal. It would appear that the Eurozone stand on the brink and the leaders are faced with a make or break moment. However strain is increasingly coming through the markets. Safe havens (Bunds and the yen) are the trade of choice as relatively riskier assets (equities and commodities) have been shunned. There may have been a curious rebound on some of the themarkets today, but this is still likely to be a bounce that is sold into. Below are a few charts that reflect my concerns.

strainThere is nothing to suggest that in front of the meeting this weekend, anything positive will be seen. At best, Greece has shown a lack of willingness to seriously negotiate; at worst they have shown a level of disdain that suggests they actually wanted a Grexit all along. I am becoming increasingly worried now that if the politicians fail us this weekend, there could be an almighty shakeout in the markets.

Financial markets are showing the strain. The movement on the sovereign debt yield curves of Germany and Spain over the past month show this very well. Whilst German debt has been bought throughout the curve, the Spanish curve has shown the front end of the curve steepening, where shorter dated debt is being sold off, suggesting near term fears for investors. At the longer end of the curve, debt has actually bull flattened, however this is a reflection more of the average date of the purchases from the ECB’s QE programme (which has averaged between 7 to 11 years maturity).


The chart of the German 10 year Bund yield and the EUR/USD shows that if the bund yield continues to fall then the euro is likely to follow (This also shows with an uptick in the Bund yield today, why the euro has been a better performing currency today – but I do not expect this move to last).

bund eur

The chart of the volatility of DAX options (shows with the DAX) also shows that downside pressure on equities is likely to continue. Volatility will go up as traders look to buy downside protection (i.e. put options) in order to hedge their long portfolios.

dax v

And just one more chart to really cheer you up, here is a chart of copper. Copper is often referred to as Dr. Copper as it is a decent gauge of the global economy (buying copper is a signal of stronger economic activity).


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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.