European stocks rose from an almost four-month low as Swiss equities rallied. Greek shares tumbled amid the country’s debt impasse. The situation in Greece continues to haunt equity markets. After negotiations between this country and its creditors were interrupted on Sunday, things have become considerably more tense. Yesterday, Tsipras Prime Minister said in Athens that his country will not stoop to their foreign creditors, referring to the condition imposed by its partners to reform the pension system, one of the most expensive in the eurozone. The position of Prime Minister was supported by almost all the members of his party. The European Commissioner Gunther Oettinger mentioned that before the Greek position the European Commission needs to have a plan B, or a contingency plan in case of default. Today, the Greek Prime Minister Tsipras had scheduled a three-day visit to Russia but given the urgency of the situation is possible that this trip is shortened. Yesterday, the Athens Executive had an emergency meeting to discuss the strategy for the coming days and the for Thursday meeting of the Eurogroup. In this context, the nervousness will continue to score investor sentiment.
EUR / USD had a bullish momentum yesterday, topped at 1.1293. My expectations are bullish on testing 1.1350 / 80. Initial support is at 1.1235, whose breach could lead price to neutral trading zone testing important support 1.1180, which should be clearly pierced for the continuation of the bearish scenario testing 1.1100 - 1.1050. Basically, as long as price stay below 1.1465 I prefer bearish scenario at this phase.
Against this rather uncertain and threatening scenario, the performance of equity markets during yesterday’s session was quite interesting. After accumulating losses of about 1.50%, major European indexes embarked on a solid recovery, finishing the day with about 0.50% gains. This pattern may have various reasons but probably was due to the closing of selling positions by investors. If on one hand the longer pass the smaller the probability of an agreement (which has a negative impact on the market and therefore these positive selling positions) on the other hand there is always the possibility of a last minute solution, which has not been rare in recent years and which penalize the selling positions. So, considering that markets are crossing, “uncharted waters” investors’ caution is justified.
It is not excluded that the European countries present Greece a new proposal, which would probably be a temporary solution that would allow the country to receive a portion of the tranche that was suspended since February (7200 M €) in exchange for the adoption of certain measures. Thus, this hypothetical proposal would not aim at solving the structural problems of Greece but would be more an extension of the second ground plan and that would give more time for negotiators to reach a more lasting solution. Even not reached an agreement today, is not to rule out the possibility of being scheduled an extraordinary meeting, by the Eurogroup or by the European Council.
Today will take place the expiration of futures and options, known as quadruple witching. Quadruple witching happens when three related classes of options and futures contracts expire, along with the individual stock futures options. Quadruple witching days are usually accompanied by considerable volatility in stock and derivative prices, as well as increased trading volume, with the occurrence of erratic movements. The most most volatile time of day shall be 13h30 (open) and 18h00. Statistically, the sessions of quadruple witching are positive for the equity markets.
Asian indexes closed higher, with emphasis on Japanese equities. The Nikkei led the Asian session, basing its performance on the valuation of the financial system. The Chinese markets were closed. Last Friday recorded losses of more than 6%, exhibiting high volatility, which is a warning sign.
Concerning the Greek issue, the current situation is characterized by reduced time available, which forces players to discuss frankly and directly and by a change of tone in the negotiations. Yesterday, the President of the Eurogroup, said the Greek proposal is a step in the right direction and that is inclusive and comprehensive, adding the possibility of an agreement later in the week. A detailed plan resulting from technical meetings must be approved by the Eurogroup before being proposed at the European Council on Thursday. The last phase shall provide for the adoption of the final proposal by some parliaments and it is not excluded that there may be some difficulties particularly in Greek and German parliaments. In Athens, some points of the proposal can not be well accepted by some wing of the ruling party, while in Berlin Chancellor Angela Merkel will have to convince some of her party members to approve a new plan to support Greece.
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