International Monetary Fund Negotiating Team Called Back from Brussels in Blow to Negotiations
Greece was dealt a serious blow yesterday in the bailout discussions with creditors after the IMF abandoned the process and withdrew its negotiators. After the German introduced cash-for-reform plan sent markets soaring on the possibility of an emerging deal, the IMF decided to pull out, virtually assuring the institution will be forced to write-off its Greek holdings. Germany meanwhile has shifted gears and is preparing for a possible Greek default by developing plans for possible capital controls and bail-ins as Greek depositors rush to pull any remaining funds from banks. EURUSD has responded negatively to the developments, looking to test support at 1.1200 after rallying higher in recent sessions on the optimism that creditors were willing to compromise.
In a surprising turn of events, US retail sales managed to grow more than expectations after recent data showed that the rise in personal income was accompanied by a rise in the personal savings rate to multi-year highs. Both core and regular retail sales posted gains of over 1.00% expansion month over month as consumers returned to spending after the weaker winter and spring months. The main contributor to the rise in spending was more greater expenditures on gasoline while food service and auto sales provided the main upside in the measure over the last year. This might be a boon to the Federal Reserve’s plans on interest rates as another strong data point enables the Central Bank to further contemplate an earlier hike with tailwinds from more supportive economic fundamentals. Equities retreated from earlier highs on the news but managed to hang onto gains, with futures rising since the close of the cash session.
The Bank of Canada has warned about the valuations of equities in its latest report on the economy with Governor Poloz citing the risks of an overheating housing market and still intangible impact of weaker energy prices. With no clear insight as to how energy prices will shift in the short-to-medium term, the Bank of Canada has no interest in shifting monetary policy as the developments ae difficult to predict. However, the concerns regarding the housing market are very real as growth in real estate prices outstrips gains personal income. The risk of a correction in both equities and housing could present further problems for the economy and necessitate further monetary accommodation. The USDCAD has managed to continue rising from recent losses, trying to break above key resistance levels on the upside.
S&P 500 Head & Shoulders Bearish Pattern Trading Opportunity
Although equity futures ticked higher yesterday in trading, they retreated from earlier highs after the retail sales numbers came out on expectations that it could change the Federal Reserve’s timeline for raising interest rates. While benchmarks were able to hang onto gains, any further momentum higher in the US dollar from high rate anticipation could weigh on the benchmarks. The head and shoulders bearish technical setup forming in the S&P 500 on a short-term basis has risks acutely focused to the downside as fears of overvaluation are met with remarks from Central Bankers and Wall Street alike. Any move below the key support at 2103 paves the way towards 2097 and lower. Short positions should be taken anywhere below the neckline at 2107 with any rise above this level indicating potential for further upside.