European futures are trading lower which means the markets are set to open in a deep red territory after the disappointing Chinese manufacturing data which is on its downward slide and triggering more uncertainty and anxiety among investors. The data released today was extremely poor and could push the industrial metals further lower and metals like copper could feel the heat. The sentiment in the market has become very poor and not in your favour if you belong to bull camp because the data released on Friday in the US has also confirmed that the biggest economy in the world could be catching cold after the weak GDP data hit the wire and pushed the indices lower and today we have a Chinese data confirming contraction.
It is the first trading day of a new month and given that the number of volatile events have taken place so far during the previous month, volatility may remain elevated going forward as we still do not have any solutions for the ongoing problems such as the Eurozone crisis, Greeks putting an end to their austerity pain by selecting a party which support their view and a surprise move by the Swiss bank which has reminded once again that greed is a curse and banks are still taking enormous amount of leverage. So far Berlin is thinking that Greek exit from the Euro could be contained, however my concern is if history repeats itself, and we do see a similar consequence when the US Federal reserve bank let the Lehman Brothers going bust and the ripple effects were printed all over the economy in the following years.
Greece has been in the headlines over the weekend and the country’s new finance minister has delivered a strong speech. Although, the major concern among traders this week would be how long it will take for Greece before they can reach a contract with the creditors. The new finance minister has made it clear that he is not open for any new rescue plans and he is expecting that the european Central bank should become pillar for the country’s fragile banking system. But, I think the bigger question is that if Greece can survive without Its drug addiction!
This fear among investors has wiped off nearly 40% of its stock market value and the trend may continue if we do not see a solution any time soon. Therefore, we are facing a really messy situation. Time is ticking as we move towards February 28, as it is then when their credit program will expire. It will be inevitable for Greece to face another default if we do not see any bailout funding line established before then. This is because the countries banking system is purely relying on the ECB loans to run its daily operations and the banking system has suffered massive outflows of deposits.
Perhaps the best option for Greece for the time being is to have a little bit of debt relief in terms of haircut and country fiscal budget should be excepted as a neutral budget rather than a fiscal surplus budget, but yes, reforms are must, because country is facing incredibly high corruption which is impacting its tax collection.