Asian markets have finally responded to the measures announced by the PBOC and we have a day when the Hong Kong index and Shanghai index both jumped solidly in a positive territory recording gains of over 4 and 5 percent respectively. China is the second biggest economy of the world and the sell off which we were experiencing for the past few days had everyone worried, especially when the central bank’s policies were not able to stop the speed of the sell off. Nevertheless, we finally have a fruit of their labour, the overall equity market colour is green over in China today.
Back in Europe, Greece has finally submitted their three year loan request to their creditors, however a full thorough plan was still not submitted which will be furnished today. The next few days will be important as the creditors will decide on Friday if they agree with the plan and if it is credible enough for them to consider that. Then, on Saturday and Sunday euro group officials & finance ministers and their leaders will hold emergency summit and will deliver their verdict on a bailout extension for Greece.
It is not long when we will face a major important deadline for Greece which is the 20th July. Greece is running out of time fast and therefore, it is imperative that the plan submitted today must be carefully designed and leaves no thorny issues unaddressed. We still do not think that leaving euro is the base case scenario for Greece and maintain that the probabilities are just slightly over 50 percent for Greece leaving the euro zone, to be precise they are at 60%. However, if the Greek government fail to submit the credible reform package they will not only have no hope of debt relief from their package, but then there is also a serious threat of them leaving the Eurozone. Therefore, all eyes are focused on the July the 20th deadline.
As for the U.S., the king dollar came under pressure after the Fed minutes released yesterday, as investors are still doubtful that the Fed will certainly hesitate to raise the rates as long as there is uncertainty of bigger Lehman kind of moment taking place in Europe and the sell off in the Chinese equity market does not come under control. The Fed will hardly risk their recovery and will rush to raise the interest rate just for the sake of raising them therefore, many market participants are once again are raising third doubts that the September rate hike is certainly possible.
Although, soon we see the change in momentum in the Chinese stock market – which we have experienced today, the optimism will shift very rapidly for a hike in the interest rate in the U.S. The fact is that the Fed are more than comfortable with their own recovery and it is just global events which are stopping them to rise the rates.
In terms of economic docket, we will kick off with the UK’s official bank rate announcement later in the day which is followed by the MPC rate statement. The chancellor Osborne delivered his budget yesterday and did deliver some firecrackers but still nothing major which could have created loud noise. The forecast for today is to keep the rate unchanged and the decision once gain could be unanimous. Later in the day, we have the unemployment claims data for the U.S. and the forecast is for 274K. If we do get the actual number better than the forecast, we could see some more strength for the equity market and this could punish the gold price further.