IMF Abandons Greece

Analisi Giornaliera - 12/06/2015

Pressure Piling Onto Greeks As European Counterparts Prepare for Default

After months of stalemate, the institutions and creditors in charge of Greece’s bailout have begun the preparations for a default, with the IMF recalling its negotiating team yesterday. European partners warned that without a serious proposal in 24-hours there would be serious consequences to follow for the nation.

IMF Pulls Negotiators

After dismissing earlier counter-proposals from Greece earlier in the week, the International Monetary Fund walked away from negotiations yesterday, with IMF spokesperson Gerry Rice remarking, “the ball is very much in Greece’s court right now.” Despite rumors of a cash-for-reforms deal with Germany on the table, the IMF has sent the negotiations into a tailspin with European creditors also fuming. According to reports from Bloomberg, Greece was given 24-hours yesterday to present serious proposals including pension and VAT reform. While no consequences for failure to comply were explicitly stated, it is implied that the Eurogroup and ECB are thoroughly prepared to let Greece fail at this point. They have begun preparing strategies to deal with the inevitable fallout should the country fail, including capital controls and bankruptcy proceedings. Meanwhile, the EURUSD currency pair continues to retreat, heading towards support at

US Retail Climbs

Stronger incomes and employment measures released last week show that the stars are aligning for the Federal Reserve as they seek further evidence to show that the economy is prepared for higher interest rates. Adding to the optimism was yesterday’s retail sales figures which rose well above expectations. Core retail sales recorded a gain of 1.00% in May versus expectations of a 0.70% rise as regular retail sales also outstripped expectations, rising 1.20% versus 1.10% forecast. Although the uptick in retail sales was attributed to more expensive gasoline prices, automotive and food service costs have also contributed to the uptick versus the prior year. This comes on the heels of US household net worth hitting a new record of $99 trillion just as consumer confidence and sentiment continues to show a mixed outlook for spending. Equity futures are back on the rise after giving up ground following yesterday’s retail figures.

Canada Warns on Stock Bubble

Yesterday’s Financial System Review conducted by the Bank of Canada noted the rising risks in the Canadian economy as citizens express concern regarding an overheating housing market and steep equity valuations. The Central Bank specifically outlined the gains in the local TSX Composite equity benchmark as evidence that the index was trending well-above historically normal levels. Also relevant were Governor Poloz’s comments on the impact of weaker oil prices, stating unequivocally that “we don’t have a full reading on the oil price shock yet.” The energy sector remains a critical component of the economy and increases the risks of a substantial downturn, but more pressing was the matter of housing prices outpacing the gains in income. According to the Bank of Canada, home prices are inflated by 10-30%, meaning that any reversal in employment figures or income could see a substantial correction. After a brief correction lower yesterday, USDCAD remains on the march to the upside.

S&P 500 Head and Shoulders Technical Pattern

With Central Bankers across the globe warning about the potential for equity valuations to be stretched beyond reasonable levels and falling corporate earnings expectations, pressure on stocks continues to mount. Even with benchmarks near record levels, warnings about potential politicization of the share repurchase (buyback) issue might be a major source of downside for benchmarks as the issue becomes a sensitive matter. The head and shoulders bearish technical formation setting up in the S&P 500 futures contract highlights the bias to the downside for the pattern with the right shoulder currently forming. Should prices breach the important support line at 2102, it could pave the way for substantial losses. However, if prices rise above the neckline at 2107, it could negate the pattern and see the index rise further after recently retreating.