Video

#SaxoStrats
Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 14 July 2015 at 10:00 GMT

Daily Shot: This vicious Greek circle

TradingFloor.com Team / Saxo Bank
Denmark
  • Onerous terms of Greece deal ensures we'll be back to square one again
  • Shanghai Composite "safe" as shortsellers, large investors prohibited from selling
  • Japan's 2% CPI target recedes into distance as deflation spectre returns
By Walter Kurtz*

It looks as though we finally have a deal in place between the Eurogroup and Greece. Under the agreement, Greece will be getting a third bailout of €86 billion - a "bridge" facility. In return Greece agrees to have the parliament pass legislation on a number of harsh concessions.

The outcome of this mess for Greece is not pretty.

1. The nation is humiliated, forced to accept austerity measures that are harsher than what the Greeks voted against in the referendum.
2. Greece will be deeper in debt, with outstanding balances going above €400 billion.
3. Greek banks are still unable to function and will need to be massively recapitalized. It's not clear where the funds will come from as the €86 billion will be needed to run the government and pay existing debt.
4. Capital controls will stay in place for months to come.
5. Economic confidence has been completely destroyed; investment, consumer spending will shrink sharply.
So much for renegotiating the deal with troika. And that's assuming Tsipras actually gets this through the parliament.
On the other hand some argue that it's the Eurogroup who go the raw end of the deal.

n
 
Indeed the Greek implementation of these measures is likely to look like a "slowdown strike". And some of these measures are simply not implementable. For example the €50 billion of asset sales is a joke - it's been tried before with little success. 

e
 
Whatever the case, we are going to be back here in a matter of months as the current or more likely some other Greek government attempts to renegotiate the deal - again. Moreover, the backlash against the Eurogroup in Greece will continue to become more acute.  

r
 
The markets loved this deal. Here is the Greek government short-term note yield - it's as if nothing happened.  

d
 
German (and other) shares globally rallied sharply on the news. 

c
 
VIX had a massive single-day decline - I don't recall seeing a move like this on VIX futures in years.  

x
 
  The Nasdaq Composite had a couple of good days.  

d
 
The euro on the other hand declined 1%, as market participants reenter the carry trade. "Risk-on" is back. 

b
 
d
 
Turning to China, here is the Shanghai Composite. With short-sellers and large investors mostly prohibited from selling, the market is now "safe". Enjoy! 

c
 
b
 
Now on to Japan, where we see wages continue to decline. This is not a great development for the Abenomics efforts. 

g
 
Moreover, Japan's economy is looking disinflationary again - what happened to the 2% CPI target? 

r
 
— Edited by Martin O'Rourke
* Walter Kurtz is an alias
** This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot and select the appropriate command. E-mail addresses are never shared with anyone.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail