Article / 05 September 2016 at 8:00 GMT

From the Floor: Italy and Greece versus the post-Brexit EU

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From the Floor By Michael McKenna

September's first full trading week has begin with an outpouring of green tape from Asia, report's Saxo Bank's Edmund Liu, with the Nikkei 225 up 0.66%, the Shanghai Composite up 0.13%, and the Hang Seng up 1.67%.

The session was an interesting one in terms of central bank narratives, with Bank of Japan governor Haruhiko Kuroda out stating that Japan will do its utmost to achieve its 2% target inflation rate (the most recent core CPI print from Tokyo in August showed a 0.4% annual decline). 

Kuroda also noted that the bank remains prepared to head further into negative territory in terms of interest rates, although his many cautions regarding such a circumstance had the odd effect of slightly boosting the yen, says Saxo Bank head of forex strategy John J Hardy.

Elsewhere in the forex space, Hardy notes that the kneejerk USD selloff that swung into action following Friday's nonfarm payrolls shortfall – the US posted 151,000 new jobs versus 180,000 expected – was rejected, adding that EURUSD in particular looks fairly bearish at its current levels.

"The 1.12-1.1250 area that had previously been acting as support is now the next key resistance level," says Hardy.

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Source: Saxo Bank 

On the day, the UK is set to release its latest services PMI data at 0830 GMT, and a continuation of the relatively strong post-Brexit data trend there could see further downside in EURGBP, says Hardy.

This week, of course, sees the European Central Bank out Thursday, but Saxo fixed income trader Michael Boye notes that investors largely expect president Mario Draghi to "hold his fire"; the major risk for the euro at this point, says Hardy, is the political one surrounding Italy's upcoming constitutional referendum.

(This is the ballot that Forbes'  John Mauldin has said 'could destroy the euro'...)

Saturday saw the conclusion of the G20 summit in Hangzhou, China, which featured several amusing diplomatic breakdowns that generally signalled that relations between Beijing and Moscow are significantly better than those with Washington.

For markets, Saxo Bank commodities head Ole Hansen says that one of the key G20 headlines was the one that saw Russia and Saudi Arabia in discussions to potentially "stabilise" crude oil markets. Although the fabled "Opec freeze deal" still faces several significant stumbling blocks, Hansen tells us that the chances of something concrete emerging from the next producers' meeting in Algiers must be viewed as having increased by a tick or two.

Further news on this front would help to lift oil out of its early-autumn doldrums, with Hansen pointing to his Friday SaxoStrats trade in Brent crude as one possible way to play an upside move...

Ultimately, however, Saxo's commodities chief reminds us that "talk alone won't do the job" in terms of sending crude prices higher.

In stocks, Saxo Bank head of equity strategy Peter Garnry notes that the UK's FTSE index may be reaching an interesting short-entry level, although he notes that a break above 6,950 would likely invalidate such a strategy.

Garnry also reports that the short EuroStoxx 50 trade outlined Friday has stopped out, while he is taking a four-month old Samsung long trade off following a near-40% profit.

"The Note 7 battery issues represent a risk here, although it has not yet manifested in the share price," he concludes.

Finally, Michael Boye reports that the European Union is on the verge of halting payments to Greece as the country has largely failed to commit to the reforms specified in its bailout deal. According to Boye, Athens has fulfilled only two of 15 required action points, and Greek bond yields remain significantly elevated at near 8%.

As might be expected from a world of zero-bound and structurally compromised markets, gold is holding onto its recent gains, although hedge funds cut their net-long position by 10% in the week ending August 30. As Ole Hansen puts it, "the battle for $1,300/oz is heating up".

On the Mediterranean, disruptions in both Greece and Italy 
could further imperil a wobbly post-Brexit EU. Photo: iStock 

Michael McKenna is an editor at 

From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.  
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