Article / 14 July 2015 at 8:23 GMT

From the Floor: One plan, one vote

Head of Editorial Content / Saxo Bank
  • Markets expecting Greek parliament to pass bailout package: Hardy
  • Shanghai markets "take a breather" after three-day rally: Moltke-Leth
  • Iran deal announced, oil likely to head lower on increased supply: Hansen
  • Grexit still a possibility, even after the deal: Hardy
  • Fed chair Yellen keeping 2015 rate hike hopes alive: Boye
From the Floor

By Michael McKenna 

Much is made of Athens' status as the birthplace of democracy, and the particularities of this form of government will have markets on tenterhooks until the Greek parliament votes on Monday's bailout deal tomorrow.

It is worth remembering, however, that the ancient Athenians were not always as enamoured by the concept as is the post-World War Two West, with Plato (as well as Aristotle, Aristophanes and others) envisaging it as the second-most degraded form of human organisation, exceeded only by its inevitable successor, tyranny.

There will likely be many discussions about where, exactly, the fine line between democracy and tyranny lies as the contentious bailout package makes its way to Athens (as well as the other European parliaments) on Wednesday.

Not over yet?

"I'm not sure [this vote] is going to pass", says John J Hardy, Saxo Bank's head of forex strategy. While noting that markets appear optimistic about the bailout plan's chances, Hardy tells us that even if the bailout package is able to win parliamentary approval, it could still mean the end of Greek prime minister Alexis Tsipras' career, as well as Greece's ability to survive in the Eurozone.

"I just don't see how Greece can continue to operate under these deflationary terms", says Hardy, adding that "this is not the end of anything".

While markets greeted yesterday's news of a deal with trumpets, the fanfare tapered off into an irritating drone as the specifics of Greece's capitulation slowly made themselves clear.

"Yesterday's rally saw European stocks rise by between 1.5% and 2%, but there has been no follow through today", says Saxo trader Adam Seagrave from London. On the single-stock front, yesterday's US session saw National Bank of Greece shares go from a premarket gain of nearly 20% to a 1.66% loss by market close. 

In forex markets, the key vehicle for trading this toxic mixture of relief and scepticism, celebration and disgust, continues to be the EURUSD... and Hardy is telling us to look out below.

"If EURUSD continues to trade below 1.10 after this week's series of hurdles, 1.05 could come into view", he notes, adding that "I think it's high time we get there". 

Yesterday may have seen a deal reached, but EURUSD appears to be celebrating 
with black candles... Source: Bloomberg, Saxo Bank 

China contained

The diffuse downturn in Greece-related sentiment was echoed in Shanghai yesterday as the recovery wave seen in Chinese stocks crested and slumped, leaving the SHCOMP down 1.16%.

"Asian shares were actually mostly higher on the moderate risk-on sentiment," says Christoffer Moltke-Leth from Saxo Bank's Singapore trading floor, but Shanghai took a breather after three days of strong recovery".

Molkte-Leth is ultimately sanguine about the Chinese economy's resilience to the recent downturn in equity markets, telling From the Floor that the collapse is actually relatively contained on the macro level.

"There are only 90 million private investors in China, and the percentage of household wealth stored in equities is only 13% – compare that to the 32% stored in real estate", he notes. Furthermore, the speed of the SHCOMP's record early-2015 run was such that much of the gains were not withdrawn and placed into the "real economy", says Moltke-Leth.

"As for the question of whether the downturn in markets will impact China's real economy, we believe it will not," he concludes.

We have a(nother) deal

For financial journalists, the steady stream of panic from Athens and Shanghai has provided a welcome distraction from the US rate hike-related "hawks and doves"-type headlines that would have otherwise filled our summer days.

While that particular factor is very much returning to prominence this week, you will forgive us one final detour – a quick jaunt to Vienna and Tehran – before we strap on the binoculars and get back to birdwatching.

The reason for our excursion, of course, is the landmark nuclear deal announced this morning between Iran and six world powers. The deal will see economic sanctions against Tehran eased in exchange for Iran's scrapping of its nuclear ambitions, and as Saxo Bank commodities head Ole Hansen notes, a flood of Iranian oil into world markets.

"The big question here is just how quickly Iran can get its oil out, but they need the revenue badly" says Hansen, adding that the combination of a rising US rig count, record levels of Saudi production and the Iranian influx will place heavy pressure on oil prices.

"We see WTI testing below $51/barrel," says Hansen.

Grains extend gains

Oil is not the only commodity seeing some summer drama, with gold holdings at their lowest level since 2006 and copper, as Hansen puts it, "getting into extreme levels too".

"There are lots of extremes out there for mean-reversal traders", adds Saxo's head of commodity strategy.

So if funds are leaving oil, vacating copper and fleeing gold, where are they headed? To grains, it would appear, with long positioning in soybeans and wheat reaching record levels as traders crowd the exits of gasoline, gold, silver, palladium, and copper.

And now, back to New York...

Finally, From the Floor will follow Adam Seagrave's lead and remind readers that market focus will return to New York this week, even as the various crises, agreements and deals continue to make headlines.

The US is still the world's largest economy by most measures, and the USD remains the closest thing to a world reserve currency in existence. As such, do remember to keep an eye on this week's spate of US earnings releases as well as on Federal Reserve chair janet Yellen's address to Congress tomorrow.

As Saxo bank fixed income trader Michael Boye notes, Yellen's recent public appearances have reignited investors' hopes for a 2015 rate hike, and a lot of the commodity, forex and equity situations outlined above relate as closely to USD levels as they do to Greece, Tehran and even – depending on how you are trading it – Shanghai.

It's always best to keep one on eye on the dollar. Photo: iStock

Michael McKenna is a consulting editor at

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Editor’s note: 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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