Article / 10 July 2015 at 8:00 GMT

From the Floor: Risk on

Head of Editorial Content / Saxo Bank
  • SHCOMP extends rally as risk-on sentiment takes hold: Moltke-Leth
  • EURUSD vols trading lower following Greek bailout submission: Larsen
  • European markets set to open higher on Greek news: Doxford
  • Bunds drop while peripheral bonds extend gains: Boye
From the Floor

By Michael McKenna

From the Floor always enjoys a good game of Risk, provided that we do not wind up with our armies contained in Kamchatka at four in the morning. But while today's markets are perhaps no less unstable than that sort of situation, widespread risk-on sentiment is boosting assets from Chinese equities to European indices, peripheral European bonds to S&P 500 futures.

Though we are no fans of those inclined to rain on every parade, procession or festive promenade, neither can we avoid a note of caution: eat, drink and be merry for tomorrow we may...

...well, we may have to deal with some blowback from the Greek parliament, anyway. As Saxo bank fixed income trader Michael Boye notes, Greece's latest proposal looks very similar to previous ones filed by its Eurogroup creditors.

At the moment, markets appear to be taking a "glass half full" approach and concentrating on the submission's potential appeal to the Eurozone (GREK, for instance, is up by nearly 14%).

A glass half-empty view, however – if not a glass-drained-and-all-armies-in-Kamchatka one – might take into account the near-certain opposition of Greece's parliamentary leftists. As Boye notes, this vote is important, and Saxo bank FX trader Dan Larsen tells us that EURUSD vols remain elevated, if down from their post-referendum levels.

We're not out of the woods just yet.

Shanghai surprise

But that's Europe, isn't it? That's the messy push-and-pull of competing power blocs. In China, where things are superficially simpler, one only need remain in the woods for as long as takes for Beijing to clear-cut the place and construct a superhighway leading out.

Yesterday, regulators in Beijing bolstered their bailout of what was recently a very 1929-looking Shanghai Composite crash with further initiatives meant to help (read: force) companies to halt their share price declines.

The intervention saw the landmark mainland bourse extend Thursday's gains with another 4.9% rally. When we caught up with Saxo Bank's Christoffer Moltke-Leth in Singapore, he told us that risk-on sentiment is back in effect in the Middle Kingdom and the safe-haven JPY is tumbling against the USD as a result.

It's a fragile situation from an economic perspective, but Michael Boye was able to phrase it as delicately as is possible at this moment: "China's... non-traditional policy moves appear to have contained the crash".


Base case picks up the pace

With the twin bogeymen of this week's trading subdued for the moment, bond markets quickly picked up on the change in sentiment with the European periphery surging. "A Grexit," says Boye, "is no longer the base case" and both Italian and Spanish 10-year yields have dropped below 2% for the first time since May.

Spanish and Italian 10-year yields are plunging on anticipation 
of a Greek deal. Source: Bloomberg, Saxo Bank 

(The 10-year bund yield stands at 0.8%).

In London, Saxo Bank trader James Doxford tells us that European stock markets are also in a festive mood with the EuroStoxx 100, the DAX and the FTSE all solidly in the green this morning.

Remember the rate hike?

As far as US markets go, S&P 500 futures are pointing to a slight gain as well with heavy hitters Johnson & Johnson, Wells Fargo and JP Morgan all reporting earnings before the New York bell.

Federal Reserve chair Janet Yellen will be speaking in Cleveland today and investors will be combing through her every word, syllable and stress for signs of FOMC hawkishness. Yellen's speech, however, will likely be a subdued affair ahead of her presentation before Congress next week.

But there's no taboo against divination, is there? After all, it's a risk-on Friday.

As Dan Larsen cautions, do make sure to wear your helmet today...

But enjoy the ride as well.

Roller Coaster
We're ready if you are. 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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