- China is rebounding strongly, up 6.6% in Asian afternoon trading
- There was massive risk-on overnight with key moves and closes in EZ equities
- Greece’s parliament is set to vote on the bailout proposal 7am CET
By Kay Van-Petersen
Back on the boil. Chinese equities have rebounded in Friday's trading. Photo: iStock
These are my main thoughts:
- I remain bamboozled, gobsmacked and perplexed …. because clearly someone out there has a line to a perfect outcome from Greece/Europe over the next few days.
- Massive risk-on overnight with key moves and closes in Eurozone equities:
– EuroStoxx +2.8%, CAC +2.6%, MIB +3.5%, PSI.20 + 4.0% and closing above 200D MA
– DAX +2.3%; we never broke the 200D MA
– Spain +2.7%; we are still under 200DMA
- Interesting to note, that while the S&P closed up 25 basis points, it was the second consecutive close below 200D MA
- And of course China is back on a tear; +6.6% as I write this and we continue to get new measures everyday
– Closing up on another massive day, lowers the probability of the epic/historical measures I was talking about on Wednesday’s close (-33% from the top, in freefall). But I’d still think that it's greater than +50%
– As I’ve said before, we are higher by the end of the year – I would short the Fed and the European Central Banks before the People's Bank of China and we all know that you don’t fight central banks (99% of the time). Less than 10% of China’s population own equities (it's 90 million people, compared to +50% in the US, and +80% in Australia). They have +USD 4 trillion in reserves, they have a mandate of deregulation and opening up the capital markets, they don’t have bickering senators and countries reps to the extent of the US or Eurozone.
- If we continue to have massive risk-on in EZ equities, I’d be tempted to pick up puts with either a view of:
– A. I walk in Monday and clearly all my huffing and puffing was for naught, I am an alien stranded on planet earth. So I close my puts and recoup some premium (bigger the rally today, the more priced in for further up move next week right?)
– B. I walk in Monday and Greece walks out of the EZ and the markets jump off a cliff
– C. I take out 3-4 month puts with the view of yes, we get a solution in Greece but the Fed hike in September is still game-on and we should see some shakeouts from that – especially in the US (IBB, biotech ETF… has had two -10% pullbacks this year with no big US correction)
– Also I will not pay up as much on vol
– D. I want US puts cause vol is not as well bid there as in EZ. But maybe it's even cheaper through something like USDJPY
- Greece’s parliament is set to vote on the proposal 7am CET, with the Eurogroup meeting over the weekend to see if something can be hammered out
Some TGIF charts
S&P 500, closes at +23bp at 2051 – 2nd consecutive close below 200D MA. Last time we did this was in October 2014. Russel and Nasdaq did not even come close to breaking 200D MA.
Yet VIX still elevated … ticking up +1.6% to close just shy of 20.0
FTSEMIB. Closes +3.51% at 22,269 – back over the 200D MA for the 2nd consecutive day
SHCOMP, currently +6.6% at 3996 – nice bounce off the 200D MA
EZ Govies – Classic risk-off moves, as cores go out and periphs tighten…
Source: Bloomberg. Create your own charts with SaxoTrader; click here to learn more.
– Edited by Gayle Bryant
Kay Van-Petersen (KVP) is Asia Macro Strategist at Saxo Bank, the home of social trading. In addition to TradingFloor.com, please follow him on twitter @KVP_Macro.