Article / 10 July 2015 at 5:12 GMT

The Matrix: A strategist’s roving thoughts – Risk-on Greece is fixed?

Global Macro Strategist / Saxo Bank Group - Singapore Hub
Singapore
  • 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

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 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.
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 Source: Bloomberg

Yet VIX still elevated … ticking up +1.6% to close just shy of 20.0
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 Source: Bloomberg

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 Source: Bloomberg

FTSEMIB. Closes +3.51% at 22,269 – back over the 200D MA for the 2nd consecutive day
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 Source: Bloomberg

SHCOMP, currently +6.6% at 3996 – nice bounce off the 200D MA
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 Source: Bloomberg

EZ Govies – Classic risk-off moves, as cores go out and periphs tighten…
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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
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