Market View; World Stock Indexes & Trading Journal - page 26

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If the DAX doesn't recover soon to levels above 11150/11170, it's likely to occur a stronger correction than the ones observed in recent months.

 

Stock Market initiated a recovery from recent losses after Bloomberg reported Germany may be willing to offer a staggered deal to Greece.

 

The S & P yesterday lowered the rating of Greece from CCC + to CCC with a negative outlook, reflecting the impasse in negotiations. This agency also said that without a reform of the state and sustained economic growth, Greece’s debt is unsustainable.

 

European markets started the session trading in slight decline. Equities pared gains yesterday after the International Monetary Fund said that its team negotiating with Greece left Brussels after failing to make progress on a debt deal.

The IMF cited “major differences” for the withdrawal of its team, although it left the door open for further talks. The decision came amid increasing criticism from creditors at the Greek government’s refusal to bow to their demands, risking a default and ultimately an exit from the euro area. In addition, some European leaders demonstrated their concern regarding the time available for reaching an agreement. If no solution is found in the Eurogroup meeting next week, even if it can be reached later, the various parliaments would not have time to approve it before the end of the month, a key upcoming maturity of Athens’ debt, when Greece has to pay 1600 M.€ to the IMF. In short, the only certainty at this juncture is that markets will remain volatile, fluctuating according to news and rumors. The increased volatility can not be attributed only to Greece, as the actions of central banks in recent years, injecting an unprecedented liquidity in the global financial system, caused a sharp drop in volatility. Now, as some central banks (FED and Bank of England) withdraw this liquidity, volatility should gradually increase, returning to its historical average.

 

There is the hypothesis of the European partners adopt a ultimatum posture to Greece, similar to the one adopted two years ago to Cyprus

 

European stocks rose from an almost four-month low as Swiss equities rallied. Greek shares tumbled amid the country’s debt impasse. The situation in Greece continues to haunt equity markets. After negotiations between this country and its creditors were interrupted on Sunday, things have become considerably more tense. Yesterday, Tsipras Prime Minister said in Athens that his country will not stoop to their foreign creditors, referring to the condition imposed by its partners to reform the pension system, one of the most expensive in the eurozone. The position of Prime Minister was supported by almost all the members of his party. The European Commissioner Gunther Oettinger mentioned that before the Greek position the European Commission needs to have a plan B, or a contingency plan in case of default. Today, the Greek Prime Minister Tsipras had scheduled a three-day visit to Russia but given the urgency of the situation is possible that this trip is shortened. Yesterday, the Athens Executive had an emergency meeting to discuss the strategy for the coming days and the for Thursday meeting of the Eurogroup. In this context, the nervousness will continue to score investor sentiment.

 

Against this rather uncertain and threatening scenario, the performance of equity markets during yesterday’s session was quite interesting. After accumulating losses of about 1.50%, major European indexes embarked on a solid recovery, finishing the day with about 0.50% gains. This pattern may have various reasons but probably was due to the closing of selling positions by investors. If on one hand the longer pass the smaller the probability of an agreement (which has a negative impact on the market and therefore these positive selling positions) on the other hand there is always the possibility of a last minute solution, which has not been rare in recent years and which penalize the selling positions. So, considering that markets are crossing, “uncharted waters” investors’ caution is justified.

 

It is not excluded that the European countries present Greece a new proposal, which would probably be a temporary solution that would allow the country to receive a portion of the tranche that was suspended since February (7200 M €) in exchange for the adoption of certain measures. Thus, this hypothetical proposal would not aim at solving the structural problems of Greece but would be more an extension of the second ground plan and that would give more time for negotiators to reach a more lasting solution. Even not reached an agreement today, is not to rule out the possibility of being scheduled an extraordinary meeting, by the Eurogroup or by the European Council.

 

Today will take place the expiration of futures and options, known as quadruple witching. Quadruple witching happens when three related classes of options and futures contracts expire, along with the individual stock futures options. Quadruple witching days are usually accompanied by considerable volatility in stock and derivative prices, as well as increased trading volume, with the occurrence of erratic movements. The most most volatile time of day shall be 13h30 (open) and 18h00. Statistically, the sessions of quadruple witching are positive for the equity markets.

 

Asian indexes closed higher, with emphasis on Japanese equities. The Nikkei led the Asian session, basing its performance on the valuation of the financial system. The Chinese markets were closed. Last Friday recorded losses of more than 6%, exhibiting high volatility, which is a warning sign.

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