PM Daily Market Commentary - 2/18/2015

davefairtex
By davefairtex on Thu, Feb 19, 2015 - 2:20am

Gold rose +3.60 to 1212.80 on moderate volume, while silver was unchanged at 16.47 on moderately heavy volume.  Gold traded mostly sideways into the US session, sold off in the morning hitting 1197.20 and making a new low, only to rebound strongly after the release of the FOMC minutes at 1400 EST which sent the buck tumbling and the metals higher.

Gold printed a bullish hammer candle, which suggests we might have marked a low today, however volume on the bounce off the new low was only modest.  At a minimum, we need confirmation, which would be a close above 1213 tomorrow.

The dollar climbed steadily, rising almost 0.50 and was looking strong right up until the FOMC minutes were released at 1400.  Upon release, the buck immediately went down hard, and closed the day near the lows, completely erasing the earlier rally and ending the day unchanged, at 94.11.  In the FOMC minutes, it was revealed that many participants felt it was not yet time to raise rates and this apparently surprised the market, who expected collectively that the Fed would raise rates sooner rather than later.  Now that it looks like "later" is the winner, the market is having to adjust.

Mining shares had sold off modestly up until the time of the FOMC minutes release.  However after 1400 EST, when the buck fell and gold spiked higher, the miners followed, rallying sharply and eventually ending the day closing near the highs.  GDX rose +2.28% on moderately heavy volume, while GDXJ was up +2.72% on moderate volume.

On the daily chart, you can see that GDX found support around the 50 MA, and the subsequent rally showed good volume.  These are encouraging signs, and suggests to me that miners continue to have a stronger bid than the underlying metal.  The same can be said for silver miners as well.

SPX had a another narrow trading range day, closing down -0.66 to 2099.68.  Its possible the rally is getting a bit tired.  Declining oil prices probably didn't help.  VIX was down -0.35 to 15.45.  A falling SPX would probably help gold.

Long bond ETF TLT rose +0.59% - bonds rallied, and the immediate reaction from bonds to the FOMC minutes was positive, but the gains eroded by end of day.  I expect if SPX were really topping out, TLT will soon put in a low, so I am watching TLT for clues.

The CRB (commodity index) dropped -0.66%; CRB is currently sandwiched between the rising EMA-9 and the falling 50 MA, which describes perfectly the "short term bullish" but "medium term bearish" situation that commodities are in.  The commodity index is at a decision point - will it rise through the 50, or fall through the EMA-9?

WTIC could be giving us a clue - oil dropped -2.76 [-5.18%] to 50.48, driving back through the 50 MA and the EMA-9, wiping out two days of gains.   Much of the loss came after an oil industry inventory report outlined a massive build in US oil inventories.  Brent continues to diverge from WTIC - since the US cannot export oil, regional oversupply issues in Cushing OK makes it difficult to arbitrage the two oil contracts.  BHI releases its US rig counts each Friday at 1pm EST.  Perhaps it will reveal another 100-rig drop; it will be instructive to see how the market reacts to the numbers from BHI.

Once again, markets appear to be pricing in a settlement in the Greek debt negotiations.  I waver back and forth as to what I think will happen, but I think the near-term default chances are definitely larger than 0%, which is what the market seems to have assigned.

As I see it, the sticking points are two: 1) the Eurogroup (a panel of finance ministers from across the EZ) has stated the only possible way forward is an extension of the current program, and 2) Syriza was elected on the basis of terminating the punitive austerity measures embedded in the current program.  A near-term denouement is just ahead:

http://www.nytimes.com/2015/02/19/business/greece-to-propose-compromise-deal-on-bailout.html

Athens on Thursday will propose an extension of several months to the current bailout program, a government spokesman, Gavriil Sakellaridis, said on Wednesday...

Perhaps crucially, Mr. Sakellaridis said the proposal to extend the bailout program would not include a commitment to continue honoring the terms of the memorandum underlying the loan program, which a former Greek government signed as part of the bailout in 2012.

Speaking outside the Greek Parliament Wednesday evening, Mr. Varoufakis voiced optimism about the new debt proposal, which he said would be “written in such a way so as to satisfy both the Greek side and the president of the Eurogroup.” He predicted it would be approved by Friday.

Hardline German Finance Minister Wolfgang Schaeuble dismissed the Greek gambit, telling broadcaster ZDF on Tuesday evening: "It's not about extending a credit program but about whether this bailout program will be fulfilled, yes or no."

The markets seem to be focusing on the optimism from Varoufakis, rather than looking through to the inherent conflict spelled out in the actual positions of the principals.  For his part, Varoufakis is saying to Germany, "you want the this 'bridge loan' to be called an extension?  Sure, we can slap whatever label on it that you like - just as long as we don't have to engage in that nasty austerity stuff which is strangling our economy."

I guess we get to see how the latest epsiode plays out tomorrow, with a possible Eurogroup meeting on Friday.  The EU bureaucrats are enthusiastic (desperate?) to make this work out, but the Northern Europeans are definitely singing a different tune.  I suppose after demonizing the Greeks during the first bailout, it is difficult to walk that back three years later, even though a requirement of the first bailout was a reduction in Greek debt to "sustainable levels" which of course has not happened.

But as always, its not the news that matters, its the market's reaction that counts.  And so far - no reaction.

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4 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
ECB wants Greeks to impose capital controls

According to FAZ (a conservative German newspaper), the ECB wants Greece to implement capital controls.  This would increase the squeeze on the new Greek government to make a deal with Eurogroup.  On Wednesday, the ECB increased the Greek bank ELA limit by 3.3 billion Euros.  It is unclear if this amount will be able to provide Greek banks enough liquidity to meet withdrawal demands in the upcoming two weeks.

Of course the ECB can't come right out and say it - why that would be interefering in a member country's affairs.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_19/02/2015_547437

The European Central Bank would feel more comfortable if Greece introduced capital controls to stem the outflow of deposits from the country's banks, the Frankfurter Allgemeine Zeitung (FAZ) reported on Thursday, citing central bank sources.

Who on earth would have deposits in a Greek bank at this point in time?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
Greek letter to Eurogroup: Greece Caves?

Troika still in place, all changes must be fully funded, and its an extension of the existing program.  I'll be very curious to see how this plays domestically in Greece.

Copy of the document here:

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_19/02/2015_547448

The Greek authorities recognise that the procedures agreed by the previous governments were interrupted by the recent presidential and general elections and that, as a result, several of the technical arrangements have been invalidated. The Greek authorities honour Greece's financial obligations to all its creditors as well as state our intention to cooperate with our partners in order to avert technical impediments in the context of the Master Facility Agreement which we recognise as binding vis-a-vis its financial and procedural content.

In this context, the Greek authorities are now applying for the extension of the Master Financial Assistance Facility Agreement for a period of six months from its termination during which period we shall proceed jointly, and making best use of given flexibility in the current arrangement, toward its successful conclusion and review on the basis of the proposals of, on the one hand, the Greek government and, on the other, the institutions.

Tycer's picture
Tycer
Status: Platinum Member (Offline)
Joined: Apr 26 2009
Posts: 617
davefairtex wrote: Troika
davefairtex wrote:

Troika still in place, all changes must be fully funded, and its an extension of the existing program.  I'll be very curious to see how this plays domestically in Greece.

Copy of the document here:

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_19/02/2015_547448

The Greek authorities recognise that the procedures agreed by the previous governments were interrupted by the recent presidential and general elections and that, as a result, several of the technical arrangements have been invalidated. The Greek authorities honour Greece's financial obligations to all its creditors as well as state our intention to cooperate with our partners in order to avert technical impediments in the context of the Master Facility Agreement which we recognise as binding vis-a-vis its financial and procedural content.

In this context, the Greek authorities are now applying for the extension of the Master Financial Assistance Facility Agreement for a period of six months from its termination during which period we shall proceed jointly, and making best use of given flexibility in the current arrangement, toward its successful conclusion and review on the basis of the proposals of, on the one hand, the Greek government and, on the other, the institutions.

I'm curious as to how this plays. Is Yanis using game thoery here? Who is he playing?

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1227
Seems to be splitting up Europe

 

 

Germany rejects Greek loan request

 

The rejection came despite the European Commission calling the Greek request "positive" only minutes earlier.

Greece had sought a new six-month assistance package, rather than a renewal of the existing deal that comes with tough austerity conditions.

However, a German finance ministry spokesman said the new plea was "not a substantial proposal for a solution".

Later on Thursday, Greek prime minister Alexis Tsipras and German chancellor Angela Merkel spoke by telephone, according to the Reuters news agency.

One Greek government official described the 50-minute call as "constructive", adding: "The conversation was held in a positive climate, geared towards finding a mutually beneficial solution for Greece and the eurozone."

 

Not sure if this was the plan but the game of chicken roles on.

Mark

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