Euro weakens as Greek progress stalls

Tuesday, May 19, 2015

The euro snapped a four day bull run yesterday, losing 1.2% against the dollar as Greek officials struggled to make progress in talks with eurozone officials. The single currency slipped away from a three month high seen on Friday as increased uncertainty saw the euro end the day at 1.1315. Efforts by the European Commission to broker a compromise between Greece and its creditors have so far failed to produce any material results and many officials and policymakers view the uncompromising stance adopted by Alexis Tsipras and his left wing government as a significant roadblock in the way of a speedy resolution. With bailout talks reaching their final stage market participants are hopeful that Greek concessions in the form of structural reforms necessary in the pension and labour market will go far enough to assuage lenders. For the coming session however, we expect the euro to remain trading under pressure with activity this morning pushing the single currency towards 1.1285 against the dollar early on.

The S&P 500 posted a fresh record close for a third straight session while the DJIA also pushed to a fresh high as Wall Street got off to a strong start. Investors chose to shrug off weaker than expected housing market data after the NAHB Housing Market Index slipped to 54 in May from 56 the previous month as optimism ahead of this week’s release of the April FOMC meeting minutes saw investors pile into equity markets. The positive sentiment from the US session spilled over into Asian trading as both Chinese and Japanese benchmark stock indices rallied strongly overnight. However, investors are adopting a cautious approach to Chinese stocks as steep capital outflows in recent weeks have seen the balance of payments deficit reach $80bn for the first quarter of the year, the highest net outflow on record. With the central bank and policymakers in Beijing stepping up efforts to stimulate growth with additional monetary easing many industry commentators are wary that the rally in mainland stocks, which has seen the CSI 300 add 32% and the Shanghai Composite gain 35.5% year-to-date, could be overdone.

Global energy companies have revised their outlook on over $100bn of capex, with the majority of new projects either being postponed or shut down completely as oil prices seemingly settle at a new market equilibrium around $60/bbl. Both the super-majors as well as smaller, regional energy companies have been forced to cut capital spending, building on the job cuts that a few key industry players announced during the first quarter. A large number of projects being shelved are in Canada, where the current price of crude has made these high marginal cost oil sands projects unviable. With the market fundamentals still some way off balancing we could see additional cuts announced in the coming months and with OPEC members holding firmly to their pledge of maintaining output we expect to see more and more projects with costs bases in excess of $60/bbl shutdown throughout the rest of the year.    

EUR snaps bull run on Greek uncertainty

EUR Curncy Euro Spot Daily 19 2015 05 19 07 29 10

S&P 500 reaches fresh record high

SPX Index SP 500 Index 2015 05 19 07 37 24

Events for today

0930

UK

Apr

CPI & PPI

1000

EZ

Mar

Trade Balance

1000

DE

May

ZEW Survey

1000

EZ

Apr

CPI

1330

US

Apr

Housing starts

1330

US

Apr

Building Permits

All times UK Local Time

 

Topics: Equities, Crude oil, EUR
More from: Kash Kamal