With a lack of fresh incentives to drive price action, financial markets have begun the new trading week within recent ranges and are in consolidation mode. The greenback is finding a more pronounced offer side to its book, despite the overnight slide in commodities that resulted from what could be considered a flash crash in Gold during the Asian session. Though off its overnight lows, the yellow metal fell by over $40/oz. in a minute, trading through the $1,100 figure to hit its lowest level in five years. Whether the large sale volume ripping through the precious metals market was the work of an algorithmic trading program going wild, or just a poorly timed sell order that ignited a wave of triggered stops which exacerbated the selling pressure, the consequences were felt throughout commodity markets, with silver and platinum experiencing similar price action. The hydrocarbon market is also seeing a stronger interest towards hitting the bid side of its book, with lingering concerns around Iranian oil supply keeping a lid on any strength in WTI.
Though there was another relatively volatile day of equity trading in China, the Shanghai Comp managed to finish its session up by just under 1%, helping to alleviate some concerns the tumble in Chinese stocks has not yet run its course. Equities were under pressure earlier in the overnight session after the CSRC announced they are studying an exit plan for the stock stabilization plan, though the Shanghai Comp managed to recoup its earlier losses after the CSRC clarified their earlier comments and committed to focusing on stabilizing the market and “preventing systematic risks.”
The relaxation of near-term tensions in Greece has also helped provide some of the calmness working its way through financial markets this morning, with the EFSF bridge loan being made so that Greece can repay the IMF and ECB. In addition, Greek banks have now re-opened following their three-week holiday, though capital controls do remain in place, and have capped withdrawals to a slightly more lenient €420/week. European equities are well ensconced in a shade of green midway through their trading session, with the euro also changing hands at richer prices than where trading closed on Friday.
As we head into the North American open, the optimism seen throughout global stocks is seeping into S&P futures, though it is still too close to call as to whether the bears or bulls will cease control of price action by the time the opening bell rings. The loonie continues to get its feathers plucked after the Bank of Canada rate cut last week, not receiving any favours from the soft tone in oil and economic data that continues to disappoint. Wholesale trade figures for the month of May were just released, and showed a 1.0% decline when compared to the previous month, worse than the flat reading that economists had expected. The high probability of a technical recession in Canada and the monetary policy accommodation that is driving a divergent wedge between monetary policy in Canada and the US will continue to put pressure on the loonie, but we feel USDCAD may be getting a tad stretched at current levels given momentum indicators. The pair is currently bumping into fairly strong resistance at current levels, though a hawkish steer from the Fed next week could exacerbate the monetary policy divergence theme, and pound the loonie to fresh cyclical lows.
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