Risk appetite improved overnight, in part thanks to a (somewhat misleading) bounce in Chinese equity prices.
Hard commodity prices are up, securing CAD, NOK, and AUD’s positions at the top of the currency leaderboard. EUR has underperformed, despite some signs of progress on the Greek front.
The Shanghai Composite Index posted a 5.8% gain yesterday, its biggest one-day bounce since 2009. One might attribute at least some of this rebound to a new rule, which bars shareholders with more than 5% of a company’s shares from selling, for a period of six months. To boot, with trading on more than 1,400 companies halted, investors are locked out of at least half of the Chinese equity market.
Whatever the case, global investors took some heart from the headline gains. The Euro Stoxx 50 closed 2.8% higher, and the S&P 500 is currently up 0.5%. Iron ore prices surged 9.9% (after yesterday’s 10% collapse), while Brent crude oil gained 2.7%. The latter was assisted by senior US officials pouring cold water on the idea that an Iran nuclear deal is imminent.
In Europe, Greece has sent a set of proposals (details of which are not yet public) to European officials for consideration. These proposals will provide a base for negotiations, to be concluded in Sunday’s European leaders’ summit. The mood music certainly seems to have improved, with Greece’s new finance minister credited with bringing a much more constructive approach. What remains to be seen is whether the proposals Greek’s government has put forward align with what its people believed they voted for, in last weekend’s referendum.
NZD/USD currently holds its station just below 0.6750, having tested that level multiple times in the past 24 hours. We suspect a continued improvement in risk appetite will support a test of 0.6800 into week’s end.
The focus tonight will be on Fed Chair Yellen’s scheduled speech and Q&A. Investors will be keen to hear whether recent events in China and Greece will have shifted the message presented at the June FOMC meeting. By the sounds of other Fed speakers (such as Esther George overnight), those factors have not materially affected the prospect of a 2015 lift-off in the Fed Funds Rate.
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Raiko Shareef is on the BNZ Research team. All its research is available here.