Morning Fundamentals: Aid For Greece, Earnings Season Starts In US

European officials have agreed to release EUR 3 billion in aid for Greece but have tied their support to strict conditions which is seen as a move supported by Germany to ensure that there is stability in the European financial markets before the German elections which are due in September. Greece will receive EUR2.5 billion this month before receiving the balance in October. The 17 nation Eurozone economy has been in contraction since the last quarter of 2011 as unemployment skyrocketed to almost 27% in Spain. Meanwhile, unemployment in countries such as Austria remains below 5%, exposing a widening gap between a prosperous north and a struggling south.

The start of the new earnings season in the U.S. has started off on a positive note with the release of results from Alcoa. The biggest producer of aluminium in the U.S. gained after the market close when it announced better than expected results as carmakers in the U.S. started using more aluminium in their products. Despite recently having its credit rating cut to junk by Moody's Investor Service in May, the company announced a profit of 7 cents a share against expectations of 6 cents from analysts. Although falling, sales were also higher than expected at $5.85 billion. The S&P 500 has closed 0.53% higher at 1,640.46.

The collapse in the gold price has impacted heavily on the fortune of billionaire John Paulson. His PFR Gold Fund, which is largely made up of his own money, reported a loss of 23% in June to take its losses so far this year to a staggering 65%. However, the fund remains committed to its gold investments saying in a letter to investors that, "although the timing is uncertain, if you have a long-term view we believe the funds offer the potential for outsized returns.” Gold prices firmed overnight to $1,235 per ounce and just above average global productions costs at around $1,200. We expect to see production levels fall and investment in infrastructure and exploration for gold to drop if prices remain or fall from current levels.

Even as the violence escalated in Egypt with deaths reported as security forces continue to clash with supporters of ousted Egyptian President Mohamed Mursi, WTI crude fell from a 14 month high as concerns over the flow of traffic through the Suez Canal eased. WTI had surged above $104.00 after the violence escalated amid investor fears over the security of the Suez Canal and the Suez- Mediterranean Pipeline, through which oil moves from the Middle East to Europe. WTI opens the morning at $103.00.


EUR/USD recovered some of the lost ground from Fridays moves as European Finance Ministers met in Brussels, agreeing to release yet another $3billion Euros to Greece to prevent another debt-crisis showdown until after Germans September elections. Most of the majors took the lead of the Euro as the markets were stuck in a very tight range before the Euro broke the shackles towards the end of the Asia session. The break above 1.2830 saw the pair reach a 1.2860 top before jumping higher after a brief pullback during the US morning. Longer term resistance at 1.2880 capped during the afternoon with the pair now closing just off the highs. Limited data over the next 24 hours should have all eyes again focused on the ECOFIN meetings in Brussels and any possible announcements regarding the weaker member nations. Should the pair break above 1.2900 the price could see a climb back to 1.3000 with little resistance.

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BEARISH NEUTRAL


AUD/USD couldn’t find the numbers willing to have a crack at the 0.9000 during the Asia morning and with a not as weak as expected ANZ Job Ads number being released, the positive spin lead to a slow squeeze higher. Financial news reports are stating that the past 24 hour move is just a reversal of the Friday moves after the Non-Farm numbers and if its good enough for Bloomberg its good enough for us. We have also been seeing Australian Exporters hedging out some of their medium term exposures, whilst the importers are sitting on the sidelines looking for a bounce towards 0.9500 that might not ever come. Yesterday climb didn’t start gaining momentum until the early European traders entered the fray. Catching out the bears with the price topping out during the early US afternoon at 0.9143 and just ahead of 0.9150 resistance. Limited Australian data should see all the focus on the Chinese CPI data within the local session. An improved 2.5% is expected and could continue this positive momentum for another session.

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NEUTRAL NEUTRAL
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