Volatility continues

In a continuation of recent volatile behaviour, the positive mood that gripped markets at the end of last week has again been thrown into doubt by yet another European failure to meet a “deadline” for deciding on what to do about Greece.

From the perspective of those seeking reform in Greece, current bank closures appear to represent an opportunity to maximise pressure and force immediate action by the Greek parliament. However, the fact that European leaders are prepared to run the gauntlet of a potential Grexit, also suggests that they don’t perceive a major risk of wider market or economic dislocation if Greece does leave the Euro. This morning’s relatively modest “risk off” moves in markets suggest the majority of investors are thinking the same way.

Market attitudes towards the risk of slowdown in China, may be influenced by the release of its trade data for June. As well as providing insight into the overall state of the economy, commodity markets will focus on data relating to commodity imports. Despite, another day of recovery in the volatile spot iron ore price on Friday, mining stocks have opened weaker this morning.

Weekend news that an announcement on lifting export sanctions against Iran looms as a key event for oil markets and energy stocks this week. A significant increase in supply from Iran over the next 18 months will put further pressure on the market and increase the extent of production cuts required from US shale producers who are now in the position of being the world’s swing producer.

This morning’s move by the ASX 200 index to take out Friday’s low, puts it back into a short term downtrend. This creates potential for a correction of Thursday and Friday’s two-day rally while a move below last week’s low could see a decline towards potential Fibonacci support around 5300.

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