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After euphoria comes reality

Published Wednesday, January 28th, 2015

Markets are still assigning a low probability to a Greek eurozone exit and subsequent financial chaos. If they are wrong they will only have themselves to blame if they are caught short by such an event. The danger signals are moving beyond amber with the appointment by Syriza of a Finance Minister that has in the past described European imposed austerity as “fiscal waterboarding” and accused Brussels of turning Greece into a “debt colony”. The new Foreign Minister has described the EU as an “idiosyncratic empire under the rule of Germany”.

The markets are assuming that being in a position of responsibility brings moderation and dabbling with repayment periods, budget targets etc. will satisfy Syriza and its allies. It’s a big bet given the consequences of calling it wrong. Greek bank shares and equities in general took another big hit yesterday and money continues to pour out of the country.

Of perhaps more concern was the shudder that went through the US stock market. Caterpillar, P&G, Microsoft and DuPont all turned in poor 4Q figures. Caterpillar blamed purchase cutbacks related to the fall in oil prices and P&G blamed dollar strength and unprecedented currency turmoil. Very disappointing numbers on core capital goods orders added to concerns, but they may be lifted today by record beating results from Apple and calming comments from the Federal Reserve following its two-day meeting. Apple have reported a quarterly net profit of $18 billion, enough to meet Greece’s bailout requirement this year!

to read the rest of the report, please click here

Posted by David Hufton