Good morning

Well well well, just when you thought Greece (AS NOTED YESTERDAY) was out the news, the shock announcement by PM Tsipras that he is resigning and calling a snap election. Rumours were rife over the past month that something like this was on the cards and now its out. Suffice to say we believe the next government will in all likelihood be a coalition government that has in effect already voted in favour of the bailout and in so doing have already received the bailout money from the creditors. Greece also repaid the €3bn back to the ECB that she owed so so far so good. The EUR rose on the back of this news (including of course the selling of the USD on the back of China) and crossed through 1.12 to trade at 1.1265 at the time of writing. FX volatility rates have edged up as a result with the 1m trading 9.90/10.10 (from 9.75) 3m 9.70/10.00 and 1y at 9.6/9.9 in other words it is the front end of the curve that has edged up changing the curve from a see saw to inverted. The market has no doubt been caught wrong footed and with the recent sell off in global stocks on the back of an increasingly worried market over China, one can expect volatility to remain “bid” as a means of protecting against further event risk.

China remains a true problem globally and it has now taken the best part of 2 months for the markets to latch onto this story. We have been writing about the weakness in China for many months now and how the slowdown in growth will affect not only China’s trading partners but the global economy’s as a whole. As I have written many times, the world needs the Chinese economy to be strong because without it everyone suffers. It is one thing for the US economy to grow and show signs of life, its another thing to have the world’s second largest economy faltering. As much as one could argue that the timing is right (within the US) for the FED to raise rates, one could argue that the recent fall in stocks, slow Chinese growth/productivity (manufacturing PMI was published this morning again showing signs of strain at 47.10 from 47.80), the fall in energy/food/metals/commodity prices could be creating one serious headache for Pres. Yellen and the FOMC members on when they should in fact raise rates. I have said this countless times, if they get the timing wrong and raise rates too early it could send the US economy back into free fall which after the awesome work done by the FED would be catastrophic. So the decision on whether to raise or not to raise is quite possibly the most important decision in the past 2 decades.

Then we had that little scuffle over in Korea which added fuel to the fire. One cannot tell what Pyongyang are likely to do but no doubt the 26500 US soldiers based in S.Korea will be on high alert just in case the confrontation escalates. Technically speaking the 2 Koreas have been at war since 1953. This is not the place to comment on N or S Korea and their domestic policies, other than to say this confrontation needs to stop now, for the sake of world peace and security.

Emerging market currencies continue to be obliterated with the ZAR trading above 13 to the USD, TRY touching 3.00, RUB in free fall, not to mention MXN and BRL getting sold off heavily. One should then expect the ILS to begin following suit (I for one am very surprised to see the currency on a 3.8 handle still). As a betting man, I think there is a good chance the ILS starts to play catch up with other EM currencies especially given the recent flat to disappointing data.

So there you have it, the world on the brink of another Korean war, China staggering, stocks obliterated, Greek politics back in the news, London weather cold damp and horrible and most importantly Manchester United lost out to Chelsea in signing Pedro….can anyone find any good news floating around?