Quote of the Day
Success doesn't come to you...you go to it.
The Greek Prime Minister won his confidence vote last night but so far today the markets have been mostly negative as we may be in a sell the fact type mode at the moment. Most all market participants were expecting a favorable vote...which they got... and as such most of the reaction from the expected positive vote was already priced into most risk asset classes over the last several days. In addition the confidence vote was step one in the process as a new round of austerity measures have to also be passed by the parliament and then the final structure of the bailout plan has to be completed assuming the austerity measures pass. There is widespread discontent in Greece over the results in Parliament so far and it is likely to spread even deeper if more austerity measures are approved. The Greek tragedy is far from over and now the market is once again looking at the rest of the southern EU member states like Spain as their situation does not look like it is getting any better. Although I still expect the Greek bailout plan to be eventually approved and implemented it is yet another stop gap measure in the EU that is resulting in the sovereign debt issues not going away but rather just setting up for additional problems in the medium term.
As I mentioned yesterday what has been going on in the risk asset markets (including oil) has been mostly a relief or short covering rally rather than any major structural change in the markets simply because Greece will get a new bailout program. The underlying risk in the oil complex is still emanating from the slowing economy that is more than likely to result in an underperformance in oil demand growth and a likely over performance on the supply side of the equation. In the emerging market world inflation fighting is still the main strategy of the Central Banks in that region of the world and it will result in a continuation of intentional slowing of their economies which in fact are the main growth engines of the oil world as over 80% of oil demand growth has been coming from the developing world. Overnight the Chinese government predicted inflation is likely to rise again in June after flooding damaged crops and pushed up food costs. The current estimates coming from the government is overall price increases in June will be higher than in May. All signs point to further tightening by the government which will eventually slow the economy as well as oil demand growth.