HOME ON THE RANGE
With little news to shock the markets, we have been mostly range-bound over the past few weeks. That is not to say that we have not had opportunities to break through these ranges, with Greece and China providing potential accelerants to shifting sentiment. Only time will tell whether we find ourselves overly comfortable that political and/or monetary officials (we at times find it difficult to distinguish between the two these days) will ultimately rush to save the day. But, for the moment this assumption is driving trading. Such was the case with China, which raised several red flags on its soaring stock market last week, tightening its margin lending rules and making it easier to short securities. Those moves were made after its exchanges concluded trading for the week, but were enough to cause a 300 point drop in the DJIA last Friday. What could have been a bloodbath on Monday was blunted by a weekend decrease in Chinese bank reserve requirement by 100 bps, the biggest such move since mid 2010. As such, U.S. exchanges recovered most of their Friday losses, while China’s stocks hardly missed a beat, closing at post-crisis highs this week. There was little forward movement in Greek negotiations, with Greek authorities in crisis mode, firming up its cash stock piles from whatever sources it can find. The latest is moving all available cash from state agencies to the central government, which is thought to buy Athens enough time to get into mid-May, an indication of how tight funds are getting. Additionally, recent discussions between Greece and Gazprom are stroking fears of a Russian wedge being pushed into the Eurozone, even as the EU pursues anticompetitive charges against the Russian gas utility. Needless to say, there are a lot of balls up in the air, with Greek bonds and stocks reflect this anxiety, although any panic remains contained, as the remainder of EZ stocks and bonds remain at or near all time highs (or tights in the case of sovereign debt). We ultimately expect that the can will be kicked once again, although negotiations will likely go down to the wire, increasing the risk of contagion for the financial markets.