Greece headed to referendum, China cuts rates

For a day or two late last week it looked like we could be headed toward a Summer lull but after Greece announced a snap election and China cut rates, it's going to be a crazy week ahead.

China cuts rates

The cut from the PBOC isn't a shock, I was speculating about it on Friday. Given the trouncing in the Shanghai Composite over the past few weeks, including a 7% fall on Friday, officials were forced to act. China -- above everything -- is concerned with stability and a free-fall in stock markets gives the leadership fits.

In May, stocks also took a swoon and the PBOC cut rates. It's the fourth central bank move since November.

Obviously, it's good news for Chinese rates and I expect to see a bounce Monday. In fact, given that the PBOC has now clearly signalled it won't tolerate falling stocks, expect the recent decline to be completely retraced.

The other offshoot is AUD. The Australian dollar isn't as sensitive to China as it was years ago when China was a commodity-consuming machine. Still, the Australian dollar was the laggard on Friday and that's almost entirely due to China. Technically, AUD/USD was in danger of breaching the April and June lows but the PBOC cut argues for buying ahead of it. However, that may still be a problem if Greece roils the market. A better trade could be AUD/CAD longs, which are testing a similar support zone at 0.9400.

Greece referendum July 5

Greek voters have 8 days to decide about their future.

The referendum will be framed as a choice between the suffocating austerity measures proposed by the Troika and Syriza's milder measures targeted at higher incomes. In reality, it's a referendum on default and (likely) a Grexit.

Greek polls this week will be as important as non-farm payrolls. That said, in referendum after referendum, the protest vote is overstated. When it comes time to cast the ballot, voters shift toward safety and predictability. If it's within 5 points, expect Greeks to choose the devil they know rather than the one they don't.

In the interim, expect to see risk aversion in European markets and a rout on Greek stocks. The euro has proven to be a wickedly-tough trade on Greek news. I wrote about three (non-euro) trade ideas if there is no Greek deal on Friday and I think those are the ways to trade it.

Buckle up.