Good morning. And hello to our friends in Greece.
– The black swan hiding in plain sight came a little clearer into view last night with the break up of the Greek/Eurogroup talks without a resolution. It increases the chances that the parties are backing themselves into a corner and a Grexit is becoming less remote a possibility. This left the euro as the weakest of the major currencies. But it only fell 60-70 points from where it was yesterday afternoon. This suggests the market is not ready for a Grexit and doesn’t believe it will happen. That is the risk.
– In many ways the positions of both parties are intractable. Europe can not let Greece off the hook without renegotiating debts with Spain and other European nations. The new Greek government can’t abide the current arrangement and prefer to look the voters in Greece in the eye and say they have delivered what they were elected to do. There is about a week of negotiating time left, according to Jereon Dijsselboem, chair of the Eurozone Finance Ministers Committee. The clock is ticking but already Greek Finance Minister Yanis Varoufakis is saying a deal could be done within 48 hours.
– In the context of the above, the performance of European stocks tells us two things. First, traders still reckon that a solution will be found – that agreement is still the most likely scenario – otherwise falls would have been steeper. The second thing it tells us is that without a lead from US markets – which were closed last night – traders around the world aren’t very sure of which way to go.
– At the close European markets were off, but only a little:
- London(FTSE 100) down 0.24%, 17 points to 6,857
- Frankfurt (DAX) down 0.37%, 40 points to 10,923
- Paris (CAC) down 0.15%, to 4,752
- Milan (FTSEMIB) down 0.18%, 38 points to 21,166
- Madrid (IBEX) down 50 points, 0.46% to 10,690
– Locally, ASX futures were up 11 points overnight to 5,830. Today’s trade has so many countercurrents it is difficult to know whether this is going to be a good lead for a positive day or just overnight noise. Iron ore on the Dalian exchange has been rallying strongly and thermal coal is up sharply in the past month. But weakness offshore might weigh.
– In Asia yesterday, the Japanese GDP printed 0.6% for the preliminary estimate of Q4. That was weaker than the 0.9% the market expected but still a reasonable result for the year of 2.2%. Hand-wringing in the punditry was rife but USDJPY at 118.41 tells you forex traders weren’t disappointed. Indeed, the Nikkei was up 0.51% to 18,005. Stocks in Hong Kong rose 0.18% to 24,727 while in Shanghai, the surge in Chinese FDI helped push stocks to 3,222 up 0.57%.
– On currency markets, after a weaker day yesterday the US dollar was stronger overnight following the Eurogroup meeting. Euro is at 1.1344, GBP at 1.5359. The Aussie has done okay and is at 0.7773 this morning.
– On commodity markets, the big news is the recovery in coal and iron ore recently. The March Newcastle coal contract has now broken a 4-year downtrend which might be a sign of better times to come. May iron ore (current most active contract) on the Dalian exchange has been rallying recently, which in US terms has seen March rise to $64.17 a tonne. What’s important for both markets is that currently there is a big discount between the front and back months. So this could just be a short squeeze.
– On the data front today, we get the minutes of the RBA’s recent board meeting at 11.30am with the ANZ weekly consumer confidence at 9.30am. House prices in China are out today and then tonight, UK CPI is super important in helping understand the path of BoE interest rates. The ZEW survey is to be released in Germany while the Redbook Index is out in the US.
And now from Ric Spooner, CMC Chief Market Strategist, here is today’s stock to watch.
CBA will trade ex its $1.98 dividend today, making it a stock to watch from a technical point of view.
The 3 lines on the chart below are Bollinger Bands. The upper and lower bands are measures of standard deviation or variance. In very strong trends you get a lot of candles showing unusually strong variance or momentum. They exceed 2 standard deviations and push above the upper Bollinger Band on the chart. We saw plenty of this in the last uptrend.
However when, after this type of behaviour you get a trend peak back inside the upper band, it’s indicating more normal variance or declining momentum and this often precedes a trend change. The 2 circles on the chart back in December are an example.
Any underlying weakness in CBA now that it’s ex dividend could produce a similar chart set up. A move below $90.80 would also complete a double top pattern. Even if price pushes on higher in coming days, it may still produce a peak under the upper band and set up for a pull back.
In these yield challenged times pull backs may be pretty modest but a move back to the middle band or 20 day moving average or a bit below may not be too much of a stretch