– An agreement has been made for the extension of the Greek bailout deal for another four months. As the NAB economics team outlined this morning, “the deal is subject to Greece detailing its reform plans by Monday to the committee formerly known as the troika, with EZ finance ministers meeting to approve the list Tuesday in which case national parliaments will then vote on ratification ahead of the 28 February current bailout expiry date”. Assuming that these last couple of hurdles are overcome, that means Greece can “call on EUR7.2bn of remaining bailout funding and remove the risk of the ECB pulling the plug on ELA funding for Greek banks”.
– This whole Greek mess shouldn’t really matter given China grows another Greek economy every month. But the reality is that in Greece, the seeds of the demise of the whole Euro project were sown if this deal was not reached. Of course, we get to do it all again in four months but hopefully in the intervening period the parties – Varoufakis, Schaeuble and Dijsselbloem in particular – can sort out a deal in private.
– The good news is that now Greece appears to be out of the way, stocks and the euro have no excuse not to rally. Whether or not they do will be interesting and closely watched by traders as to the near-term direction. But if risk wants to be “On” then the first couple of days this week offer a great excuse.
– Indeed, while news of the Greece deal broke after European bourses were closed, it did help the euro close at the top of its range around 1.14 and it also gave US stocks a lift. It also helped the Aussie dollar close at 0.7840ish and looking like a rally is coming.
– At the new all-time high close, the scoreboard in the US reads:
- Dow Jones ip 0.86%, 155 points to 18,140
- Nasdaq up 0.63%, 31 points to 4,956
- S&P up 0.61%, 13 points to 2,110
– European markets at the close:
- London(FTSE 100) up 0.38%, 26 points to 6,915
- Frankfurt (DAX) up 0.45%, 49 points to 11,051
- Paris (CAC) down 0.05% at 4,831
- Milan (FTSEMIB) up 0.24%, 53 points to 21,843
- Madrid (IBEX) down 0.29%, 31 points to 10,879
– Locally, futures on the ASX rose 14 points to 5,862 after a down day to close the week Friday. The fall Friday of 0.4% masked some big percentage moves for individual stocks.
– In Asia, it’s still Chinese New Year holidays in much of the region but the Nikkei closed up 0.37% to 18,332. That’s another 15-year high.
– On bond markets, US 10s sold off to 2.16% before closing at 2.12% up 16 points on the week. In the UK, rates were sharply higher on the week as well up 12 points to Friday for a close of 1.77%. German 10-year Bunds closed at 0.33%.
– In currency land, the Aussie closed around 0.7840ish but with a data drought this week – save for Capex Thursday – its fate is tied to offshore events. Euro sits this morning around 1.14 and sterling is at 1.54. The US dollar strength has pushed USDJPY back above 119 to 119.20 this morning while USDCAD is back above 1.25 at 1.2524.
– Crude oil fell again, down another 2% to $50.75 a barrel. Copper dipped 0.59% to $2.6045 a pound and gold has fallen again under the weight of the US dollar. It sits at $1,203.40. On the bulks, March iron ore finished at $62.75 a tonne while Newcastle coal for the same delivery finished at $67.75.
On the data front, there is nothing to be released here at home although Tony Abbott is scheduled to delivery a national security statement to Parliament. It’s a holiday in China again and in Japan we get the release of the BoJ minutes to the recent board meeting. Tonight we’ll be watching the Eurogroup again and the IFO institute will release data for Germany. Home sales are the highlight in the US.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The new trading week will kick off with a strong lead from US equity markets. However, one thing that interests me is that the local “market darling yield plays” have recently been showing signs of losing momentum. The CBA and Telstra charts are examples. Road operator Transurban is another.
The MACD on under the Transurban chart showed signs of faltering when it began to diverge with price, making lower highs while price was still making higher highs. This divergence has been followed up by a couple of indications of trend change. Firstly, the MACD crossed below its signal line (histogram bars below 0) and on Friday, price broke below the 20 day moving average (black line).
If these chart signals are correct, there are a couple of scenarios. One would be a period of sideways drifts and relatively choppy trading. The second would be a correction of the last major rally. A break below the support at $9.02 would be a sign that this is underway. Under the correction scenario, a pull back to the 38.2% Fibonacci retracement level around $8.70 would be a possibility.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC