– Athenian stocks surged last night after the Greek Government presented its list of what I might refer to as “demands” to Europe but which the markets, and the Greeks themselves, seems to characterise as a compromise. Where you sit in the debate will inform whether you are comfortable or still worried that a Grexit is a real chance. Colleagues Mike Bird and Michael B Kelley from BI UK and US report however that, “one senior EU official says the situation is “berserk” and that “the Greeks are digging their own graves.” That is strong language and shows that the ebb and flow of market sentiment may miss what is happening behind the scenes. That’s a clear and present danger to markets and even though some, such as Morgan Stanley, believe that the volatile start to 2015 will wash away the risks of Greece being a Black Swan in plain sight are non-negligible.
– But the markets in European and US trade were buoyed by the apparent compromise by the Greeks and the FTSE in London was the only major market to fall in what was a solid day’s trade. The difference in FTSE’s performance was that while the BoE is signalling that it is edging closer toward tightening industrial production data in the UK for December, which was released overnight, shocked the market by printing a fall 0.2% against expectations of a rise of 0.1%. That dragged the year-on-year rate down to an anaemic 0.5% for 2014.
– Elsewhere on the data front, the JOLTS survey in the US saw and increase to 5.028 million against an expected 4.990 openings but the NFIB Business optimism (97.9 versus 101.3 expected) and the IBD/TIPP economic optimism (47.5 versus 51.4 expected) both undershot, suggesting the recovery in the US is still fragile.
– Fragile looks like a reasonable term to use when describing China after the CPI and PPI fairly screamed weak growth yesterday. Following on from the collapse in imports we are getting a clear picture that China is slowing and the calls for more PBOC action in interest rate and currency markets are growing louder. The Shanghai stock exchange loved that and rallied hard yesterday after the data.
– At the close, the scoreboard in the US reads
- Dow Jones up 0.79%, 140 points to 17,869
- Nasdaq up 1.31%, 62 points to 4,788
- S&P up 1.09%, 22 points to 2,069
– European markets finished lower.
At the close:
- London(FTSE 100) down 0.12%, 8 points to 6,829
- Frankfurt (DAX) up 0.85%, 90 points to 10,754
- Paris (CAC) up 0.97%, 45 points to 4,696
- Milan (FTSEMIB) up 1.76%, 359 points to 20,726
- Madrid (IBEX) up 1.30%, 135 points 10,500
– Locally, the March SPI 200 is up 26 points to 5,778 but reversing the previous night’s gains BHP and Rio tanked in London trade, both off more than 3%. It looks like a more positive day today but we’ll see. Oil’s crash – AGAIN – overnight could put some pressure on some sectors today.
– In Asia yesterday, the calls for PBOC stimulus quickly trumped the initial despondency for stock traders in Shanghai with the market finishing up 47 points, 1.51% at 3,142. The question on the bulls’ minds will be whether or not they can drive stocks back up toward the recent highs at 3,402 in the current environment. The Hang Seng hardly budged, up just 0.03% at 24,528. In Tokyo yesterday, the tertiary industry index disappointed by printing negative but the big surge in USDJPY overnight and the positivity in the US and Europe has stock futures higher.
– On bond markets, US 10s briefly traded above 2% again with a high of 2.01% but closed up just one point at 1.99%. German 10s closed at 0.34% and UK 10s rose another 5 points (I must have missed something) to 1.67%.
– On currency markets, the Aussie dollar is back below 78 cents at 0.7767 after a foray back to 0.7840 overnight and a low of 0.7745. So on balance that’s a poor performance. The euro recovered from below 1.13 again and sits at 1.1316 while you can’t kill sterling, which dipped to 1.5195 before rallying back to 1.5250. USDJPY has surged to 119.38 and is at risk of a big rally. But it’s a holiday in Tokyo today.
– On commodities, the oil volatility continues. Nymex crude is off 4.69% to $50.38 a barrel, copper fell 1.2% to 2.5495 and gold dipped back to $1233 and ounce. On the bulks, the front-month squeeze in coal continues with another rally in the March contract of $1.to $68.15. The rest of the futures curve was higher but only marginally, with prices still close to or below $60 a tonne. Iron ore for March rose 86 cents to $62.42.
On the data front, the very important Westpac Consumer Sentiment data is out at 10.30 this morning before the release of lending data for Australia and New Loans for China. Tonight there is a Eurogroup meeting which will keep Greece front and centre and in the US, we’ll be watching the EIA Crude stock data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Global hearing device manufacturer, Cochlear, produced a solid result yesterday befitting its high valuation and market darling status. Possibly the only blemish in the result was a drop in sales to emerging economies. However, the company puts this down to a temporary lull in tender activity and announced that it has won a contract to supply 1,900 units to China in the 2nd half of the financial year.
Despite the solid result, investors will be aware that it’s trading at around 32 times forecast earnings for the current year which might constrain the upside for a while.
It’s also at chart resistance. Firstly there’s potential trend line resistance as shown on the chart below. Of more immediate interest is the fact that the market has stopped at an ABCD level where the CD swing is the same size as the AB swing. If this resistance holds, it will leave Cochlear inside (an admittedly very large) trading range. However, if the stock keeps pushing up and breaks this resistance, the $99.75 area may be of interest. At that level the CD swing will be at the commonly used 127% Fibonacci multiple of the AB swing.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC