– It’s here. Greece is likely to default this morning (Australian time). But President Obama said that the Mediterranean nation was priced into markets and it’s “not something that should prompt overreactions.” That’s certainly what global policy makers are hoping and while US stocks finished with gains, they were only small ones. Europe had another volatile but down day as Greece requested another bailout approaching the deadline for default.
– Greece has been moving at light speed over the past week or so. But increasingly it seems as though prime minister Alexis Tsipras is playing fast and loose with the EU creditors and the country’s economy, showing his inexperience. After the other night saying Greece would not exit the EU because other members couldn’t afford it to happen, he followed up last night with a surprise EUR 29 billion deal for an extension of the bailout for two years. Westpac’s New Zealand based strategist Imre Spiezer this morning noted “the Maltese PM said the referendum would be suspended if a deal was offered.” But German Chancellor Angela Merkel said no deals until after the referendum. Tsipras has staked his future on the referendum and this US hedge fund manager thinks he’ll be gone in 30 days. A master-stroke or an overplayed hand? We’ll know in a week.
– On the data front overnight US Case-Shiller house prices rose by 0.3% in April, less than the previous month and disappointing the median estimate of +0.8%. Chicago PMI was disappointing with a print of 49.4 remaining in the contraction zone rather than rising to 50. But consumer confidence was four points stronger than expectations with a print of 101.4. In the UK GDP printed stronger than expected, up to 2.9% from 2.4% last month, while EU unemployment for May printed the 11.1% that markets expected. Not that any of this matters when Greece is the key focus for traders.
Here’s the overnight scoreboard (7.16am AEST):
- Dow Jones up 0.13% to 17,619/li>
- Nasdaq up 0.57% to 4,986
- S&P 500 up 0.27% to 2,063
- London (FTSE 100) down 1.5% to 6,520
- Frankfurt (DAX) down 1.25% to 10,944
- Tokyo (Nikkei) up 0.63% to 20,235
- Shanghai (composite) up 5.55% to 4,277
- Hong Kong (Hang Seng) up 1.09% to 26,250
- ASX Futures overnight (SPI September) -30 points to 5,366
- US 10 Year Bonds +2 points to 2.35%
- German 10 Year Bonds -3 to 0.77%
- Australian 10 Year Bonds +5 points to 3.05%
- AUDUSD: 0.7703
- EURUSD: 1.1132
- USDJPY: 122.48
- GBPUSD: 1.5705
- USDCAD: 1.2484
- Crude: $58.98
- Gold: $1,172
- Dalian Iron Ore (September): 417
– The ASX had a nice bounce into the close yesterday in what might have been a Shanghai-induced rally but could equally have been positioning into year end. Either way overnight futures were once again lower with the September contraction pointing to a weak open, losing 30 points overnight. Part of that could be the big dip in iron ore this week and the fall of the miners in London last night. BHP fell 3% in London trade.
– In Asia yesterday it became clear that the Chinese government is going to throw everything at the stock market to avoid a destabilising crash hurting the broader economy. After the PBOC cut over the weekend, there were reports local government pension funds will, for the first time, be able to invest in stocks. That could free $100 billion into the market. We also heard that the Asset Management Association is encouraging fund managers to “support” the market. Technically policy makers have picked a nice place to intervene and it reminds me of the HKMA buying stocks during the Asian crisis. It worked well then and it may work again now. Time will tell.
– On forex markets, after filling the gap from Monday morning’s fall the Euro came under pressure and this morning is 100 points or more below the level of this time yesterday. That suggests trade is extremely technical at the moment. That means we need to look to the Yen as the real indicator of what forex traders are thinking. To that end, for the second morning in a row USDJPY is holding firm in the mid 122.50 region. That doesn’t mean Greece is priced into markets. It just means that forex traders are waiting for the next shoe to drop. That will decide where Euro, Yen, the Aussie and other currency pairs head. On the Aussie specifically, we see that it’s back at 77 cents as it marks time ahead of the wave of data we are going to get today.
– Bond markets remained fairly steady while on commodity markets iron ore is down again with Dalian dropping around 14 points yesterday. Gold still can’t take a trick, copper is fairly steady, and crude is tracking through its few dollar box at the moment.
– On the data front today it’s Markit manufacturing PMI day. We get releases from China, Japan, Europe and the Americas. We also get the Australian version from the AiGroup. Also out in Australia are building approvals. In the US tonight we get ADP and Challenger jobs series before non-farms tomorrow night. We also get the big daddy of PMI’s the US ISM.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Qantas disappointed by breaking below chart support on Monday. However, this was immediately followed by some pretty interesting price action yesterday when the stock finished up 4.6%.
From a chart point of view, yesterday’s candle represented a bullish engulfing pattern (a large candle that closes well above it’s open and which engulfs the previous candle). This rally came off the 50% retracement level and broke back above the old support. The key now might be to see if the rally can extend past yesterday’s high in the not too distant future.
Yesterday, Qantas released its operation report for the month of May. While domestic passenger numbers are weaker, the basic turnaround story looks intact. Total passenger numbers are up on the back of an increase in inbound international passengers courtesy of the weaker Aussie Dollar. Importantly, yields on the domestic business continue to improve as Qantas retreats from its capacity war with Virgin and continues to carve out costs.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC