Good morning. Here comes your working week.
– Greece is the word. The end game is upon us, it seems, with recognition from the EU leadership that there is now a real chance that some sort of Greek default is coming. That’s what “officials” told Reuters on Friday and this morning the euro has opened down around half a per cent at 1.1210. Interestingly, after the IMF walked out on the talks last week its chief economist, Olivier Blanchard, posted a blog on the IMF website saying that difficult decisions will have to be made on both sides. He said Greece’s proposals need credibility but added:
The European creditors would have to agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability. We believe that, under the existing proposal, debt relief can be achieved through a long rescheduling of debt payments at low-interest rates.
Haircuts are coming.
– Elsewhere, Friday night saw global stocks under pressure after more solid data from the US. Coming just a few days before the FOMC announcement Thursday morning our time, it focused traders’ attention on when rates will begin to move higher. University of Michigan’s consumer sentiment index for June jumped to 94.6, crushing the forecast for 91.2. PPI was sharply higher as well, posting the biggest monthly gain since May 2012. PPI rose 0.5% month-on-month and fell 1.1% year-over-year. Excluding food and energy, core PPI rose 0.1% and 0.6% respectively. Together with employment, this is what the Fed is looking for. Zero rates are simply incompatible with the current pace of US growth.
– Friday night was a poor one for stocks but there are still plenty of bulls around on the US stock market and one of Wall Street’s top bulls just circulated this fantastic presentation on the markets. But if you look at the price action in many markets, the technical outlook is breaking down. The DAX has broken its nine-month trend line, the ASX tried to break higher again last week and the S&P is looking like it is going to retest the recent uptrend again. It makes for an interesting week.
Here’s the overnight scoreboard (7.31am AEST):
- Dow Jones down 0.78% to 17,898
- Nasdaq down 0.62% to 5,051
- S&P 500 down 0.7% to 2,094
- London (FTSE 100) down 0.9% to 6,784
- Frankfurt (DAX) down 1.2% to 11,196
- Paris (CAC) down 1.41% to 4,901
- Tokyo (Nikkei) 20,407
- Shanghai (composite) up 0.18% to 3,353
- Hong Kong (Hang Seng) up 1.39% to 27,280
- ASX Futures Overnight (SPI June) -6 to 5,526
- US 10 Year Bonds +2 points to 2.4%
- German 10 Year Bonds down 5 points to 0.84%
- Australian 10 year bonds -3 points to 3.03%
- AUDUSD: 0.7747
- EURUSD: 1.1210
- USDJPY: 123.26
- GBPUSD: 1.5554
- USDCAD: 1.2314
- Crude: $59.96
- Gold: $1,180
- Dalian Iron Ore (September): 452
– On the local stock market today, futures are only down a little. But the lead from the US and the technical rejection of the markets attempt to break higher last week will weigh on trade. That 5545/75 zone remains key resistance in the medium term.
– On bond markets, traders took rates a little higher in the US after the data but Bunds were bid as the problems of Greece intensify and are getting to the pointy end of things. Australian bonds rallied a little and it’s worth noting that I’ve had another look at what Glenn Stevens said about rates not rising in a hurry last week and find it very troubling in what it implies about the economy.
– It seems better economy equals stronger US dollar equals lower prices for crude. That’s the pattern that continues to trade recently. On Friday, Nymex crude dipped around 1.3%, taking prices back under $60 a barrel. Dalian iron ore continues to be strong and copper just managed to cling to $2.70 a pound. Gold is becalmed but might come into its own again soon given where markets are at.
– For forex traders, it’s all about the FOMC this week. Well, mostly anyway. The FOMC is unlikely to hike rates but traders are expecting some sort of guidance about the path of rates and when the first move might be. They will be poring over every word, sentence and paragraph of Janet Yellen’s statement to try and get a better feel for when rates might rise. That should keep the US dollar bid. That said, the US dollar hasn’t really capitalised recently on any pro-US dollar data and has indeed been more subject to reversals as European and other data has printed on the okay side of the ledger. That suggests we are in a range for the most part.
– On the data front today, we have a speech from RBA assistant governor Christopher Kent this evening on what is an otherwise slow day. Key for the next 24 hours is probably Mario Draghi’s speech at 11.20pm AEST.
And from CMC Markets’ Ric Spooner is Stock of the Day:
Bank of Queensland
Wait and see with perhaps a bit of defensive selling seems the likely market mood as traders look forward to the outcomes on Greece and the Fed meeting. Ultimately though, one of the key determinants of where the Australian market goes in the short term will be whether the bargain hunting in banks that started in the middle of last week has further to play out.
The Bank of Queensland chart might provide some useful insight into any developing momentum for the banks. It peaked at the resistance of previous lows and the 200 day moving average last week. Friday’s price action also gave us a candlestick “engulfing pattern”. This is a large red candle that engulfs the body of the previous green candle and finishes near its low. An engulfing pattern represents a change in short term momentum from up to down and looks a potentially bearish development for the immediate future
Ultimately a push up through this resistance would be a sign that the bank bargain hunters are back on the job.
A move through the next resistance around $13.30 and the 50 day moving average would suggest they are starting to get serious.