Good morning. It’s going to an interesting week.
– With goodwill exhausted at the finance minister level it’s up to the presidents and prime ministers of Europe to nut out a deal to save Greece from imminent default. As I highlighted in our Australian Diary earlier, “geopolitics might see the national leaders take the decision out of the hands of the finance ministers because, as Larry Summers wrote in the FT Greece is likely to become a ‘failed state’.”
– The good news is that Reuters is reporting this morning that “Greek Prime Minister Alexis Tsipras made a new offer on a reforms package to foreign creditors on Sunday, signaling 11th-hour concessions to break a deadlock that has pushed Greece to the brink of bankruptcy.” French President Francois Holland said over the weekend “There is no time to lose. Every day counts.” Who could argue?.
– Interestingly, even though there has been a massive run on Greek banks and column inch after column inch written about the Greek problems, forex traders are clearly of a view that some sort of deal will be struck. How else can you explain that the euro is up more than 3% this month and rose more than 1 cent last week? It’s up near 1.14 again this morning. That’s helped the Aussie dollar stay relatively strong above 0.7750 while the pound, the Loonie, and yen are all similarly well bid. The Kiwi continues to struggle however.
– Looking back at stocks at last week’s close, it was “Triple Witching” Friday. That’s where individual stock options, stock index futures and stock index options all expire on the same day. It’s sometimes a catalyst for volatility. But even though stocks were down from the open and fell all day, it wasn’t a terrible day’s trade by any stretch of the imagination. Perhaps Greece was part of the reason for the fall, but I wouldn’t put too much stock in that. Rather, sometimes it’s just market flows.
– In Europe, the ECB threw the life-ring to Greek banks, increasing its liquidity facility. That was good news and except for the DAX in Germany, stocks were higher across the board. Bonds rallied too, showing just how different opinions in different markets are about what’s going to happen with Greece. US 10s rallied 9 points to 2.26%, German Bunds rallied 5 points to 0.76%. That suggests a safe haven bid. But the euro rally suggests otherwise. In the end it sets up the potential for a monster market move once this is resolved – one way or another.
Here’s the overnight scoreboard (6.53am AEST):
- Dow Jones down 0.55% to 18,015
- Nasdaq down 0.31% to 5,117
- S&P 500 down 0.53% to 2,109
- London (FTSE 100) flat at 6,710
- Frankfurt (DAX) down 0.54% to 11,040
- Paris (CAC) up 0.25% to 4,815
- Tokyo (Nikkei) up 0.92% to 20,174
- Shanghai (composite) down 6.36% to 4,481
- Hong Kong (Hang Seng) up 0.25% to 26,760
- ASX Futures Overnight (SPI September) -3 points to 5,537
- US 10 Year Bonds down 8 points to 2.26%
- German 10 Year Bonds down 6 points to 0.75%
- Australian 10 year bonds down 7 points to 2.89%
- AUDUSD: 0.7768
- EURUSD: 1.1376
- USDJPY: 122.95
- GBPUSD: 1.5873
- USDCAD: 1.2252
- Crude: $59.61
- Gold: $1,199
- Dalian Iron Ore (September): 430
– On the local market, after a really solid rise of 1.3% on Friday, traders will likely be waiting for news about Greece. Of course in many ways it’s a second or third order issue for the ASX. But it has impacted global market sentiment at the margin so it remains influential. Recent price action on the market and the two-way volatility that has been in evidence suggests some indecision. That’s important in a week where all the big news is going to come from offshore.
– The Shanghai stock market fell 10% over the course of Thursday and Friday. It’s a great example that when support collapses, support collapses. One of the stories emanating out of the exchange was that IPOs are dragging support away from established stocks. Whether that’s true, or just ex-poste rationalisation, is hard to tell from this far away. But, what is clear is that when support breaks, it really breaks. So far there hasn’t been any announcements about further monetary policy moves which some traders and pundits thought might happen over the weekend. My view has been prices above 5000 were a bridge too far – but we’ll see what happens next. Either way, expect volatility.
– On commodity markets, crude oil fell again. While some credit has been given to Greece it seems that concerns about demand and ongoing supply has the market on the back foot. Gold managed to hold most of its gains and is at $1,199 this morning while copper dipped again to $2.5950 a pound.
– On the day, it’s really all about the EU meeting tonight. The Chicago Fed Index of national activity is out and the New York Fed is launching a monthly snapshot of the US Economy. But they’ll probably get lost in the noise of Greece.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
I featured Wesfarmers as a stock to watch last week, waiting for the possibility that it might confirm the blue trend line as support by bouncing off it for a third time. That didn’t happen. Instead the stock had an ugly day on Thursday, moving clearly below the line.
However, the owner of Coles and Bunnings is now paying a prospective dividend yield of 5% before franking so it might pay to keep an eye on chart turning points from here on.
One might be the AB = CD projection shown on the chart below. The market has more or less reached this level now. Another might be the 38.2% Fibonacci retracement of the 2011/2015 rally. This is around $39.25. Either way, it can pay to wait for a sign that price is bouncing off these levels rather than trying to catch a falling knife and just buying when the stock falls to the price.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC