– Greek banks opened and stocks celebrated by rallying across Europe and the United States last night with another fresh all time high for the Nasdaq, however, it slipped back into the close. The S&P 500 looked on track to make a new high before the dip toward the close pulled it back a few points. The Dow was marginally higher too but it ended up a little over 1% below its high.
– Even though the moves in stocks last night weren’t huge by any stretch of the imagination, July has been a banner month for US stocks. The Nasdaq is up close to 5% and the Dow and S&P are performing well too. It looks like a combination of extreme pessimism over the Greek crisis and rising concerns about earnings season. Traders can’t find a reason to sell anymore. Tom Lees predicted this about a week back when he said everyone’s so bearish it’s bullish. That, folks, is what we say when all the bad news is baked into the cake.
– Speaking of bearish… How about gold yesterday? It looks like someone hammered it on the Chinese open, which knocked it lower and it has stayed under pressure since. It was a superb move by that trader or investor because they hammered it through a massive technical level everyone was watching. In many ways this changed the outlook for gold. ANZ analyst Victor Thianpiriya said gold was now a sell on rally proposition while Capital Economics Commodity’s Twitter feed said they were still bullish but just not at the moment. Gold stocks were also under pressure in Australia yesterday and around the world overnight.
– Turning to the outlook for gold technically, yesterday morning while writing my Go Markets report I highlighted if $1,130 gave way and support was $1,085 then there isn’t a lot till $888. The question now is — Are traders so bearish that the only way is up? I doubt it. Gold is suffering from benign neglect and a lack of relevance NOT bearishness.
– Elsewhere, Greek banks opening their doors helped put a bit of a floor under an otherwise weak Euro, which has been down at the lowest levels since the January crash to 1.05. That helped the tone generally but the US dollar continues to look strong overall. For the Aussie the forex robots hammered it through support at 7350 right around 1pm and it was grinding lower before New Zealand prime minister John Key mentioned the Kiwi had fallen faster than anticipated. That made traders think that the RBNZ might agree (remember the MCI) so the Kiwi shot higher dragging the Aussie with it and off its lows. The RBNZ is still expected to ease this week — but by how much? However, both pairs remain under longer term pressure.
– To the local market and it was another good day with the 200 index up 0.3%. The banks performed well, even though APRA upped their capital requirement for mortgages. It appears the move was as expected and it could have been worse — so the banks closed stronger. Looking to today’s outlook, futures are indicating a rise of +10 and who can argue given the positive lead from offshore.
– In Asia yesterday Japan was out for the day but something remarkable happened. Shanghai stocks were fairly stable. That’s even better than a rally for authorities in Beijing who, now that the index is back near 4000, would probably kill for a period of low volatility and a stable trading range to rebuild some confidence in the markets.
– Bonds were fairly quiet overnight with little in the way of catalysts to materially drive trade. But the front end of the curve, the 2’s are at their highest for the month. Bond traders will be watching the collapse of crude oil which fell under $50 a barrel at one point last night. The market anticipates the re-emergence of Iran as an oil super power and the increased supply that lifting sanctions will bring. Even with the Fed about to tighten many traders may think this is ideal for global stocks. The Fed is tightening because the US economy is stronger, oil’s continued fall puts money in the pockets of global shoppers and the deflationary impact should — they’ll be hoping — keep a lid on long bonds which also help stocks.
– Elsewhere on commodity markets, this morning NAB’s Ray Attril said: “iron ore price has bucked the trend of falling commodity prices elsewhere to add $1.73 to $52.39 for the 62% fine China import grade — its highest almost three weeks”. Copper is a little lower at $2.48.
– On the data front today the RBA minutes are due at 11.30 AEST. They shouldn’t have anything too surprising in them. Elsewhere, nothing much to note, save for the latest NZ migration figures, Minutes from the BoJ June 19 meeting (already superseded by last week’s meeting) and tonight, UK public finances data.
– Here’s the overnight scoreboard (8.03am AEST):
- Dow Jones up 0.08% to 18,100
- Nasdaq up 0.17% to 5,218
- S&P 500 up 0.08% to 2,128
- London (FTSE 100)up 0.2% to 6,788
- Frankfurt (DAX) up 0.53% to 11735
- Tokyo (Nikkei) Public Holiday
- Shanghai (composite) up 0.91% 3,99%
- Hong Kong (Hang Seng) flat at 25,404
- ASX Futures overnight (SPI September) +10 points to 5,650
- AUDUSD: 0.7367
- EURUSD: 1.0824
- USDJPY: 124.30
- GBPUSD: 1.5557
- USDCAD: 1.2995
- Crude: $50.15
- Gold: $1,098
- Dalian Iron Ore (September): 391
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Sonic fell 3% yesterday after announcing a downgrade to its profit guidance and is now down 10% from last week’s high.
The pathology and radiology group announced it expects its profit to be 3-4% below previous guidance. This follows last week’s downward revision by medical centre and pathology group, Primary Healthcare. Sonic began falling in anticipation of bad news after the Primary downgrade.
A bigger than expected decline in the volume of pathology tests due to changes to how much is paid by Medicare was the key driver for the downgrade although the bad weather in April also had an impact.
However, valuations were also a major factor in the extent of Sonic’s sell-off. Health stocks have been keenly sort after and priced to perfection as buyers seek defensive plays and exposure to the ageing population theme. Bad news left the share price vulnerable but might create an opportunity for buyers patiently waiting to get set at more “reasonable “valuations”.
From a chart point of view, lower prices look possible. Yesterdays’ price gap and the slow stochastics in the box under the chart suggest ongoing downward momentum. The stochastics are falling steeply out of the oversold zone. There is potential support around the $19.25- $19.75 zone. Here there is horizontal support, a well-established trend line and the 40 week moving average. If Sonic does fall as far as this support it would be valued around 16.5-17 times next year’s earnings forecast.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC