– The bulls have it this morning after a solid night’s trade in Europe and the US on real hopes that a deal is going to be struck with Greece. Twitter this morning suggests a deal could be made within 48 hours. We’ve been here before though — as recently as January — but this time it seems more likely, given the noted escalation from finance ministers to the presidents and prime ministers of Europe. The US (at the recent G7 meeting) and geo-politics have also played a huge role.
– This means this morning could be a great day for the local stock market, given the almost 4% rally on the continent, almost 2% rally in the UK and the rallies on Wall Street. We might even see the Shanghai exchange experience a little (or big) bounce given global sentiment after its day off yesterday.
– On Greece we didn’t get the best option, which was a deal. But we got what looks like an in-principle agreement to do a deal. Key is the fact that the leaders are pushing forward for an agreement by Thursday, according to EC president Tusk.
Here’s the overnight scoreboard (7.28am AEST):
- Dow Jones up 0.58% to 18,119
- Nasdaq up 0.72% to 5,153
- S&P 500 up 0.61% to 2,122
- London (FTSE 100) up 1.72% to 6,825
- Frankfurt (DAX) up 3.81% 11,460
- Paris (CAC) up 3.81% to 4,998
- Tokyo (Nikkei) up 1.26% to 20,428
- Shanghai (composite) closed
- Hong Kong (Hang Seng) up 1.2% to 27,080
- ASX Futures overnight (SPI September) +21 to 5,576
- US 10 Year Bonds up 12 points to 2.38%
- German 10 Year Bonds up 13 points to 0.89%
- Australian 10 year bonds up 11 points to 3.03%
- AUDUSD: 0.7723
- EURUSD: 1.1335
- USDJPY: 123.95
- GBPUSD: 1.5819
- USDCAD: 1.2317
- Crude: $59.68
- Gold: $1,184
- Dalian Iron Ore (September): 430
– As highlighted above the positive mood offshore should really give the ASX a kick today. Futures are already up 31 points overnight and the price action yesterday — early fall rebuffed by the bulls — suggests there is some underlying support coming back into the markets. The technical outlook has been mixed recently but its also seen the ASX 200 find support each time it falls. So the outlook has brightened materially.
– One thing that might put a handbrake on the global stock market rally is the renewal of the global bond market rout. Recently legendary US Bond manager Bill Gross said German bunds were a massive short and while the concerns over Greece put a bid tone back in the market, last night’s price action shows where the status quo for rates is heading. Depending on the outcome of the talks and what we hear Thursday, German 10’s could be back above 1% and US 10’s might even be heading toward 2.6%.
– On forex markets traders haven’t done anything with the news of the agreement to try to nut out a deal by Thursday. That’s because forex traders always thought a deal was going to be done. That’s why Euro was able to rally over the past week. But in a great example of the old trader adage, “buy the rumour sell the fact”, the US dollar is stronger this morning with the Euro, Aussie, Yen, Loonie, and Pound all lower.
– On commodity markets the fear bid has gone out of gold and it has dipped back into the mid $1,180’s. That’s not surprising but gold bulls will be disappointed. Nymex crude is up a tiny bit this morning and copper dipped a little to $2.59 a pound.
– On the data front today in Australia we get ANZ’s weekly consumer confidence index, ABS house prices for Q1 and the conference boards leading indicator of economic activity. However, te big news will be the “flash” manufacturing PMI’s to be released over the next 24 hours by HSBC and Markit. China today will be watched closely in our timezone for signs of how deep this economic swoon might be. We then roll around the world for similar releases in Europe and the US. The big one tonight is durable goods in the US.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The two key macro drivers of the past couple of months have been an initial adjustment for the likelihood of higher interest rates, led initially by the Fed and concerns over Greece. It looks possible that both these issues could be behind us for a while.
As far as interest rates go, “yield stocks” like CBA have already made a substantial downward move in price from the peaks of March. In fact in price: earnings terms it has returned to around the average levels of the 2 periods that book ended the GFC. Its average forward PE during the 2 year periods of 2005-7 and 2013-14 was 14.9. Yesterday it closed on a PE of around 15.2. In PE terms we might now see CBA trade in a range around this sort of level.
That scenario could also fit with the price chart. CBA is now heading into a potential resistance level around its 200 day moving average and the 38.2% Fibonacci retracement of the major downtrend. What can often happen here is for price to pull back and correct before ultimately rallying somewhere into the 50% to 78.6% retracement range. All that would be consistent with moves around a central PE value of about 15 and could provide traders with some opportunities in both directions.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC