Good morning. It’s already a big week.
– It’s all about Greece this morning after the weekend’s events which included more failed talks, the announcement by the Greek Prime Minister of a referendum for July 5 to vote on the austerity package, the Prime Minister’s follow-up message to his fellow citizens to vote no. It all means that Greece is a big chance to default tomorrow. It also means whatever happens, we are in unchartered waters for the EU again.
– This turn of events in Greece reminds me of 2008. Many of us at the coal face couldn’t believe that policy makers sleep-walked into letting Lehman Brothers fall over on the basis that Bear Stearns’ collapse had had such little impact 6 months before. We were further aghast when politics got in the way and the Senate voted down US Treasury Secretary Hank Paulson’s first bailout package. That’s when the GFC felt like it really kicked off and the S&P dropped something like 300 points in 5 days.
– Key here is that there is no road map for times like these. Traders, investors, policy makers and central banks just make it up as they go. Some are trying to profit, others are trying to protect their capital, the banking system, or their reputations. It’s an ugly mess of competing interests and the short term winner is usually those who thrive best in uncertainty – that’s the traders.
– So this morning as I write, only one big market is open. That’s foreign exchange and traders are voting with their euros and selling them. Euro has fallen below 1.10, bounced and is now back testing the level. USDJPY has fallen as the yen takes on its usual role of the forex safe haven. That means EURJPY has been smashed but the Aussie dollar is holding up reasonably well, all things considered, at 0.7634.
– It’s early Asia and it’s notoriously volatile, fickle and prone to reversal. But, pictures of lines outside ATMs, news the banks are closed for days, belligerent messages on Twitter either by or on behalf of Greek finance minister Varoufakis all add to a feel of chaos. The lid has been lifted on the 2015 version of Pandora’s financial market box. For the moment though, euro holding above 1.10 is pretty solid.
– On the other side of the world and after a terrible end to the week on Shanghai stock markets, the PBOC announced that it was cutting rates and the Reserve ratio again. The central bank said it was dropping the 1-year benchmark lending rate by 25 basis points to 4.85 per cent, and reducing the 1-year deposit rate by 25 basis points to 2 percent. The aim, according to the PBOC is to, “help stabilise growth, adjust structures and lower social financing costs.” The big question for Chinese traders is whether it can stabilise Shanghai stocks.
Here’s the overnight scoreboard (6.16am AEST):
- Dow Jones up 0.31% to 17,946
- Nasdaq down 0.62% to 5,080
- S&P 500 flat at 2101
- London (FTSE 100) down 0.79% to 6,753
- Frankfurt (DAX) down 0.17% to 11492
- Paris (CAC) up 0.35% to 5,059
- Tokyo (Nikkei) down 0.31% to 20,706
- Shanghai (composite) down 7.38% to 4,193
- Hong Kong (Hang Seng) down 1.78% to 26,663
- ASX Futures overnight (SPI September) +10 points to 5,510
- US 10 Year Bonds +6 points to 2.47%
- German 10 Year Bonds +6 points to 0.93%
- Australian 10 year bonds up 8 to 3.16%%
- AUDUSD: 0.7635
- EURUSD: 1.1014
- USDJPY: 122.66
- GBPUSD: 1.5697
- USDCAD: 1.2341
- Crude: $59.63
- Gold: $1,174
- Dalian Iron Ore (September): 435
– The standout error, if I can put it that way, in the market moves is the move higher in US, German and Australian 10-year bond rates on Friday night. I’d expect that to be swiftly reversed in trade this morning with Aussie 10s moving back closer to 3%, not 3.2%.
– On the local stock market, even though the futures suggest a little bit higher this morning, it’s more likely than not with the close of the financial year Tuesday afternoon that some money is taken off the table. So my guess, and to a certain extent that’s what it is, is for the ASX to slip a little today and perhaps tomorrow.
– In Asia Friday we had another real-time example of why traders have to use charts. If you recall, I wrote back around 5,000 that this should be the top and again last week we talked about the downside bias of prices. Both of those ideas came from combination of fundamentals and technicals. The weekend’s move to cut rates and the RRR at banks could/should help stabilise the market today. 4000 is the key support zone to watch. It should hold. But if it doesn’t then another huge fall will be on the cards.
– On the data front today, hardly anything matters except what the news flow from Greece is. Greece’s path is locked in but will Europe rush back to the table to avoid a default tomorrow? In actual data, Japanese industrial production is due to be released, as is EU economic sentiment and German CPI. Tonight in the US it’s pending home sales.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
While markets wait for an understanding of what the implications of the situation in Greece will be for Europe, some traders will choose to keep their focus domestic. Woolworths looks a candidate for this having an almost entirely domestic business but with the share price facing some interesting dynamics.
Woolworths share price closed up 3.8% on Friday, apparently on the back of press reports citing unsubstantiated rumours that private equity interests might be interested in mounting a bid. This comes against the back ground of a 7.7% short selling interest in Woolworths that would be exposed if any bid did actually materialise.
For chart traders, it’s of interest that Woolworths is potentially rallying off the 78.6% Fibonacci retracement of its post GFC rally from $22.98 to $38.92. If Woolworths finishes this week above the $27.60 high of 2 weeks ago, it will be confirmation of an uptrend on the longer term weekly chart and a rejection of the 78.6% Fibonacci level. This could be a sign that the latest rally will be a bit more than a minor short covering flash in the pan.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC