– Global stocks were lower overnight but only marginally when compared with the 6.5% drop in Shanghai yesterday. That’s a pretty solid result from US and European traders when you consider the negative headwinds like the smouldering Greek issue, slightly weaker than expected UK GDP (+0.3% qoq vs. 0.4% expected) and the rise in jobless claims which printed 282,000 against the 270,000 expected.
– The most interesting thing about the rout in Chinese stocks was even though the Shanghai composite fell 6.5% it still didn’t wipe out the gains of the past four trading days. The FT reported overnight that the big fall only makes it in at number 10 on the list of the biggest one-day drops since 2000. The honour for largest fall dates back to February 27, 2007 when the market fell 8.84%.
– There has been much written about the state of the Chinese stock market. It’s gone parabolic, it’s unsustainable and lower levels in the months ahead are more likely than not. But if you are looking for a great insight into what is happening in an economic sense and how bad things are probably getting relative to the type of growth levels China has become used to I’d recommend reading this article by BI US colleague Linette Lopez. “The Chinese government is worried,” she writes. “So it’s preparing its people for hard times the only way it knows how — in a way that looks like bizarre political theatre to outsiders.” It gets better from there — worth a read.
– Turning back to Greece and time is running out for a deal to be done. Sure, it’s clear that Greece doesn’t want to leave the Euro. But it wants to stay on its terms. Terms which so far are unacceptable to its creditors. With the government running out of cash and with billions of Euros in payments due in the next few weeks to avoid default, Greece has entered the end game.
– The other big move in the past few days has been the US dollar’s strength which has blown the USDJPY up and through levels not seen for more than a decade. The peak of USDJPY yesterday — 124.46 — was the highest level since 2002. But comments from Japanese Finance Minister Taro Aso that the recent Yen move has been “rough” gave traders pause for thought and USDJPY is back at 123.94. That helped Euro climb back to the mid 1.09’s after trading in the 1.08’s last night and it also helped the Aussie come back from the brink down near 76 cents. It is still under pressure and has dropped to 1.06 versus the Kiwi and under 50 pence against the Pound for the first time in ages.
Here’s the overnight scoreboard (7.10am AEST):
- Dow Jones down 0.2% to 18,126
- Nasdaq down 0.17% to 5,097
- S&P 500 down 0.13% to 2,120
- London (FTSE 100) up 0.11% to 7,040
- Frankfurt (DAX) down 0.79% to 11,677
- Paris (CAC) down 0.86% to 5,137
- Tokyo (Nikkei) up 0.4% 20,551
- Shanghai (composite) down 6.5% to 4,620
- Hong Kong (Hang Seng) down 2.23% to 27,454
- ASX Futures Overnight (SPI June) +3 to 5,731
- US 10 Year Bond down 2.13%
- Australian 10 year bond 2.78%
- AUDUSD: 0.7652
- EURUSD: 1.0962
- USDJPY: 123.83
- GBPUSD: 1.5319
- USDCAD: 1.2425
- Crude: $58.00
- Gold: $1,187
- Dalian Iron Ore (September): 422
– The local market did okay yesterday with the ASX 200 performing well, all things considered, on what the Capex data suggested for the economic outlook — or at least the part that is represented by this data. That’s not the whole economy, not by a long shot, and there are still points of improvement and strength in the Australian economy. It’s just that the mining boom has left such a massive hole and without some big ticket infrastructure items it will take some time for business investment to recover. But it’s not all bad news, not yet anyway, and we are at real risk now of talking ourselves into a recession. We’ll need to watch consumer confidence and spending closely.
– On commodity markets the big news is the 8 point dip in Dalian September iron ore futures overnight. Yesterday around 5pm Sydney time the price was sitting at 430 and this morning it is at 422. Nymex crude is up just shy of 1% at $58.00. Copper is at $2.79 a pound and gold is just hanging onto the uptrend after dipping to a low of $1,180 overnight.
– On the data front the big news in the next 24 hours is the next read on US Q1 GDP. Expectations have been pared materially as more data has come out in the two months since the first read and economists are expecting negative growth. Before that though, in Australia, we get HIA home sales and Private Sector credit. GDP is also out for Switzerland, Italy, Greece and Portugal.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
It’s a quality company with a good franchise and appealing global diversification. It also benefits from a weaker $A. Even allowing for all this, at around 22 times forecast F16 earnings Brambles looks pretty fully priced for an industrial stock. For that reason, I’ve got it on my watch list of potential profit taking or selling situations for short term traders.
Today’s note is prompted by Fibonacci analysis. Brambles is showing signs of failing at a cluster of Fibonacci projections. These are:
- The 61.8% retracement of the last major decline and;
- An ABCD projection as outlined on the chart below where AB x 127% = CD
Failure at this level could signal a move back below $11.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC