– Global stock markets are a sea of red this morning after the weakness we saw in Asia yesterday was replicated with big falls in Europe and the US. Bonds rallied hard, the yen held its gains and the euro proved that early Monday Asia price gaps are the most dangerous moves in any market, staging a complete reversal – and then some. The sell-off in the US leaves the S&P in the red for the year now, much like the ASX200.
– But even though Greece is taking up webpage after webpage, the actual market reaction to what’s happening is not that bad. Sure the DAX fell 3.6% last night, and sure it was one of the biggest falls in a few years, but it was up more than 3% one day last week. It’s just a sign that volatility is two-way – and it fits nicely with the technical outlook. So I’m not for hand-wringing about this yet.
– That’s not to say this couldn’t kick off into something larger however, because as Mandlebrot showed, volatility clusters. So, the question for traders, investors and mutual/portfolio managers is whether or not they try to get out of dodge early to avoid further losses or they hang on in the hope that like every other hiccup in the last 3 or 4 years, weakness gives way to a bounce. The answer to that question won’t probably be made until after the referendum this week and Wall Street Insiders are definitely sanguine at the moment.
– Forex traders seem to have made their decision though, with the euro fully reversing yesterday morning’s move in Asia which saw it break down and through 3-month support with a low in the mid 1.09 region. This morning it’s at 1.1248, up the best part of 2.5 cents from where it sat at 4pm AEST yesterday. That’s a massive move and in a technical sense is a key reversal and a sign the euro might even rally further. Maybe a Grexit is a good for the euro? But the Greek PM says that won’t happen. Vote no in the referendum but stay in the euro is a curious strategy, Mr Tsipras, and one that will rub up against EU president Jean-Claude Juncker’s comment overnight that he feels personally “betrayed”.
Here’s the overnight scoreboard (6.16am AEST):
- Dow Jones down 2% to 17,596/li>
- Nasdaq down 2.4% to 4,958
- S&P 500 down 2.1% to 2,057/li>
- London (FTSE 100) down 2% to 6,620
- Frankfurt (DAX) down 3.6% to 11,083
- Tokyo (Nikkei) down 2.9% to 20,109
- Shanghai (composite) down 3.3% to 4,054/li>
- Hong Kong (Hang Seng) down 2.6% to 25,967
- ASX Futures overnight (SPI September) -38 points to 5,341
- US 10 Year Bonds -14 points to 2.33%
- German 10 Year Bonds -13 to 0.80%
- AUDUSD: 0.7682
- EURUSD: 1.1242
- USDJPY: 122.49
- GBPUSD: 1.5729
- USDCAD: 1.2365
- Crude: $59.33
- Gold: $1,179
- Dalian Iron Ore (September): 435
– The ASX had its biggest decline in two years yesterday with around $38 billion wiped off market capitalisation. Futures overnight have sold off further. Given today is the last day of the financial year, the outlook is difficult to predict. Will traders follow the offshore and futures? Or will fund managers put a floor under the market today to keep returns for the year as high as possible? It wouldn’t be the first time the market did something unusual on the last day of trade.
– In Asia, the Nikkei came under heavy pressure from the news on Greece over the weekend. It was different story in Shanghai though where the weekend PBOC cut initially saw the market rally more than 2% before the recognition that the economy is weakening and the PBOC is trying to suture a wound with a bandaid saw the index down around 7.5% at one point before recovering to finish down around 3%. Not too bad, all things considered.
– As noted above, Forex traders in Europe decided that a Grexit might be good for the euro, and it probably would be short-term. That lifted the single currency and dragged the Aussie dollar a little higher with it. Perhaps in part the US dollar sell-off might be a result of some expectation that the Fed won’t raise rates if the markets go into a funk. Supporting that read of the price action is that the yen held onto its gains. As the forex safe haven play, that suggests traders are still thinking something might go wrong in markets – holding yen when stocks might continue to fall is a natural play. Back in 2008, the USDJPY fell 12 big figures in around five days.
– There wasn’t much action in commodities overnight; the action was elsewhere. But the big question for traders is what’s up with gold? It’s certainly lost its lustre – history would suggest that it should have rallied hard recently.
– On the data front today we get ANZ confidence, HIA home sales and RBA private sector credit. Housing and construction data is out in Japan and tonight we get German unemployment and a speech from RBA governor Stevens. That’s likely to be a bit wonkish and internationally focused given he is speaking at a breakfast in London. We also get the latest version of the GDP for the UK, EU CPI and then in the US tonight, it’s Case Shiller house prices and Chicago PMI.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Cabcharge faces the ill winds of change in the form of competition from ride sharing services and mobile booking apps. Yesterday, the ACC ruled that it had to allow other payment providers to process Cabcharge cards on their terminals in taxis. However, the fee to other providers will only be 20c which many think is pretty unattractive and means they won’t be rushing to do this.
If you are the kind of investor that looks for value in the unloved, even if they have major strategic issues, then the Cabcharge chart looks to be approaching interesting support. The stock is currently trading around 8 times next year’s earnings and looks as though it might be forming a large triangle formation. The base of this formation would be around $3.60 and there are also some Fibonacci abcd projections at this level.
The really bearish interpretation of this chart would see it sailing straight through support at $3.60. That ultimately brings a couple of AB=CD projections around $3.05 into play.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC