– Don’t worry if a survey of global market moves leaves you confused this morning, you’re not the only one. NAB senior currency strategist Emma Lawson summed it up nicely in her morning note. “Big moves overnight, not all of them consistent, but they may have caught out investors positioning for a rise in risk aversion,” Lawson wrote.
As news of a possible deal between Greece and its creditors came in, bond yields – led by Germany, rose sharply. Commodities were buoyed, EUR was bid and risk appetite rose. Just don’t tell equities that. Not all moves were consistent with the same theme, as equity markets, particularly Germany’s DAX, were softer. Perhaps they don’t like the idea of incrementally less accommodative policy. On a daily basis, it is often hard to square the asset class circle.
– Lawson noted that there were a number of crosscurrents and perhaps two opposing themes even just within Europe. On the one hand, the news that a Greek deal might be at hand after the IMF, ECB and EU Group have nutted out a deal they think is platable to Greece should have been a positive. But on the flip side, there are signs that QE ECB style is getting traction with inflation data for the EU printing 0.9% in May against expectations for a 0.7% bounce.
– That explains why German 10-year Bunds got hammered: 18 points to 0.72% is a massive capital loss for the holders of German debt. Rates in the UK, Spain, Italy and France all sold off heavily as well. Greek yileds of course rallied with the 10-year finishing at 11.23%. As they say at the real estate auctions, good buying! In the US, 10-years rose to 2.26%. Again we are getting close to a break of the post-“taper tantrum” and this is a trend change that will reverberate through markets if it occurs.
– In the end, stocks in the US and core Europe were lower as a result although the ASX futures are a little higher.
Here’s the overnight scoreboard (7.43am AEST):
- Dow Jones down 0.16% to 18,011
- Nasdaq down 0.13% to 5,076
- S&P 500 down 0.1% to 2,109
- London (FTSE 100) down 0.36% to 6,928
- Frankfurt (DAX) down 0.94% to 11,328
- Paris (CAC) down 0.41% to 5,004
- Tokyo (Nikkei) down 20 points to 20543
- Shanghai (composite) up another 1.72% to 4,911
- Hong Kong (Hang Seng) down 0.47% to 27,466
- ASX Futures Overnight (SPI June) +18 to 5,638
- US 10 Year Bond +8 to 2.26%
- Australian 10 year bond +11 to 2.87%
- AUDUSD: 0.7771
- EURUSD: 1.1152
- USDJPY: 124.08
- GBPUSD: 1.5340
- USDCAD: 1.2405
- Crude: $61.26
- Gold: $1,192
- Dalian Iron Ore (September): 440
– Locally, the market has started the month on the back foot and has been down sharply these past couple of days. Morgan Stanley’s local team has two charts which might explain why prices are under downward pressure in cyclical terms. You can find the charts here.
– Shanghai stocks were up strongly again. That’s impressive given the wave of IPOs this week. Xinhau reports it is perhaps a wall of money which has buoyed stocks again with Chinese mutual funds having raised 800 billion Yuan in the first 5 months of 2015. That’s twice the amount of cash raised in 2014. In many ways it’s QE Chinese style – at least insofar as it is a wall of money going into the market. So maybe I’m wrong, maybe Shanghai is going to power up and through 5,000. It’s setting up that way.
– On forex markets it has been a huge night of US dollar weakness against the Aussie and the Euro.Euro benefitted from the Greek news and inlfation uptick while the Aussie was higher on the back of Euro strength and the RBA. But underlining how strong the Aussie dollar is was that it alon matched pace with the Euro rally. Sure, Sterling, CAD, Kiwi and yen all strengthened but Aussie and Kiwi were the standouts.
– On commodity markets gold is up a little at $1,192, Nymex crude is sharply higher at $61,26. Ostensibly it seems that oil is up on the USD drop, which makes it interesting that gold is so out of favour. Dalian iron ore for September delivery remains strong at 440.5.
– On the data front today we get Q1 GDP in Australia. There has been some upward revisions to expectations after the partials were in, so it will be an interesting release. Here’s a 10 second guide to the data written by David Scutt.
– Also out are services PMIs in Australia and around the globe. This is a better measure of the health of the global economy,at least in developed countries. The ECB has a policy decision and in the US we get ADP payrolls in the lead up to Friday’s non-farms and also US trade.
And here’s Ric Spooner from CMC Markets, with his stock to watch:
FlexiGroup has been my stock to watch a couple of times in recent weeks. The back ground to this is what looks to be a pretty undemanding valuation (currently around 11.5 times F15 earnings).
I thought it deserved another place on the watch list today because it looks as though it could be completing another bullish ab=cd pattern. I first featured this stock when it completed the large AB=CD pattern noted on the chart below.
If you are not familiar with FlexiGroup, it’s a finance company and one of its core businesses are the interest free loans and credit cards that feature in the promotions of retailers like Harvey Norman; JB Hi-Fi and Dick Smith.