– Stocks fell, bonds rallied, and commodities crashed overnight. Forex traders, having reacted at 5am yesterday and then recovered in early European trade, when greek finance minister Varoufakis announced his resignation, weren’t sure what to do so they left prices where they were at the end of our day. Shanghai’s stockmarket volatility continued and Greek 10 year bonds hit a new three year high of 18.32%, up around 4% on the day.
– In Europe the Greek situation remains fluid. The victory of the “No” vote has emboldened and empowered the Tsipras government to play hardball with the EU creditors. But there are precious little signs from Europe that they’re willing to give any ground at the moment. Adding to that was news the ECB won’t be extending the Greek banking system any more assistance, keeping the ELA at EUR89 billion. Greece is already short on cash — although where is all the cash coming out of the ATM’s going — and the banks remain closed. The ECB is still taking Greek debt as collateral but has raised the “haircuts” — discount from face value which they will lend — on that debt.
– While the politicians brawl it’s left to the ECB to try to hold Europe together. This morning Reuters reports ECB governing council member Ewald Nowotny said bridge funding to Greece, while a new bailout program is being negotiated, “is something that has to be discussed.” But he did say that more financing can’t be provided if Greece defaults on its debt.
– In the end European stock markets were lower but they didn’t crash in the way that futures suggested they might at one stage yesterday morning (AEST). The FTSE was the best performer, down less than 1%, the DAX only dropped 1.5%, the CAC a little over 2% with Spain’s IBEX just a little weaker. It was in Italy where the big fall was most acute with the FTSE MIB off 4%. That’s the trouble with Greece — if it folds, if it defaults, or if it leaves the Euro, traders, and perhaps populations, will just wonder who is next.
– Turning first to the US and stocks ended in the red but well off their lows for the day which were hit on the open after a poor lead from Europe. It was an interesting day with a nice rally to the previous close, dip and then rally toward the close. So, even though the S&P 500 fell down and through the 200-day moving average at one point it rallied and closed above it. That’s a good short term sign but the outlook has shifted.
Here’s the overnight scoreboard (7.24am AEST):
- Dow Jones down 0.26% to 17,683
- Nasdaq down down 0.34% to 4,991
- S&P 500 down 0.39% to 2,068
- London (FTSE 100) down 0.76% to 6,535
- Frankfurt (DAX) down 1.52% to 10,890 /li>
- Tokyo (Nikkei) down 2.1% to 20,112
- Shanghai (composite) up 2.42% to 3,776
- Hong Kong (Hang Seng) down 3.18% to 25,236
- ASX Futures overnight (SPI September) +19 points to 5,450
- US 10 Year Bonds -9 points to 2.29%
- German 10 Year Bonds -3 to 0.77%
- Australian 10 Year Bonds flat 2.92%%
- AUDUSD: 0.7496
- EURUSD: 1.1057
- USDJPY: 122.53
- GBPUSD: 1.5604
- USDCAD: 1.2645
- Crude: $52.68
- Gold: $1,169
- Dalian Iron Ore (September): 380
– The ASX was lower yesterday along with most of Asia and the fact that Europe and the US haven’t completely tanked saw futures rise in overnight trade. The big question for the markets though is: What impact the absolute collapse in commodity prices, that are important to the ASX, will have on trade today? My guess? I wouldn’t start the day too bullish.
– In Asia yesterday the Nikkei was down more than 2% as fears about Greece pushed stocks lower. The better performance in Europe and the US, along with the fall in input costs like oil gives Tokyo room to rally today. In Shanghai the jury is out. Policy makers are probably a bit disappointed and exasperated by the performance of the composite index yesterday. With a rise of just 2.42% you’d probably mark the index performance as a marginal pass, even with all the Greek news. The question now is: Will better performance of stocks around the world help Shanghai? I’m going to punt on a yes with the usual dose of volatility.
– As noted above, forex traders don’t know what to do at the moment. Yesterdays’s US dollar strength faltered a little over the last 12-15 hours and traders are waiting for the next shoe to drop. The Yen has weakened a little and the Aussie dollar rallied, consistent with a relaxation of the fear trade. The big event risk for the Aussie is now the RBA at 2.30pm (AEST) today.
– On commodity markets prices were crushed overnight with a massive fall in Nymex crude after it broke recent support. Prices fell 7.47% in the front month to $52.68 a barrel. Copper also fell heavily hitting a five month low after dropping 9.15 cents a pound to $2.53. Other base metals were also lower, while iron ore was hammered again. Dalian iron ore is at 380 this morning while the September 62% futures contract in the US fell $3.10 to $46.88!
– On the data front today we have the AiGroup performance of construction index, ANZ weekly consumer confidence and then the RBA at 2.30pm AEST. Tonight it’s German industrial production, French trade, UK industrial production and then US trade.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
AGL yesterday announced a write down of $603m in the value of assets in its upstream gas business. The write downs centred mainly on the Gloucester coal seam gas business due to delays in achieving production and the Moranbah gas assets which AGL has so far been unable to sell.
As is often the case with write downs, the announcement did not have much impact on the share price. AGL also maintained its forecast that this year’s profit would be in the upper half of its $575m -635m guidance range.
However, AGL’s chart has arrived at a critical support level. If it breaks below this support, completing a large double top formation, then a pull back to the $14.50- $14.75 support zone looks a prospect. This support includes the 200 day moving average, a potential trend line and an AB=CD pattern.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC