– Greece is in the news again this morning after the Eurogroup failed to come to a resolution. That’s no real surprise given comments over the weekend. But they paid EUR750 million to the EU a day early! Energy stocks were also in the news and have stalled now that crude’s rally has halted. Both these drivers are receiving credit this morning for the pullback in US stocks. But the big story for me — once again — is bonds.
– Last night US 10-year Treasuries rose 14 points to 2.29%. German, British, Italian and Spanish 10-year bonds also rose. Ostensibly, reports this morning that the sell-off in bonds was a result of traders making room for a couple of big tenders later this week. In a note this morning CommSec chief economist Craig James said the “US Treasury is due to sell $24 billion in three-year notes on Tuesday, $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds on Thursday.” But given that Friday’s non-farms weren’t terrible, that it’s easy to make the case that 5.4% unemployment is NOT compatible with zero percent interest rates, and that Janet Yellen gave a clear warning last week that both stocks and bonds are overvalued, this move may have legs.
– Turning back now to energy stocks, there are signs the US shale oil market is beginning to deal with the big fall in prices. Baker Hughes reported that rigs increased in the Permian basin — the big growth area for shale oil — for the first time this year. However, the move feels like a long bow because the total number of rigs fell again and the Nymex crude hardly budged and is at $59.23 a barrel this morning, only down 0.23%.
– In the UK the relief rally ended along with the pullback in Germany, France and the US. David Cameron might have won the election but if bonds start rising and the BoE moves toward tightening there isn’t much he’ll be able to do to stop stocks traders from taking some money off the table.
Here’s the overnight scoreboard (7.30am AEST):
- Dow Jones down 0.47% to 18,106
- Nasdaq down 0.2% to 4,993
- S&P 500 down 0.51% to 2,105
- London (FTSE 100) down 0.24% to 7,029
- Frankfurt (DAX) down 0.31% to 11,673
- Paris (CAC) down 1.23% to 5,027
- Tokyo (Nikkei) up 1.2% to 19,620
- Shanghai (composite) up another 3.05% to 4,334
- Hong Kong (Hang Seng) up 0.51% to 27,718
- ASX Futures (SPI June) -3 to 5,569
- AUDUSD: 0.7893
- EURUSD: 1.1155
- USDJPY: 120.11
- GBPUSD: 1.5582!!!!!
- USDCAD: 1.2092
- Crude: $59.35
- Gold: $1,183
- Dalian Iron Ore (September): 441.5
– Locally yesterday the ASX couldn’t run with the Asian herd, buoyed by the PBOC rate cut in China and so the market ended flat. As expected the miners did better with the iron ore price up again but there is almost no way to overcome the weight of bank selling on the index when it happens. That leaves it resting near the 200 day moving average and at real risk of a break today given the US and European lead. That means technical targets of 5,500 and 5,300 are coming into the frame.
– In Asia yesterday Japan loved the Chinese rate cut and so did Shanghai, eventually, after an early dip. Questions about whether or not there is a disconnect between economic reality and the stock market are being raised again. Just don’t tell the punters who are driving the market higher.
– On currency markets the sell-off in bonds and what it says about monetary policy has helped the US dollar in the first full day of trade for the week. The Euro is back down below 1.12, the Aussie is under 79 cents and USDJPY has drifted back above 1.20. The Kiwi is a big loser at 0.7330, which has driven AUDNZD back up to 1.0747 — Parity anyone? :). Oh and forex traders love Sterling again now that David Cameron has been returned.
– On the data front today we get ANZ weekly consumer confidence data and then home loan data. The market is still waiting for Chinese loan data but that’s out sometime this week, no one is sure when. Of course the Budget is out tonight and we also have UK IP and GDP estimates tonight. In the US San Fran Fed boss John Williams is talking — so look out for references to the timing of interest rate hikes.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Markets look as though they are giving Scott Morrison a fair chance of getting the budget’s childcare package through the Senate.
Child care provider, G8 Education gapped through chart resistance yesterday. The old resistance line or the area just below it now forms support and might hold this stock unless there is a real change of heart about the Senate. If the news flow continues to be positive, a rally to the 200 day moving average around $4.50 looks a chance.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC