– Bonds sold off again last night with the German 10 year Bund hitting 1.05% before rallying. But stocks weren’t worried, with some solid rises across both Europe and the US last night. In the US, part of the reason has been attributed to the lift in oil prices as stockpiles continue to slide. In Europe, it seems that even with the increased rhetoric from Greek PM Tsipras, far from sliding away from a Greek deal, Europe might be actually becoming more accommodating (notwithstanding S&P’s after hours downgrade of Greece).
– Peter Cardillo, chief market economist at Rockwell Global Capital, told MarketWatch that “the market rally is mostly due to a combination of three things: the S&P 500 held its support level on Tuesday, the dollar weakened and oil rallied as well as some positive news from Greece.”
– On the issue of Greece Ken Courtis, chairman of Starfort holdings and former vice chairman of Goldman Sachs Asia, had a very interesting take on Greece last night. Courtis told the ABC’s Ticky Fullerton on The Business that it was pressure from the Americans which will drive a deal in Greece. Courtis reckons that the US is worried about Russian influence in Ukraine and Turkey and with all the other issues in global geopolitics at present doesn’t want another “fire on NATO’s’ borders if there is a messy Greek exit. That means the US is leaning on the French and Germans to get a deal. Courtis could be right. Certainly the concerted three-way verbal intervention from Kuroda, Sato and Aso in the yen yesterday suggests that there was more than just climate change discussed at the G7 this week.
– Either way it all adds up to a better lead for Australian markets than we have had for some time. The positive tone in stocks will buoy the ASX 200, which managed to break its run of down days with a small rise in trade yesterday before the SPI 200 futures exploded more than one per cent with a rise of 54 points to 5528. The technicals were already looking better based on the past three days’ trade, so it’s fair to expect stocks to bolt out of the blocks this morning.
Here’s the overnight scoreboard (6.00am AEST):
- Dow Jones up 1.33% to 18,000
- Nasdaq up 1.25% to 5,076
- S&P 500 up 1.21% to 2,105
- London (FTSE 100) up 1.13% to 6,830
- Frankfurt (DAX) up 2.4% to 11,265
- Paris (CAC) up 1.75% to 4,934
- Tokyo (Nikkei) down 0.25% to 20,046
- Shanghai (composite) down 0.15% to 5,106
- Hong Kong (Hang Seng) down 1.12% to 26,687
- ASX Futures Overnight (SPI June) +55 to 5529
- US 10 Year Bonds +4 points to 2.48%
- German 10 Year Bonds +2 to 0.98%
- Australian 10 year bonds +2 to 3.11%
- AUDUSD: 0.7760
- EURUSD: 1.1324
- USDJPY: 122.67
- GBPUSD: 1.5528
- USDCAD: 1.2259
- Crude: $61.18
- Gold: $1,187
- Dalian Iron Ore (September): 450
– In Asia yesterday, the big news was the yen. But on stock markets, the disappointment that could have been expected as MSCI announced the delayed inclusion China A shares in its index didn’t really eventuate with Shanghai stocks only down 0.15%. Interestingly yesterday, China’s central bank just lowered its 2015 GDP growth forecast. It was only a very small 0.1% reduction. But the devil really is in the detail on this forecast. Chinese growth looks almost certain to undershoot the new 7% growth expectation.
– Forex traders had an amazing afternoon yesterday. The Aussie dollar initially fell out of bed on the back of Glenn Stevens’ speech which explicitly left the door open for another rate cut. But then the concerted verbal intervention in the yen which kicked off after Bank of Japan chief Haruhiko Kuroda suggested that it’s “very weak” drove the yen and Aussie dollar sharply higher. As if that wasn’t enough, Kuroda was joined by comments from BoJ board member Sato and Japanese finance minister Aso. That suggests that the G7 might have had a somewhat forthright discussion about how aggressive Japan has been in this global currency war. Elsewhere, the euro is up a little but the pound is up around 1%. The Aussie and Kiwi were up a similar amount before the RBNZ easing. Since then however the Kiwi has been slammed and is off more than 2% at 0.7050. That’s dragged on the Aussie a little but AUDNZD shot up through 1.10 at one point. It’s sitting at 1.0950 now.
– On commodity markets oil is up again as data released last night showed the sixth straight week of falling stockpiles. The recovery in oil, even though it’s only in the $60 region, is important in explaining the sell-off in bonds over the past few weeks. Fears of deflation now seem completely and utterly overblown. The US dollar move helped gold a little at $1,186 and looking less sick – I like gold even though the technicals are still poor. Copper rose more than a per cent to $2.77 a pound and Dalian Iron ore ripped to a new high of 450.
– On the data front today, the May jobs report in Australia takes centre stage. The market is looking for an increase in jobs of around 15,000 and a steady inflation rate of 6.2%. Industrial production and retail sales in China are important as are retail sales in the US tonight.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Oil Search (OSH.ASX)
Oil had another good session last night, following news that US crude inventories fell by a healthy 6.8m barrels last week. This has seen the West Texas price return to the top of its recent range around $61.50 and should produce another solid day for Australian energy stocks.
The rally in the last couple of days has confirmed well established trend line support on the Oil Search chart which could be a useful line in the sand for technical traders.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC