Good morning. Here’s your final upodate for the working week.
– Global bond markets had a much better day for a change with solid falls in rates across Europe and the US. Part of the catalyst for the rally appears to have been the IMF bailing out of the Greek talks because of “major differences with Athens”. EC president Donald Tusk gave Athens a pointed message saying “There is no room for gambling. The day is coming, I’m afraid, that someone says that the game is over.” German Chancellor Merkel was more conciliatory – as she usually is – saying that there is “absolute unanimity that Greece will work intensively and full steam ahead.” Either way, Greece is playing high stakes brinkmanship which carries with it a risk of misstep leading to default. That bothered bond traders and they bought.
– So on that basis you can see why US Treasuries rallied off recent highs, even though retail sales in the US printed a very solid 1% increase (ex-Autos) during May. That was better than the 0.7% expected and prompted one analyst to say Americans “are buying everything that’s not nailed down”. The Fed is in play but for the moment Greece trumps it for bond traders.
– Even with the Greek mess, stocks in the US and Europe were able to rally. Part of this is that stronger data in the United States suggests to traders that the market can withstand higher rates. But there are many, like UBS technical analyst Michael Reisner, who believe that the market is topping and a big correction is coming. There is a lot of this type of speculation and chatter at the moment. Many would say that’s more a precondition for a rally – wall of worry – than a sell off. Time and the first Fed hike will tell.
Here’s the overnight scoreboard (6.00am AEST):
- Dow Jones up 0.22% to 18,039
- Nasdaq up 0.11% to 5,082
- S&P 500 up 0.17% to 2,108
- London (FTSE 100) up 0.24% to 6,846
- Frankfurt (DAX) up 0.6% to 11,3325
- Paris (CAC) up 0.74% to 4,971
- Tokyo (Nikkei) up 1.68% to 20,382
- Shanghai (composite)up 0.32% to 5,122
- Hong Kong (Hang Seng) up 26,907
- ASX Futures Overnight (SPI June) -8 to 5548
- US 10 Year Bonds -10 points to 2.38%
- German 10 Year Bonds -9 points to 0.89%
- Australian 10 year bonds -8 points to 3.06%
- AUDUSD: 0.7750
- EURUSD: 1.13260
- USDJPY: 123.49
- GBPUSD: 1.5510
- USDCAD: 1.2292
- Crude: $60.55
- Gold: $1,181
- Dalian Iron Ore (September): 448
– On the local market yesterday, it was a solid day’s trade with the ASX up 1.4%. A good lead from Wall Street and solid employment data painted the backdrop for the big surge which saw the big banks up around 2% on average. The miners were up more than 2% also. Today, futures are less ebullient with no real lead from the US. Traders will be focused on whether the market can break back up and through the level that the ASX broke last week in this 5545/75 region.
– In Asia yesterday, the Nikkei was sharply higher after the solid lead from the US and Greek hopes the previous night. So it might be reasonable to think some of those gains will be given back in trade today but futures are up again overnight. Shanghai remains master of its own domain and was up 0.32% after the data on retail sales and industrial production was “not all bad” for a change.
– On Forex markets, the turbo-charged retail sales helped the US dollar rally. But not too much. The euro is in the mid-1.12s, Dollar-Yen is back in the mid 132s and the Aussie dollar hasn’t been able to get up and through formidable resistance in the 78s even with that ridiculously large employment report yesterday.
– On commodities, gold dipped back a little and is at $1,181 this morning. Copper has dipped to its lowest level in close to two months slipping back below $2.70 a pound while crude was also lower down 1.45%. Dalian iron ore, which was at 450 yesterday morning, is at 448 today.
– On the data front there is nothing of note out in Australia today but industrial production and capacity utilisation in Japan will be interesting in the context of recently improved data. EU IP is out tonight and then the focus turns to US PPI.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Qantas had a relatively disappointing day yesterday, closing down 1c on an upbeat day for the wider market. It has also drifted below what I thought might be a last line of defence support around $3.22.
However, Wednesday’s low saw it back close to the next potential support level around $3.11. This consists of the March peak and April low. It’s also a Fibonacci level where cd=ab x 1.27 as I’ve drawn on the chart.
Qantas’s turnaround story remains in place now that it’s returned to a cosy duopoly strategy with Virgin in the domestic market and many analysts believe it has value potential above $4. If it can hold around these levels it could be a stock to watch.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC