– For the third week in a row forex trade opened at 5am Monday in Sydney with the Euro under pressure because of Greece. The latest news is that, like a General wanting to crush an opponent, German finance minister Wolfgang Schaeuble has upped the ante by pushing for a “temporary” Grexit where Greece would take a “time out” from the Euro for five years. It’s a push that fits neatly with former finance minister Varoufakis’ claims over the weekend that Germany wants Greece out of the EU. As time slips by so too do the prospects for the Greek economy which means the bailout package keeps getting bigger. As it stands now Europe has made Greece a terrible offer, and the Greek government thinks it’s “very bad”. It all makes for additional concern for forex and stock traders over the Euro and European bourses. Bond buyers might like the news though.
– It’s hard to disagree with Mohamed El-Erian’s tweet that there could be backlash from this. It’s also hard to see how other “beneficiaries” of EU membership, the smaller more dependent nations, can’t see the overbearing nature of this backing… veto of parliament :S.
– It all means that even with the Chinese stock market crash halted for the moment and with solid leads from the US and Europe on Friday night the local market may not have the good day many hoped. September SPI 200 futures closed on Saturday morning at 5,472, up 35. That may still happen because the rally in iron ore from last week’s lows continued and Greek troubles mean an increased likelihood that the RBA’s bias to ease may harden. Realistically it’s going to depend on what traders do when futures open for US stocks and other bourses later this morning.
– Even though events in Greece may have rendered Friday’s price action in bonds (big selloffs), currencies (US dollar weakness) and stocks (surge) as a poor lead for Australian and Asian trade today there is no getting away from the message that FOMC Chair Yellen gave markets last week: “I expect it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy,” she said.
Here’s the overnight scoreboard (7.31am AEST):
- Dow Jones up 1.21% to 17,760
- Nasdaq up 1.53% to 4,997
- S&P 500 up 1.23% to 2,076
- London (FTSE 100) up 1.39% to 6,673
- Frankfurt (DAX) up 2.9% to 11,315
- Tokyo (Nikkei) down 0.38% to 19,779
- Shanghai (composite) up 4.57% to 3,878
- Hong Kong (Hang Seng)up 2.08% to 24,901
- ASX Futures overnight (SPI September) +35 to 5,472
- US 10 Year Bonds +8 to 2.40%
- German 10 Year Bonds +18 to 0.90%
- Australian 10 Year Bonds +7 to 3.02%
- AUDUSD: 0.7421
- EURUSD: 1.1109
- USDJPY: 122.45
- GBPUSD: 1.5505
- USDCAD: 1.2695
- Crude: $52.74
- Gold: $1,163
- Dalian Iron Ore (September): 372
– In Asia Friday it was largely about Shanghai watching once again. The composite index followed up the 5.79% gain on Thursday with another 4.57% gain. That implies that Chinese authorities have rescued the market from further crashes. But, as noted China watcher Patrick Chovanec highlighted on the ABC’s PM program, the stock market bubble is out of sync with where the real economy is and where the real economy is headed. He also had some important messages on the impact of the weaker Chinese economy on Australia. Today more than 300 stocks will be back on the board but that still leaves more than 1000 stocks suspended. With all the measures and the hunt for “malicious” short sellers, who wouldn’t be a buyer in China at the moment? Foreigners have been piling into Chinese stocks over the past two weeks.
– On forex markets this morning traders haven’t liked the news about Greece. No doubt wary of the snap back price action of the past couple of weeks, they have not sold with the same gusto this morning. The US dollar is a little stronger, just not materially so. One thing worth noting is even though there was some US dollar weakness on Friday night the Aussie dollar seemed to languish. That suggests a paradigm shift in thinking toward the Aussie as banks and investors increasingly downgrade their outlook.
– On commodity markets gold is up a little at $1163, Dalian iron ore is up 3 to 372 while futures in the US on Friday night were also a little higher with the 62% Fe contract for September up 75 cents to $47 a tonne. Crude is around the same levels and copper at $2.55.
– On the data front today Chinese trade is the big one. Will it show more weakness in the economy? Export and import volumes will be watched closely. In Japan industrial production is out and we have new loans out some time this week from China. Other than that it’s fairly quiet.
Note: There won’t be any Stock of the Day posts from CMC Markets’ Ric Spooner this week. This segment will return on Monday 20 July.