The Overnight Report: Greek Dance

This story features MYER HOLDINGS LIMITED. For more info SHARE ANALYSIS: MYR

By Greg Peel

The Dow closed down one point while the S&P was flat at 1316 and the Nasdaq fell 0.3%

There are all sorts of troubles in Tech Land, with the Nasdaq last night's worst performer following Monday's big Apple-led rally. Not only did PC-maker Dell post a big earnings miss, which has that stock down 11% after hours, Farcebook (aka Faceplant) dropped another 9% as more controversy erupted over who knew what and when.

Back in the real world, the early news was a 3.4% rise in US existing home sales in April to the highest level in almost two years. The median sale price rose to US$177,400 (yes I know – wouldn't buy a phone box in Blacktown) which is up 10% year on year. Evidence has shown the rate of US foreclosures has been slowing and while 28% of April's numbers represented foreclosure sales, that's down from 29% in March.

The numbers underpin a growing belief that the US housing market may have truly begun to recover, albeit from a very low base. Homebuilder stocks led Wall Street higher, pushing the Dow up by 70 points by late morning before it stumbled along to be up about 50 points at 3pm. Then it fell off a cliff.

Comments hit the wires from former Greek prime minister George Papademos that a Greek exit from the eurozone would be a catastrophe and that right now exit preparations are underway in Greece. On that news the Dow fell 100 points in a heartbeat.

Tonight sees an “informal” meeting of EU leaders, at which “what to do about Greece” will be a hot agenda topic. It would be naïve not to assume any Greek government-in-waiting has been using anti-austerity election platforms to extract some leverage with the EU, and it would be foolish to assume that someone behind the scenes in Athens has not been tasked with working on an exit contingency plan. The timing of Papademos' comments is interesting on the eve of the meeting, and the EU powers-that-be make no secret of the fact they have been busy working on their own contingency plan ever since Greece failed to form a government. Meanwhile, the latest Greek polls hint at a possible swing back to a pro-euro stance ahead of the June 17 vote re-cast.

All just political fun and games? It only adds to the uncertainty. Whatever the case, Wall Street ultimately saw the late 100 point Dow plunge as a good buying opportunity and bought stocks back up again to provide a flat close. Perhaps this suggests that while there are plenty of Greek exit doomer gloomers, there is a sufficient number in the “bring it on” school as well.

Confused? So were the markets last night. To add fuel to the fire ratings agency Fitch has downgraded Japan – currently one of the world's best performing economies – from AA to A+. It's not a great surprise – if you think the printing presses in Washington and Brussels have been running hot, those in Tokyo have been threatening to melt. Fitch's argument is one of too fast a rising public debt without enough austerity on the other side. So resultant yen weakness helped push the US dollar index higher, but so did euro weakness.

On the Greek exit comments, the euro fell through US$1.27 for the first time since January and while Wall Street usually tracks the euro, this time US stocks bounced back alone. The dollar index is up 0.9% to 81.67 which has rattled gold once more, providing a US$25.50 fall to US$1567.90/oz. The Aussie has also been hit again, down a cent to US$0.9812.

Brent crude fell US91c to US$108.41/bbl and West Texas fell US$1.33 to US$91.53/bbl and I'm getting a bit sick of reporting that base metals were mixed on small moves. The VIX ticked up slightly, but the interesting move was in the US ten-year bond yield. It rose 6bps to 1.79%, which seems to be the wrong way around.

The problem for US bonds last night was the Treasury's auction of two-year notes, which attracted only limited interest and settled at 0.3%. Perhaps the world is tiring of loading up on paper at a rather large negative real rate.

What will tonight's EU leaders meeting bring? Nothing of any great substance beyond a few motherhood statements, one presumes. They will urge Greece to stay in the euro, while holding private side meetings on the topic of what to do when Greece goes, and Merkel will probably suggest that she'll think about looking into considerations of a more pro-growth policy in the fullness of time. It is not a forum for major policy announcements.

After yesterday's strong local rally, the SPI Overnight has fallen 19 points or 0.5%.

Beware further local negative sentiment in today's session. Myer ((MYR)) will release its March quarter sales numbers.

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