The Overnight Report: Date With Destiny

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By Greg Peel

The Dow closed down 44 points or 0.2% while the S&P lost one point to 2098 as the Nasdaq rose 0.4%.

Local Market

The ASX200 shot up 30 points from the open yesterday on ongoing exuberance but that proved short-lived as traders began to take some money off the table. Energy and materials slid back while the banks were flat, leaving only consumer discretionary and utilities to make some gains.

The results season continues to provide daily alpha moves as individual stocks shoot up/down on beats or misses. We are at the end of the penultimate week of the season but next week sees the largest weekly number of stocks reporting. On the macro front, Wall Street has gone quiet ahead of tonight’s showdown in Europe and the Australian market is no doubt keeping its powder dry as well.

Greece on the Brink

On Wednesday night the ECB extended its emergency liquidity facility to Greece but this is not a sign the EU is bowing to Greek demands. It is simply a means of keeping Greek banks afloat ahead of tonight’s decision by Greece’s creditors on what to do about the problem child. It is suggested that by tonight, Greece might be forced to apply capital controls on the banks, a la Cyprus, which would see limits on deposit withdrawals.

Greece has submitted a request to be considered by its creditors tonight, but that request is for a loan only, not for an extension of the bailout package. Germany says Greece’s request for a six month “loan” extension does not represent a solution to the problem. Greece has made it clear it is not prepared to concede to required austerity measures connected to a bail-out extension so presumably tonight one of three things must happen.

Either the EU/IMF caves, and gives Greece its loan, potentially setting off a train of anti-austerity party election wins across most of the eurozone, or they show Greece the door from the eurozone, potentially setting off interconnection ripples across global financial markets, or they offer up some in-between concession deal which Greece will have to go away and think about.

Nothing is clear at this point and nor does anyone much agree on potential ramifications. Most suggest a “Grexit” would barely be noticed by a global market that’s had four years to adjust to the possibility, but others still warn there remain a lot of financial positions which would collapse were Greece to lose the euro, and resound across the globe.

Wall Street

Wall Street has remained relatively steady all week as it waits to see what transpires in Europe, although there are those who insist the US stock markets go up and down with the oil price, and that’s it. Oil has been up and down a lot this week while ultimately going nowhere, thus nor have the stock markets much.

Last night West Texas plunged early then recovered to be down only US28c to US$51.44/bbl just ahead of the rollover to the April delivery front month, while the spread to Brent continues to widen once more as Brent rises US27c to US$60.39/bbl.

In economic news, the Philadelphia Fed manufacturing index fell to 5.2 from 6.3 in January when economists had forecast 8.0. In November, the index registered 40.8.

The US bond market is far more volatile than the stock market this week, as the Greek deadline approaches. Last night the ten-year yield jumped 5 basis points to 2.11%.

The Dow and S&P have been banging around near their all-time high levels this week and also dealing with the psychological levels of 18,000 and 2100 respectively, but attention is turning to the Nasdaq. It has continued to climb with indifference of macro influences and has now passed over the 4900 mark. Commentators suggest it’s only a matter of time before the Nasdaq reaches 5000 – a level last seen in 2000.

Oh dear. This time it’s different however, they say, given the Nasdaq now represents a far greater diversity of industries and companies than it did in 2000, when it was all about the dotcom bubble and stocks trading on infinite PEs.

And for the record, with all that is going on in Europe – Greece, Russian sanctions etc – last night Germany’s DAX index hit 11,000 for the first time ever.

Muted Metals

There were fireworks in China last night (Gong Hey Fat Choy!) but certainly not in the metals markets the Chinese have vacated for the week. Nickel fell 1.8% on the LME but moves in the other base metals were mixed and small.

Iron ore is unchanged at US$63.40/t.

Gold is also little changed at US$1208.10/oz despite a 0.3% gain for the US dollar index to 94.41. The Aussie is down 0.4% to US$0.7787.

Today

The SPI Overnight is up 5 points.

From the macro point of view the local stock market is unlikely to move much today, a Friday, ahead of tonight’s Greek showdown. From a micro point of view anything could happen, however, when the likes of Cabcharge ((CAB)), James Hardie ((JHX)) and Santos ((STO)) report, among others.
 

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