Daily Market Reports | Jul 01 2015
By Greg Peel
The Dow closed up 23 points or 0.1% while the S&P gained 0.3% to 2063 and the Nasdaq rose 0.6%.
Rollercoaster
Yesterday’s volatile trade on Bridge Street was basically a tale of two cities – Athens and Shanghai – or for all you Leaguies, a game played in two halves.
On Monday night stock markets in Europe had tanked on the news from Greece and Wall Street followed suit with a 2% fall. The ASX200 promptly fell 32 points from the open and it looked like we might be in for another shocker, but for the fact we’d already had our 2% fall in Monday’s session.
That fall arguably led itself more to China, Australia’s most critical trading partner, than to Greece, less than 1% of trade, or even Europe in general. So ahead of the Shanghai Exchange opening late morning Sydney time, why were we selling again?
Within half an hour the cavalry had arrived and the ASX200 began rapidly recovering, all the way to a 20 point gain by mid-morning. Then the Shanghai market opened, and promptly fell 5%. The ASX200 turned and fell to be down around 10 points. Shanghai then began to recover, and thus so did we. As momentum built to the upside in China, the ASX200 closed up 36 points, and closed the financial year, and everyone hit the showers.
Shanghai continued to rise to a 5.5% closing gain. This is the sort of result the world might have expected on Monday after Beijing’s rate cut, but it took an extra day for the Chinese market to bottom out below the 20% correction mark.
On the ASX, sector gains were relatively consistent at 0.5-1.5% other than tiny info tech and that enigma utilities, which closed flat. Given all the ex-divs on Friday, there’s probably not a great incentive to rush into utilities right now with a Fed rate rise looming.
No one is paying a lot of attention to domestic issues at present but yesterday’s private sector credit numbers for May indicated investor loan growth for housing may have now peaked, thanks to APRA’s clampdown. Overall credit rose 0.5% in May to be up 6.2% year on year. Investor loans grew 0.8% for 10.4% annual growth, but APRA restrictions in theory cap this growth rate at 10%, suggesting further growth is limited.
The good news is business loans grew 0.4% for 5.2% annual, continuing a gradually rising trend.
Underscoring a potential peak in the investor housing bubble are yesterday’s new home sale numbers for May, which showed an overall fall of 2.3% after four months of gains. However apartment sales continue to fire along, and that’s where the investors are mostly playing.
Greece
As I write, Greece’s bailout package has expired and the IMF repayment has not been made. Last night the Greek drama took a somewhat theatrical twist.
Ahead of expiry, Tsipras took what was basically his same proposed package back to the eurozone finance ministers and requested Greece be granted a two-year bailout extension. The ministers had already rejected the same package last week, so why on earth did Tsipras think the creditors would suddenly change their minds?
Because the creditors desperately want Greece to remain in the eurozone, as is evident by various leaders’ indirect appeals to the Greek people. If they’re so desperate, thought Tsipras, then at five minutes to midnight they must be ready to buckle.
They weren’t, of course. In the lead-up to Sunday’s referendum, we have the bizarre situation of Tsipras pleading with his people to vote “no” (we will not accept the creditors’ conditions) because then the creditors will simply have to buckle to keep Greece in the eurozone. Meanwhile, European leaders are pleading for a “yes” vote so that Greece can stay in the eurozone.
As it stands so far, “yes” is still winning in the polls, and last night’s “yes” vote rally in Athens saw greater numbers than Monday night’s “no” rally. While there will be more proposals and finance minister meetings between now and Sunday, Angela Merkel has said that no decisions will be made until after the referendum.
Presumably she’s banking on a “yes” result.
Wall Street
Having been thumped on Monday night, European stock markets traded lower again last night. Wall Street opened higher, over 100 points up for the Dow, but succumbed to the European influence to be flat by midday. Europe then closed and the Dow rallied back 100 points again, only to fade away to the final bell.
Being the end of quarter, and end of half year, late trading cannot be taken as particularly indicative. Tonight will tell more of a tale.
Both the Dow and S&P500 closed the first quarter in the red after nine consecutive quarters in the green. The broad market S&P – the “real” Wall Street index – closed up 0.2% for the first half of 2015. The Dow is down 1.1%.
Greece, China and of course, Puerto Rico still drove uncertainty last night but there is still a domestic story playing out underneath. The Case-Shiller 20-city house price index showed another gain in April, but the pace of growth continues to slow. The Chicago PMI improved, but remains under 50. On the other hand, the Conference Board’s monthly consumer confidence index jumped in June and beat forecasts.
At some point the global dust will settle and we’ll return to the more familiar but no less tiresome task of trying to second-guess the Fed.
To that end, the US dollar index jumped 0.7% to 95.56 last night as the euro traded lower, while the US ten-year bond yield remained steady at 2.34%.
Commodities
The jump in the greenback did not help commodity prices in this uncertain time. On the LME, aluminium, copper, lead and zinc all traded 0.5-1.5% lower while tin fell 3%. Having crashed 5% on Monday night, nickel recovered 2%.
Iron ore fell US$1.20 to US$59.30/t.
The oils may have come under pressure as well, except that nuclear negotiations between Iran and the West could not reach a conclusion and thus the deadline has been extended. No Iranian oil to flow just yet. West Texas rose US83c to US$59.06/bbl and Brent rose US$1.21 to US$63.25/bbl.
Gold fell back US$7.50 to US$1172.60 but despite the rally in the greenback, the Aussie dollar is up 0.3% at US$0.7705.
Today
The SPI Overnight closed down 31 points or 0.6%. Not sure what the futures market is anticipating there.
It’s the first of the month, so that means global manufacturing PMI releases today, including for Australia and China, both official and HSBC. Australia will also see house price, building approval and inflation numbers.
Tonight in the US the private sector jobs numbers for June are released, ahead of tomorrow night’s non-farm payroll data.
Happy New Year.
Rudi will appear twice on Sky Business today (and none tomorrow). First on Market Moves, 5.30-6pm, then later he will host Your Money, Your Call Equities.
Tomorrow he will present at Invast offices in Sydney.
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