Daily Market Reports | Jul 08 2015
By Greg Peel
The Dow closed up 93 points or 0.5% while the S&P gained 0.6% to 2081 and the Nasdaq rose 0.1%
Suspended Disbelief
Whatever is driving world stock markets at present, it bears little resemblance to what would normally be driving world stock markets. Try this quick quiz:
Oil is down 6%, iron ore is down 4%, copper is down 3%, the Shanghai stock market is down 5% mid-session (having already fallen 30%) and things look shaky for Greece. What’s your call for the ASX200 on the close?
Did anyone say up a hundred points? No?
It could be argued that the ASX200 didn’t collapse on Monday because it was not yet clear just what global impact the Greek “no” vote might have. The index fell heavily to begin with but then shuffled back to a midway position. Global markets didn’t collapse on Monday night, so that was the impetus to buy Australian stocks on Tuesday morning.
But that impetus soon turned into a tsunami. Short covering no doubt came into play but clearly the bulk of buy orders were market, rather than stock specific. The energy sector was down early, as one would expect, but rallied strongly to the close, and the miners were unaffected by the iron ore price. At 2.30pm the RBA left its rate on hold, as expected, and a final kick took gains over the ton.
Technically, anything under 5500 just seems to be a trigger for the buyers as long as the world is not actually falling apart.
There had been rumours floating around that Greece might be given an interim deal. But realistically the Australian market’s biggest problem (and arguably the world’s) is not Greece, it’s China. Yesterday, as further desperation saw Beijing simply suspend trading in most small stocks, the Chinese stock market just didn’t seem to matter.
Again I will say, no one wants to look a gift rally in the mouth. But right now it seems like the lunatics have taken over the asylum. We could be down a hundred points today — not saying that’s my prediction — and right now it would not come as much surprise. It’s a time for investors to just stand back and let the traders play their games.
Turnaround
The meetings in Brussels that broke up this morning, our time, ended with Tsipras’ latest proposal being rejected and the Greek prime minister being told to go back and try again. He has to the end of the week. An agreement on a longer term bailout plan is ever more distant, so it really comes down to whether the creditors bend to at least some sort of interim deal that would see Greece make its required payments to the IMF and ECB, and reopen its banks, before the whole tedious negotiation process begins again.
The outcome of the meetings was not known by the time Europe’s stock markets closed last night, but there was little sign of optimism when thy did. The French and German markets both fell 2%. Yet again the mood carried across the pond and as such, the Dow was down over 200 points late morning.
At that point, the oils were trading lower once more and base metals had been absolutely carted on the LME. Even gold had capitulated. The US ten-year bond yield was tumbling again. But as soon as Europe closed, the mood changed. For starters, the oil price turned around.
And there began Wall Street’s biggest turnaround rally in four years, of roughly 300 points on the Dow. What happened? Expectations of a deal in Greece? Not sufficiently certain. What traders point to was the fact the S&P500 traded under its 200-day moving average and that was enough to trigger technical buying which, like Australia yesterday, then fed on itself.
Most commentators suggest Wall Street isn’t really all that worried about Greece anyway. They should be worried about China, but didn’t seem to be last night. Tonight sees Alcoa post its June quarter result, unofficially kicking off the US earnings season. Perhaps Wall Street is suddenly looking inward, and deciding the home front is more important.
By the close, the US ten-year yield had fallen another 5 basis points to 2.23%. The US dollar index is up 0.5% at 96.77, and a stronger greenback was never going to be helpful for commodity prices right now.
Commodity Carnage
The oils, as noted, fell early in their sessions but managed to stage a turnaround. West Texas closed up US26c to US$52.95/bbl and Brent closed up US52c to US$57.33/bbl. With everything else going on in the world at present, a primary focus for the oil markets is the ongoing Iranian nuclear negotiations which will determine whether or not Iranian oil exports will flow once more.
A deal is close, it is assumed, although the deadline has once again been extended for Iran. That there has not yet been an agreement is bullish for oil, but these small deadline extensions suggest the two parties may soon be able to meet in the middle, which would be bearish.
Iran has no impact on metal prices, but uncertainties surrounding Greece, and China, and a stronger greenback, certainly do. Last night aluminium fell 1%, lead 2%, copper, tin and zinc 3% and nickel a solid 7.5%.
There goes the 50 mark for iron ore. It was down US$2.30, or 4%, to US$49.70/t.
And if gold can’t go up on the sovereign uncertainty of a teetering Greece, it must go down. Gold fell US$15.30 to US$1154.50/oz.
With some help from the greenback, the Aussie is down 0.7% to US$0.7445.
Today
If the Australian market were to turn around and fall 2% today, in the context of recent history this would not be unusual. These buying sprees, like we saw yesterday, tend to be isolated to single sessions. But who wants to try and guess?
The SPI Overnight closed down 15 points or 0.3%.
I could say all eyes will be on the Shanghai index today, but they certainly weren’t yesterday.
Standard & Poor’s now believes the odds of a Greek exit are better than 50/50. Tsipras has been told to come back with a better deal, but his people have told him not to concede. So it’s up the creditors, and to Germany, in particular. Interestingly, a French academic is currently making headlines by pointing out that in the early sixties, the US forgave Germany a WWII debt it knew could never be paid back, on the basis it was unfair to forever punish young Germans for the sins of their fathers.
Germany knows Greece could never pay back its debt either.
The minutes of the last Fed meeting are out tonight. Remember how the Fed used to be the main topic of conversation? And the US earnings season begins.
As do the Ashes.
Rudi will make his usual weekly appearance on Sky Business' Market Moves, 5.30-6pm.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit. Click here. (Subscribers can access prices in the Cockpit.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com
