The Overnight Report: Tsipras Lays Down

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By Greg Peel

The Dow closed up 217 points or 1.2% while the S&P gained 1.1% to 2099 and the Nasdaq rallied 1.7%.

Greece

The story so far…

Six months ago the Syriza party was elected in Greece on a platform of rebuffing Greece’s creditors and lifting harsh austerity measures. Yet prime minister Alexis Tsipras found himself unable to win any concessions from the EC/ECB/IMF troika. As the negotiations continued, the Greek economy sank lower into the mire.

Having hoped that by defaulting to the IMF the creditors might give ground, Tsipras offered some concessions of his own, only to be rebuffed by the creditors. He called a referendum which resulted in over 60% of Greeks saying no to further austerity.

With still no deal from the creditors, Tsipras appeared to ignore the referendum result by offering further concessions to austerity demands. On Sunday Tsipras was told he was close, but still not close enough.

While the creditors saw light at the end of the tunnel, as the Australian stock market closed yesterday afternoon it appeared a Grexit was still a threat as it was assumed Tsipras had offered his final deal. A summit meeting of EU leaders had been called off due to the ongoing stalemate. Tsipras was told to go home and try again.

But he didn’t go home. Having already held their doorstop press conferences, the eurozone leaders went back into a meeting and in the wee smalls of Monday morning Brussels time, a deal was reached. A deal which forces Greece into tighter austerity measures than were previously in place. In return, an E86bn, three-year bailout package, but no debt relief.

Despite endless hours of negotiation, protests, referendums, market turmoil, shuttered Greek banks and the near collapse of the Greek economy, those six months have been a complete waste of time.

Assuming, that is, that the Greek parliament agrees to the bailout package, which is far from a given. Then the eurozone leaders have to meet again before each of the remaining 18 member parliaments have to agree to the deal. While it is unlikely the other members would rock the boat, it is not beyond the realms either.

China

The Shanghai index shocked no one yesterday in dutifully rising another 2.4%. As for how long an orchestrated rally can continue is unknown, and there remains the question of what happens when suspensions are lifted on half the stocks on the market, which must occur at some point.

Presently the Chinese stock market is no longer a concern and yesterday the Australian market posted another choppy session, this time ending 0.3% down rather than 0.3% up as was the case on Friday, ahead of whatever the latest development was going to be in Greece. But there were also Chinese trade data to contend with.

China’s exports rose 2.8% in June and imports fell 6.1%. While these are not good numbers, they were surprisingly much better than the 0.2% rise in exports and 15% plunge in imports expected by economists. There may just be some stability returning to China’s economy, although further stimulus measures from Beijing are still likely on the numbers as they were.

On Wednesday we’ll see China’s June quarter GDP result.

China’s trade numbers were not good or bad enough to have a marked effect on Bridge Street, where Greece was still the word yesterday. Most sectors were weaker, although healthcare enjoyed solid gains and the telco offered defence. News that APRA is destined to insist on increased capital ratios for the big banks helped the financials down 0.5%, but given such requirements have been expected now since late last year, the impact was never going to be extreme.

There is talk Commonwealth Bank ((CBA)) will raise new capital as early as next month, when it releases its FY15 result. National Bank ((NAB)) has already raised, as part of its UK divestment strategy, and ANZ Bank ((ANZ)) is talking about possibly selling off some of its minority Asian stakes, which may temper its raising needs. That just leaves Westpac ((WBC)).

All will be potentially forgotten today, nevertheless, in the wake of last night’s news from Brussels. This morning the SPI Overnight closed up 91 points, or 1.7%. While such a daily move in the physical market is not unusual, particularly of late, I can’t remember the last time we saw that big a move in the overnight futures.

Wall Street

The euro dropped sharply on the Greek capitulation. The euro has proven rather enigmatic throughout the whole negotiation process, often moving in the opposite direction to that one might assume. One can argue that a resolution on Greece removes eurozone risk, and as such the euro should be higher, but one can also argue that a eurozone without Greece is a stronger net economy, thus if Greece is staying the euro should be lower.

It was lower last night, but then the other argument is that if the long running Greek saga is now finally about to end, attention returns to when the Fed will raise its interest rate. A Greek resolution, and stability in China, might just bring that date forward to September once more.

The US dollar index is up 0.8% at 96.80. The US ten-year yield made its big move on Friday night, thus last night only ticked up another one basis point to 2.43%.

Europe’s stock markets also made their big moves on Friday night, but that didn’t prevent another 1.5% rally in Germany and 2% in France.

When the bell rang in New York, the Dow shot up 200 points. And there it stayed for the rest of the session. It was a step-jump adjustment to European risk, to a new pivot level. And a very familiar pivot level it is too. Basically the Dow is back at 18,000 and the S&P is back at 2100 for about the umpteenth time this year.

Wall Street remains cognisant of the fact the story is not yet over in Greece, with Wednesday night’s vote in the Greek parliament still critical to what happens next. But traders are preparing for the possibility of being able to stop talking about Greece, and China, and simply concentrating on the raft of major corporate earnings results due over this week and beyond and the perennial debate over the Fed.

Commodities

The news from Brussels initially sparked short-covering on the LME last night but after an initial scramble, aluminium slipped back to be up only 0.6% and copper closed unchanged. Exuberance was only evident at the bell in zinc, up 2%, and lead, nickel and tin, all up 3%.

After its wild ride of the past several sessions, iron ore was unchanged last night at US$49.90/t.

Iran continues to dominate the oil markets before a backdrop of what’s going on elsewhere, and last night things appeared to be coming to a head. Intent on reaching some sort of agreement, the US has kept extending the deadline for Iran to reach a deal (sounds kinda familiar). But now the Europeans in the negotiating team have reached the ends of their tethers, and have insisted either a deal is done by next Monday or no deal will be done at all.

Last night West Texas fell US83c to US$52.01/bbl and Brent fell US73c to US$57.96/bbl.

Gold fell US$5.30 to US$1157.50/oz on the stronger greenback.

The Aussie is down 0.5% to US$0.7411 on the stronger greenback.

Today

As noted, the SPI Overnight closed up 91 points.

We now have to wait until Thursday on Bridge Street before we know the outcome of the Greek parliamentary vote, although there’ll no doubt be some indication of general feeling beforehand.

Meanwhile, today sees the release of NAB’s monthly business confidence survey.

Tonight Wall Street will be focused on June retail sales numbers.
 

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