Daily Market Reports | Jul 15 2015
By Greg Peel
The Dow closed up 75 points or 0.4% while the S&P gained 0.5% to 2108 and the Nasdaq added 0.7%.
Step-Jump
The rally on Bridge Street yesterday mimicked the rally on Wall Street on Monday night in simply step-jumping higher on a risk adjustment for Greece. On Wall Street the Dow opened 200 points higher and stayed there all day, and on Bridge Street the ASX200 opened roughly 100 points higher and stayed there all day.
All sectors jumped around 1.5-2.5% for a 1.9% index gain. Materials led the pack with 2.6% as the iron ore price attempts to find a new level post the China stock market scare. Industrials proved the laggard with only a 1.3% gain, suggesting investors are not yet brave enough to plough back into cyclicals (miners notwithstanding), while a 1.7% gain for the banks suggests investors are not too concerned over possible capital raisings, given much of that threat had already been priced in.
The day’s economic news made no difference to the macro risk adjustment, but was positive anyway. After jumping in May, following an RBA rate cut and a business-friendly federal budget, Australian business confidence improved further in June to mark a 21-month high for NAB’s monthly survey. NAB’s confidence index rose 2 points to plus 10, compared to a long-run average of plus 5, while the current conditions index jumped 5 points to plus 11, compared a long-run zero.
NAB was quick to point out, however, that the June survey was conducted just prior to the two weeks of turmoil in markets provided by the Greek saga and the Chinese stock market crash. The July survey may prove more sobering.
The Shanghai index actually fell 1.2% yesterday in a typically volatile session, but the good news is this coincided with the gradual un-suspension of listed stocks. There are now only 27% of stocks still halted, down from around 50% when Beijing threw the kitchen sink at the crashing market. As long as all stocks come back on without another index crunch then we can suggest the Chinese market might return to something more “normal”, although we recall there is a six-month ban on company stakeholders of more than 5% selling shares.
After a 13% four-day rally, a 1.2% fall is neither here nor there.
Yes or No?
European stock markets went quiet yesterday after a couple of sessions of Greece-driven rallies as they await the outcome of tonight’s parliamentary vote in Athens. At this stage the suggestion is parliament will likely pass the new deal, but not before the defection of a number of disgruntled Syriza party members. Tsipras will likely no longer hold a majority, but may yet win the day.
Last night Tsipras appeared on national television to explain to the Greek people that he gave it his best shot but in the end he had no choice but to bow to the creditors, for the sake of the country. His survival will now depend on whether Greece sees their prime minister as a David who put up a valiant fight against Goliath but was inevitably overpowered, or just a typical politician full of bravado and hollow promises who was ultimately shown up as a paper tiger.
Were there to be a forced general election in Greece, we would likely have to go through the whole sad farce all over again.
Homeland
For now, at least, Wall Street is prepared to look past the macro global turmoil of the past two weeks and refocus on domestic issues. Last night’s major economic data release suggests the US economic recovery is really a case of two steps forward and one step back.
Retail sales fell 0.3% in June when economists had forecast a 0.2% rise. Positive results for April and May were also revised down. Ever since the oil price tumbled late last year, economists have been expecting a boost in US consumer spending on the effective “tax cut” lower fuel prices provide. It didn’t happen in the March quarter but that was put down to the weather. But now it seems it’s not happening in the June quarter either.
This suggests the US June quarter GDP result will not indicate as much of a rebound out of the snow-bound March quarter as markets have been assuming. It also puts the spotlight back on the Fed, and potentially shifts the odds back to a December rate rise, rather than September.
The US earnings season shifted into gear last night with an earnings beat from leading investment/commercial bank JP Morgan, and an in-line from America’s largest mortgage provider, Wells Fargo.
The weak retail sales result was taken on the chin, notwithstanding its Fed policy implications, as the US indices continued to drift higher. The Dow has now crossed over the 18,000 mark once more and the S&P500 has comfortably recaptured 2100.
The US ten-year bond yield fell back 3 basis points to 2.40% and the US dollar index is 0.2% lower at 96.64.
The big news on Wall Street, and around the globe, last night was nevertheless the reaching of an agreement between Iran and the group of six nations over Iran’s nuclear policy. Sanctions can now be lifted, and Iranian oil exports can flow once more.
One might have expected US oil stocks, and oil prices, to head southward on the news but the opposite proved true. For several weeks now markets have been anticipating a deal being reached and there has been plenty of time to contemplate, and thus price in, the implications. Last night was basically a “sell the rumour, buy the fact”.
Commodities
To that end, oil prices did initially tumble form the open but quickly reversed. West Texas is up US$1.30 to US$53.31/bbl and Brent is up US72c to US$58.68/bbl. Aside from anything else, it is appreciated that there will be a long lead time between the actual signing of the agreement and the serious resumption of Iranian oil exports – perhaps six months or more.
After much to-ing and fro-ing over Greece and China in previous sessions, last night was a quiet one on the LME. Base metals prices movements were mixed and negligible.
Iron ore fell US50c to US$49.40/t, suggesting recapturing the 50 mark will not be a stroll in the park.
Gold is down US$2.60 to US$1154.90/oz.
Today
The SPI Overnight closed up 18 points or 0.3%
Beijing will release China’s June quarter GDP result today, along with a monthly data dump of June industrial production, retail sales and fixed asset investment numbers. Economists are forecasting 6.8% annual growth for the GDP, down from 7.0% in March.
Last month saw a very soggy Westpac consumer confidence survey result so it will be interesting to see how today’s July survey stacks up. Unlike NAB’s business equivalent, Westpac’s survey was conducted in the midst of the Grecco-Sino turmoil.
The US earnings season rolls on tonight and industrial production numbers will be released, along with the Fed’s Beige Book.
Fed chair Janet Yellen will testify before a House financial committee tonight and Senate committee tomorrow night for a scheduled biannual update.
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
