The Overnight Report: Death In Athens

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By Greg Peel

The Dow closed down 58 points or 0.5% while the S&P lost 0.7% to the 1165 support level and the Nasdaq lost another 0.9%.

Greece's two main unions called another general strike last night, shutting down all activity in Athens and allowing thousands to flood into the city centre to protest budget cuts. Police were forced to use tear gas and stun guns to control the angry mob, and when a bank building was fire-bombed the resultant blaze was found to have caused three innocent fatalities.

Images of the riots and resultant deaths spread across Wall Street screens, turning the Dow on its ear after an early recovery. The Dow had opened immediately lower from the bell, down 111 points, but by midday had managed to rally back to be up 20 points.

The rally was sparked by the ADP report on private sector jobs, which showed a better than expected 32,000 jobs were added in the sector in April. Friday's official number, which includes the public sector, is tipped to show an addition of 200,000 jobs which is just enough to hold the unemployment rate steady at 9.7%.

Less inspiring was the ISM services sector index which showed no move in April from the 55.4 reading in March. Services represent 80% of GDP but nevertheless it is the manufacturing equivalent Wall Street most focuses on. Combining last night's jobs data with Tuesday's 5.3% jump in pending home sales and 1.3% jump in factory orders and Wall Street has sufficient reason to believe that, Europe aside, the US economy is looking stronger.

But the Athens images were all too much, and the Dow again dropped to be down 106 points by 3pm. Only late buying helped stave off another dire session. Having paused on its 50-day moving average on Tuesday, the S&P 500 fell through but regained its 100-day moving average at 1165. The Nasdaq has been particularly punished these last two sessions given the surge in the US dollar. Tech stocks rely heavily on exports.

German Chancellor Angela Merkel last night made a public plea to the German parliament to allow passage of the Greek rescue bill, noting Europe's future depended on it. She sweetened the deal for the Opposition by suggesting the eurozone's laws needed to also be changed to ensure recalcitrant members are swiftly punished in future before another Greek-style situation could emerge.

In the meantime the ratings agencies were doing what they do best – kicking victims when they're down. Moody's suggested Portugal's rating was now under review given the market's sell-off of Portuguese bonds and resultant blow-out in the country's borrowing cost. The market will have sold bonds in anticipation of a rating downgrade, thus causing one, and when it comes the market will sell again, causing ratings agencies to again reassess. What heroes they are.

The euro took another bath last night to US$1.2817 as contagion fears continued to grip Europe. The pound was weaker but hanging in there given the latest polls showing the Tories should be able to form a government after tonight's election. The US dollar index nevertheless jumped another 1% to 84.17.

This was, again, not good news for commodities.

The brunt of the selling in London was again focused on volatile nickel, which having led the base metals up in the China-inspired rally is now first to be heavily dumped by commodity funds. Nickel was down 8% for the second session in a row, while aluminium took another 3% hit and lead 4%. Copper, tin and zinc were all down 0.5-1%.

Silver fell another 2% but after Tuesday's initial selling, gold found enough support to rally US$3.40 to US$1175.60/oz in its safe haven guise despite the strong greenback. The other safe haven – US Treasuries – was again sought resulting in another 6 basis point fall in the ten-year yield to 3.54%.

Oil was trashed again, however, falling another 3% or US$2.77 to US$79.97/bbl.

Having been trounced on a combination of RBA language and a stronger US dollar on Tuesday, the Aussie held a bit steadier last night, falling only 0.3 of a cent to US$0.9051.

The SPI Overnight fell 51 points or 1.1%.

After a poorly received result from Westpac ((WBC)) yesterday, today sees National Bank's ((NAB)) interim release. AMP ((AMP)) will report on its March quarter while David Jones ((DJS)) will release March quarter sales figures. The Henry tax will no doubt be a hot topic among the pensioners at the Santos ((STO)) AGM.

Australia will also see retail sales and trade balance data today before attention swings across to the UK and Europe. Aside from tonight's election in the UK, the Bank of England will release its latest monetary policy statement and will leave its cash rate at 0.5%. The ECB is also meeting on monetary policy – ironically its Lisbon's turn to host – and while there is no chance of a cash rate rise from 1.0% focus will be on just what the ECB is planning in response to the Greek crisis, if anything. Will it lower the cash rate and calm the storm? Or offer to swap all eurozone sovereign paper? Trichet will be under the spotlight.

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