The Overnight Report: Greece Lightning

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By Greg Peel

The Dow closed down 95 points or 0.5% while the S&P lost 0.4% to 2046 and the Nasdaq fell 0.4%.

Local Resilience

It appeared the local market was finally experiencing a pullback yesterday after a record run when the ASX200 was down 40 points around 2.30pm, but late buying interest and an unusual spike at the death left the index down only 5 points – an end to the streak but hardly “pullback” material.

The numbers would be different if we removed a stand-out 1.9% jump for healthcare, led by Ansell’s ((ANN)) 5.4% surge on the back of its earnings “beat”. But either way, a slight rise for energy and a mere 0.7% fall for materials suggest the market was not too blown away by China’s shocking trade numbers, released over the weekend, which suggested imports of commodities from Australia were down 35% year on year.

Grexit?

Wall Street took on board the weak Chinese data last night as well but most talk was of the unfolding story in Greece. Despite conciliatory murmurings from the Greek finance minister of late, last night the Greek prime minister pledged to undo several austerity measures imposed on Greece by its EU/IMF creditors, suggesting he’s up for a confrontation.

Meeting with President Obama in Washington, Germany’s Chancellor Merkel pointed to the recovery stories in Ireland, Portugal and Spain as a template for the EU/IMF’s strategy and, in not so many words, told Greece “Why can’t you just shut up and get on with it as well?”

There is a difference however, which is that while the likes of Ireland and others were mostly just caught up in the pre-GFC credit boom folly, Greece’s story was all about unadulterated corruption in a country in which few deigned to pay tax. And while two plus years ago global markets were extremely nervous over the potential of a Greek exit from the eurozone, now the fear has largely subsided. Investors have shifted away from any specific risk and with all that is going on in Europe otherwise, particularly QE, a “Grexit” is no longer perceived as a potentially eurozone-destroying outcome.

Indeed, many no doubt just wish the EU would give Greece what it wants and cut it loose. The drachma would be so devalued the world will flock to Greece for cheap island holidays and the Greek economy could be back on its feet before too long. Pander to Greece and it is likely there will be anti-austerity party victories at elections across all of the zone.

Wall Street

China and Greece impacted on US stock markets last night but it was hardly the stuff of panic. Wall Street is still weighing up the impact of Friday night’s strong jobs numbers, which imply a Fed rate rise by mid-year is becoming more and more baked in, and taking note that the Dow rallied around 700 points last week.

Oil prices continued their recovery last night, with West Texas rising another US80c to US$52.87/bbl and Brent rising US14c to US$58.27/bbl. Rising oil has a positive influence on US indices, through the market cap of the large energy sector, but by late afternoon traders were happy to sell and thus the Dow closed near 100 points down.

The strong US dollar is an ongoing subject of discussion as the US earnings season continues to unfold. Few exporting companies have failed to have a whinge about the greenback when speaking to their earnings results. But you can’t have a strong economy and a weak currency at the same time.

The US dollar index slipped last night by 0.2% to 94.52 but the Aussie is also lower, by 0.4% to US$0.7767. See: China. Gold is up US$6.20 to US$1241.50/oz and the US ten-year yield is steady.

Metals

There was very little action on the LME last night, leaving base metal prices barely moved.

Iron ore fell US20c to US$61.60/t.

The SPI Overnight fell 7 points.

Today

Chinese inflation data for January is due out today which, combined with the weak trade numbers, will prompt speculation of further monetary easing in China pronto.

Locally, NAB will release its monthly business confidence survey today and a December quarter house price index will be published.

There are a handful of companies reporting earnings today including Cochlear ((COH)), we hear.
 

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