Daily Market Reports | Jun 26 2015
By Greg Peel
The Dow closed down 75 points or 0.4% while the S&P lost 0.3% and the Nasdaq fell 0.2%.
Volatility
We might argue that yesterday’s one percent drop in the ASX200, largely consistent across sectors, was all about the realisation that assumptions of a Greek resolution being close were way off the mark. Greece is possibly why we opened lower form the bell, but right now trading is being complicated by time-of-the-year factors.
First of all there is the potential for tax-loss selling, where investors look to realise losses on stock positions to provide income or capital gains tax relief as the financial year closes, potentially ahead of re-establishing positions in the new year. Countering this pressure is the fact end-of-year also means end-of-quarter, at which time funds managers usually look to push markets higher to “window dress” their quarterly returns. We may yet see this occurring early next week.
The fact that the selling accelerated towards the close yesterday would point a finger at yesterday’s June quarter stock option expiry. A week earlier we saw a big, seemingly out of place sell-off on index option expiry day, which was subsequently followed by a complete reversal the next day. If we look at the materials sector, for example, it fell 1% despite a sudden 2% pop in the iron ore price, which would normally fire up the buyers. Every index fund holds the big boys, BHP and Rio, and those names thus generate a lot of options activity.
Technically, if we ignore last Thursday’s index expiry anomaly the ASX200 rallied hard from 5500 to 5700 in the space of two weeks without pausing for thought at 5600, so it may be that we need to fall back to 5600 to consolidate before the next move.
The bottom line is that until we get to Wednesday, fundamentals and the macro picture will potentially be obscured, unless their influence is particularly significant. See, for example, Greece.
Clock Ticking
They’re still holding meetings over in Brussels and still getting nowhere. Pensions, and other elements of reform remain the stumbling blocks and it appears Tsipras has reached his line in the sand and is sticking to it. This leaves Germany with a dilemma.
If the creditors concede to Greece’s unmoved pension age then Greece will be allowed to retain a lower pension age than any other country in the eurozone, despite, currently, being the root of all the zone’s problems. This would not go down well with the German populace, who must hold out to 65.
One can also assume the German populace would have kicked Greece out years ago, being, as taxpayers, a major funder of Greek handouts. But the German powers that be are desperate to keep Greece in the eurozone, despite possible domestic denouncement. Aside from the whole “One Europe” concept being a German idea in the first place, way back when, the biggest economy in the bloc needs the weaker economies to remain as constituents to provide a counterbalance in order to keep the common currency grounded.
The trade-off is thus one of just how much money the Germans have to keep forking out, into the unknown future, to ensure the competitiveness of their export-based economy.
Talk now is of “final” meetings being held over the weekend (we’ll believe “final” when we see it) at which point something must happen one way or the other. Greece’s IMF repayment is due on Tuesday.
Buying Spree
US consumer spending leapt 0.9% in May – the biggest jump since April 2009. Cars were the big ticket item, and higher oil prices also impacted the dollar figures. But while oil prices are now higher than a couple of months ago, they’re still a lot lower than a year ago, and hence economists have been predicting such a boost to consumer spending for some time.
Oil prices aside, incomes jumped 0.5% in May, having posted the same gain in April, to mark the best two months in about eighteen.
Which means Wall Street is back to worrying about the Fed again. Consumer spending has, to date, been a missing piece of the puzzle, but as the June quarter shows a trend of increasing spending and incomes, in contrast to the weak March quarter, an assumed flow-on to jobs and inflation puts the ball firmly back in the September rate hike court.
Thus the US stock indices were lower last night, rather than higher as one might expect from solid spending numbers in the world’s biggest consumer economy.
The US ten-year bond yield rose 2 basis points to 2.39%.
The US dollar index nevertheless slipped 0.1% to 95.18, when one might otherwise have expected a gain. But global currencies have gone relatively quiet this week as all eyes turn to Brussels.
The Aussie’s been bouncing around a bit, and is up 0.4% to US$0.7739 this morning, but it hasn’t really been going anywhere lately either.
Commodities
It’s also a watch and wait mood at present on the LME. Aside from a 2.6% drop in tin last night, base metal prices were again mixed on small moves and low volumes.
Iron ore has fallen back US40c to US$61.30/t.
Gold is off a little at US$1172.90/oz.
Greece is also a consideration for oil markets, but it so happens that the June 30 deadline for Greece’s IMF repayment is also a deadline for Iranian nuclear negotiations. While that battle, too, looks like having reached an impasse and may yet drag on, the bottom line is that if Western sanctions are lifted, Iranian oil exports will flow freely once more.
Last night West Texas fell US58c to US$59.64/bbl and Brent fell US31c to US$63.28/bbl.
Today
The SPI Overnight closed down 6 points.
By rights it should be another soggy day on Bridge Street given uncertainty and offshore leads, but as noted above, at this time of the year anything can happen.
What we do know is that there is suddenly a large number of stocks going ex-div today, and all of them are property or infrastructure names. These are your classic “yield stocks”, meaning they pay sizeable dividends. So from the open there will be a mathematical downward adjustment to the ASX200.
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
