The Overnight Report: Goodnight Gold

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By Greg Peel

The Dow closed up 13 points or 0.1% while the S&P gained 0.1% to 2128 and the Nasdaq rose 0.2%.

Greece

Greece is no longer in default, having paid the money owed to the IMF, and to the ECB, from the emergency bridging loan provided by the EU in the wake of Greece’s acceptance of the creditors’ reform package.

Last night Greek banks reopened but capital controls remain. Having spent three weeks queuing to withdraw E60 per day, from last night Greeks could withdraw E300 per week and from Saturday E420 per week. Major transfers to foreign banks remain banned, thus the costly disruption to Greece’s economy and capacity to trade continues. From last night, Greeks were hit with widespread price hikes thanks to a VAT increase to 23% from 13%.

How’s our 15% GST hike looking?

For the first time in months, representatives of the EU, ECB and IMF are expected in Athens in the coming week to assess the state of the economy. But the fat lady is still yet to sing this time around. On Wednesday night the Greek parliament will need to pass a second wave of required reforms, which will likely prove the make or break session for Alexis Tsipras.

At last week’s vote, only 123 MPs of the coalition’s 162 seat majority voted in favour of the initial reform package, with 120 required to sustain a minority government. Another round of MP defections could see Tsipras out in the cold, forcing his resignation and ultimately a fresh Greek general election.

It was a general election that got us to this point in the first place.

Now What?

Global stock markets have now reached a state of post-trauma calm and are wondering what exactly to do next. The Chinese stock market has stabilised, for now, and a Grexit appears off the table, for now. The Australian market is currently sitting in the doldrums ahead of the storm that is August result season, although a trickle of outlier reports are due from as early as this Thursday.

Yesterday saw another quiet session on Bridge Street, featuring a modest gain for the index. The energy and materials sectors were the poor performers in an otherwise sector-wide rally. The ASX200 is sitting in between its two important levels of 5600 and 5700, and one assumes upcoming earnings reports will be the catalyst to affect a breach of either.

The Aussie has also stalled, at US$0.7370.

European stock markets were mildly higher again last night, but without any major economic data releases or big-name corporate earnings reports to focus on, Wall Street meandered through its session lacking any conviction. The Nasdaq continued its run of new all-time highs, but with only a minor gain last night.

The Dow and the S&P500 are not yet back at all-time highs but they are back at levels over 18,000 and 2100 respectively, thus once again commentators are suggesting full valuation. There are plenty more earnings reports due yet in the US quarterly reporting season to stir the pot, but we may be in for a quiet time until September when the Fed may (hopefully, to get it over and done with) make its move.

Commodities

An impending Fed rate hike and subsequent strength in the US dollar have not been supportive of the US dollar gold price, and nor is a subsidence global risk. Gold held up but did not manage to rally during this latest Greek crisis, and had to weather the storm of Chinese selling to pay for margin calls on stock positions.

If gold was not going to go up then the only possible direction when the storm subsided was down. Gold had already fallen quietly for seven straight sessions before last night, and was looking vulnerable ahead of the release of Chinese gold reserve data. They came in at half of what the market had assumed, and it was goodnight Irene.

Gold is down US$36.50/oz to US$1096.80/oz to mark a five-year low, despite the US dollar index ticking up only 0.1% to 98.06.

For base metals, the end of Greek and Chinese trauma has coincided with the northern summer shutdown period, in which industrial activity slows to a crawl and buying support fades. Nickel was the only base metal to manage a rally last night (2%) while all the other metals drifted lower once more.

A flip-flopping iron ore price is keeping Twiggy awake at night, but last night saw a flip with a US$1.90 gain to US$51.90/t.

Today

The SPI Overnight closed up 10 points or 0.2%.

The minutes of the July RBA meeting are due tonight, but are unlikely to offer anything new given the June quarter CPI is out tomorrow.

Oil Search ((OSH)) and OZ Minerals ((OZL)) are among the quarterly production reporters today, while Macquarie Atlas Roads ((MQA)) will provide a quarterly update.
 

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