By Greg Peel

The Dow closed up 217 points or 1.2% while the S&P gained 1.1% to 2099 and the Nasdaq rallied 1.7%.

Greece

The story so far…

Six months ago the Syriza party was elected in Greece on a platform of rebuffing Greece’s creditors and lifting harsh austerity measures. Yet prime minister Alexis Tsipras found himself unable to win any concessions from the EC/ECB/IMF troika. As the negotiations continued, the Greek economy sank lower into the mire.

Having hoped that by defaulting to the IMF the creditors might give ground, Tsipras offered some concessions of his own, only to be rebuffed by the creditors. He called a referendum which resulted in over 60% of Greeks saying no to further austerity.

With still no deal from the creditors, Tsipras appeared to ignore the referendum result by offering further concessions to austerity demands. On Sunday Tsipras was told he was close, but still not close enough.

While the creditors saw light at the end of the tunnel, as the Australian stock market closed yesterday afternoon it appeared a Grexit was still a threat as it was assumed Tsipras had offered his final deal. A summit meeting of EU leaders had been called off due to the ongoing stalemate. Tsipras was told to go home and try again.

But he didn’t go home. Having already held their doorstop press conferences, the eurozone leaders went back into a meeting and in the wee smalls of Monday morning Brussels time, a deal was reached. A deal which forces Greece into tighter austerity measures than were previously in place. In return, an E86bn, three-year bailout package, but no debt relief.

Despite endless hours of negotiation, protests, referendums, market turmoil, shuttered Greek banks and the near collapse of the Greek economy, those six months have been a complete waste of time.

Assuming, that is, that the Greek parliament agrees to the bailout package, which is far from a given. Then the eurozone leaders have to meet again before each of the remaining 18 member parliaments have to agree to the deal. While it is unlikely the other members would rock the boat, it is not beyond the realms either.

China

The Shanghai index shocked no one yesterday in dutifully rising another 2.4%. As for how long an orchestrated rally can continue is unknown, and there remains the question of what happens when suspensions are lifted on half the stocks on the market, which must occur at some point.

Presently the Chinese stock market is no longer a concern and yesterday the Australian market posted another choppy session, this time ending 0.3% down rather than 0.3% up as was the case on Friday, ahead of whatever the latest development was going to be in Greece. But there were also Chinese trade data to contend with.

China’s exports rose 2.8% in June and imports fell 6.1%. While these are not good numbers, they were surprisingly much better than the 0.2% rise in exports and 15% plunge in imports expected by economists. There may just be some stability returning to China’s economy, although further stimulus measures from Beijing are still likely on the numbers as they were.

On Wednesday we’ll see China’s June quarter GDP result.

China’s trade numbers were not good or bad enough to have a marked effect on Bridge Street, where Greece was still the word yesterday. Most sectors were weaker, although healthcare enjoyed solid gains and the telco offered defence. News that APRA is destined to insist on increased capital ratios for the big banks helped the financials down 0.5%, but given such requirements have been expected now since late last year, the impact was never going to be extreme.

There is talk Commonwealth Bank ((CBA)) will raise new capital as early as next month, when it releases its FY15 result. National Bank ((NAB)) has already raised, as part of its UK divestment strategy, and ANZ Bank ((ANZ)) is talking about possibly selling off some of its minority Asian stakes, which may temper its raising needs. That just leaves Westpac ((WBC)).

All will be potentially forgotten today, nevertheless, in the wake of last night’s news from Brussels. This morning the SPI Overnight closed up 91 points, or 1.7%. While such a daily move in the physical market is not unusual, particularly of late, I can’t remember the last time we saw that big a move in the overnight futures.

Wall Street

The euro dropped sharply on the Greek capitulation. The euro has proven rather enigmatic throughout the whole negotiation process, often moving in the opposite direction to that one might assume. One can argue that a resolution on Greece removes eurozone risk, and as such the euro should be higher, but one can also argue that a eurozone without Greece is a stronger net economy, thus if Greece is staying the euro should be lower.

It was lower last night, but then the other argument is that if the long running Greek saga is now finally about to end, attention returns to when the Fed will raise its interest rate. A Greek resolution, and stability in China, might just bring that date forward to September once more.

The US dollar index is up 0.8% at 96.80. The US ten-year yield made its big move on Friday night, thus last night only ticked up another one basis point to 2.43%.

Europe’s stock markets also made their big moves on Friday night, but that didn’t prevent another 1.5% rally in Germany and 2% in France.

When the bell rang in New York, the Dow shot up 200 points. And there it stayed for the rest of the session. It was a step-jump adjustment to European risk, to a new pivot level. And a very familiar pivot level it is too. Basically the Dow is back at 18,000 and the S&P is back at 2100 for about the umpteenth time this year.

Wall Street remains cognisant of the fact the story is not yet over in Greece, with Wednesday night’s vote in the Greek parliament still critical to what happens next. But traders are preparing for the possibility of being able to stop talking about Greece, and China, and simply concentrating on the raft of major corporate earnings results due over this week and beyond and the perennial debate over the Fed.

Commodities

The news from Brussels initially sparked short-covering on the LME last night but after an initial scramble, aluminium slipped back to be up only 0.6% and copper closed unchanged. Exuberance was only evident at the bell in zinc, up 2%, and lead, nickel and tin, all up 3%.

After its wild ride of the past several sessions, iron ore was unchanged last night at US$49.90/t.

Iran continues to dominate the oil markets before a backdrop of what’s going on elsewhere, and last night things appeared to be coming to a head. Intent on reaching some sort of agreement, the US has kept extending the deadline for Iran to reach a deal (sounds kinda familiar). But now the Europeans in the negotiating team have reached the ends of their tethers, and have insisted either a deal is done by next Monday or no deal will be done at all.

Last night West Texas fell US83c to US$52.01/bbl and Brent fell US73c to US$57.96/bbl.

Gold fell US$5.30 to US$1157.50/oz on the stronger greenback.

The Aussie is down 0.5% to US$0.7411 on the stronger greenback.

Today

As noted, the SPI Overnight closed up 91 points.

We now have to wait until Thursday on Bridge Street before we know the outcome of the Greek parliamentary vote, although there’ll no doubt be some indication of general feeling beforehand.

Meanwhile, today sees the release of NAB’s monthly business confidence survey.

Tonight Wall Street will be focused on June retail sales numbers.
 

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

By Greg Peel

The Dow closed up 33 points or 0.2% while the S&P gained 0.2% to 2051 and the Nasdaq added 0.3%.

One Point

It seems like almost blessed relief that yesterday the ASX200 should close up a mere one point, evoking a longing for the days when stock markets used to just trudge along quietly with a modest upside bias over time.

Unfortunately the one point close belies the fact the ASX200 was down 86 points yesterday in the first half hour of trade, with an 11.3% overnight drop in the iron ore price front of mind, and a backdrop of a Chinese stock market that had so far failed to stop crashing despite desperate efforts from Beijing.

But there the Australian market finally bottomed, and with an hour to go before the opening of the China market began to rally back just as sharply as it had fallen, to be square as the bell rang in Shanghai. And it is remarkable to note that within that one point close for the Australian index, which didn’t move much from midday, that the biggest sector gain on the day was posted by materials. Sure, base metal prices had all staged a rebound overnight but iron ore had fallen 11% and yet the sector dominated by iron ore miners rallied 1.5% to the close.

Toto, I don’t think we’re in Kansas anymore.

Call that a market?

A couple of months ago, when Beijing finally began to take heed of screams from across the globe that China’s retail-driven casino of a stock market was in dangerous bubble territory, the government added a further block of Shanghai-listed stocks that could be short-sold. Now, after a 30% bust of that bubble, the government is arresting short-sellers.

A couple of months ago, Beijing clamped down on runaway margin lending. Now, Beijing has allowed just about any asset, including the family home, to be used as collateral for margin loans.

Before the Shanghai Exchange opened yesterday, further measures were implemented, adding to an already desperate raft of measures. When the Exchange opened, some 50% of listed stocks were suspended from trading by the government. For the 50% still available, the government had announced it would fund share purchases by fund state-owned financial institutions. At the same time, it banned investors holding a 5% or greater stake in any one company from selling shares for six months.

Of course the Shanghai index was going to stop falling yesterday. It had to stop falling, given it is not a market anymore, but an orchestration by a wannabe-capitalist government who cannot shake off its communist heritage. Yesterday was the culmination of a market equivalent of sending the tanks into Tiananmen Square.

And lo and behold, the Shanghai index rose 5.8%. Given the intraday gyrations seen these past few sessions of up to 7-8%, it’s hard to believe yesterday saw Shanghai’s biggest one-day rally, close to close, in six years.

And lo and behold, on the news of Beijing’s emphatic stock market intervention, the iron ore price, which had been hammered the day before on flow-on selling from the stock market, turned around. The futures began to predict a sharp snap-back rally, and the Australian materials index closed the session up 1.5% when, at 10am, it looked as if listed junior iron ore miners may not even see out the day.

This morning iron ore has risen 9.5% or US$4.20 to US$48.30/t.

In my opinion, the Chinese government has this week set its capitalist superpower aspirations back a decade. Earlier this year the IMF seriously contemplated adding the renminbi into its basket of globally significant currencies. It decided China’s financial market reform process had not quite reached a level of sufficient maturity, and thus did not include the renminbi, albeit hinting success might come at the next review.

Good luck with that now.

It would be of no surprise that if the selling were to resume in the Chinese stock market the Chinese government would simply shut down the market altogether, for a period. Intervention would thus be complete.

Commodity Surge

Iron ore trading is dominated by China but base metal markets are more globally influenced, which is why LME traders called “oversold” on Wednesday night after Chinese margin call flow-on had forced metal prices to tumble. A rebound which begun on Wednesday night carried on last night following confirmation the Chinese stock market had indeed managed to stage a rally.

Aluminium and zinc rose 1.5%, copper and lead rose 2% and nickel rose 5%. Only tin missed out this time.

Oil markets are still under the influence of stalled Iranian negotiations but the China effect was not lost on them either last night, helping West Texas up US77c to US$52.59/bbl and Brent up US$1.22 to US$58.47/bbl.

Gold managed to tick up slightly to US$1159.20/oz even as all commodities hit the headwind of a 0.3% rise in the US dollar index to 96.49.

The Aussie is also up 0.3% at US$0.7448.

Wall Street

The French and German stock markets also rallied strongly last night, both up around 2.5%, influenced by China but also by murmurings from Germany that some form of debt relief for Greece is not completely out of the question.

The interesting thing about the whole Greek drama is that in the background, the eurozone economy has been posting some very solid, consensus-beating data of late. QE appears to be working. It is therefore very much in the favour of Europe’s large export economies – Germany’s in particular – that Greece and all of the Club Med basket cases remain in the eurozone.

The euro is currently trading at US$1.10. Someone has calculated that were Germany the only eurozone economy, the euro, or realistically the Deutschmark, would be trading at US$1.80. That would cripple the German economy.

The “final” big meeting is on Sunday. This morning Tsipras submitted his “final” proposal. Tonight a rushed session of the Greek parliament will vote on the proposal, so as to smooth the path were the creditors to actually reach a deal.

The exuberant buying on European markets typically flowed into the morning session on Wall Street, sending the Dow up over 200 points. Then the Europeans packed it in for the day, and the Dow drifted all the way back to a close of only up 33. Wall Street is not prepared to be quite so exuberant just yet.

But it does seem that Beijing’s actions have finally proven sufficient to stem the flight to safety into US bonds. Last night the US ten-year yield jumped back 10 basis points to 2.30%, and traders went back to debating the timing of the Fed rate hike.

Today

The lack of follow-through on Wall Street is probably why the SPI Overnight closed down 21 points or 0.4%.

By the way, yesterday the ABS revised down its May unemployment rate to 5.9% from 6.0%, and then said the rate rose to 6.0% in June, not that anyone paid much attention.

Today sees housing finance numbers, which may draw some attention.

Global focus has now moved from the Greek farce to the Chinese farce. What will happen in today’s episode?
 

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

By Greg Peel

The Dow closed down 261 points or 1.5% while the S&P lost 1.7% to 2046 and the Nasdaq dropped 1.8%.

Reality

I suggested yesterday morning that I wouldn’t be at all surprised to see the ASX200 down a hundred points for Wednesday, having rallied a hundred on Tuesday in a rather inexplicable fashion, although I was never prepared to put the house on it.

I should have.

The only remarkable thing about yesterday’s plunge on Bridge Street was that it is so easy to explain only one day after a rally that clearly had little macro incentive, even though it appeared to be an index-wide order or orders with a little help from short-covering that sent the market surging.

The bottom line is that despite everything the Chinese government has thrown at its plunging stock market, nothing has come close to holding back the tide. What a greenhorn administration in Beijing is learning, when it comes to the realities of capitalism, is that if you encourage margin lending on the one hand you have to be prepared for the impact of margin calls on the other.

Leverage is the reason the Chinese stock market cannot find a floor. If you are margin-called on your stock market borrowing and you don’t have a pot of gold to draw upon, you must sell your stocks to cover your loan. If you are forced to sell at a lower price you risk still being underwater and getting margin called again. You must simply sell at whatever price you can get before you are completely wiped out, as presumably, many a Chinese retail investor is now, having bought on the government’s encouragement when the Shanghai index had already doubled in a heartbeat.

If you don’t want to try to sell into a vacuum on the stock market but still have to cover your margins, or if you have sold but not received enough at the price to repay your loan, then you must sell something else. The Chinese stock market is not the only market for which finance can be attained. Hence as we have watched prices fall in iron ore and copper this week for example, it is not just a matter of a read-through to a weaker Chinese economy. Big Chinese stock market investors will be selling whatever assets they have, including commodities, to cover their losses and loans.

It is probably also why we see gold having fallen around 50 bucks from its earlier rusted on price of 1200 despite the potential sovereign risk Greece throws up. What’s next? Houses in Sydney?

Snowball

I’ll leave that last thought hanging in the air as I note the iron ore price fell 11.3% last night.

The rise and fall of Chinese iron ore prices over time is typically driven by the ebb and flow of seasonal restocking and destocking of Chinese steelmaker inventories, with an underlying trend determined by the demand for steel. Steel demand has certainly weakened but now we have this flow-through effect on commodity prices from the Chinese stock market crash.

When the Shanghai Exchange opened at 11.30am Sydney time yesterday it immediately fell 8%, which was enough to accelerate the general selling on the Australian stock market. But the iron ore price was also down 4% overnight, prompting screams of OMG, for God sake get me out of my Fortescue. The losses are snowballing in Shanghai and snowballing in Sydney (if we ignore Tuesday).

Materials (-3%) and energy (-2.5%) led the ASX200 sectors lower yesterday when all other sectors lost 1-2%.

The good news, if there is any, is that Shanghai closed down 6%, not 8%, after Bridge Street had closed. But not before capitalist China reverted to what it knows best – communism – and simply halted trade in a lot of stocks.

Greece

We must not forget that the Greek drama is continuing in the background. If anyone remains in doubt whether Greece or China is the biggest issue facing global markets at present, consider that the 32% fall in the Chinese stock markets to date is equivalent, in dollar terms, to fifteen Greek economies.

Last night the news was that Tsipras has prepared a new three-year bailout proposal to take to the creditors which supposedly includes a more realistic reform agenda. This was taken on European markets to mean a sign of deal being possible, so European stock markets staged a bit of a rally and the euro found support. A short-covering rally was also triggered on the London Metals Exchange.

But presumably Tsipras’ proposal includes little of the way of concessions to the creditors’ demands, given that on the weekend his people told him to hold his ground. So, again, it can only come down to some sort of concession from the creditors if Greece is to stay in the eurozone.

Despite Tsipras' Disneyland promises made before last weekend’s referendum, Greek banks will now be closed beyond this Sunday, being the deadline for a new proposal.

Wall Street Gremlins

Usually European traders carry their closing tone into the opening of US stock markets before they all head home for the night. Not so last night, where China was the main cause of concern and US stocks dropped sharply from the open.

At least until late morning, when a software glitch, supposed triggered by an upgrade implementation gone wrong (cyber-attack has been ruled out), closed the NYSE trading floor. Electronic NYSE trading continued on the Nasdaq exchange and on the other ten or so exchanges in the US so the US stock markets were not shut down, but it was about four hours before floor trading resumed on the NYSE and minimal volume suggested brokers were very wary of returning on the day.

There may have been some element of shutdown fear that helped the Dow, for example, fall further on alternate exchanges but the US indices had already tumbled in early trade on the China story.

That story, and Greece, was not lost on the Fed’s FOMC when it met in June to discuss interest rate policy, and the implication from the minutes released last night is that the Fed may hold off on “lift off”, as it is now being popularly referred to, even if the state of the US economy suggests otherwise, given global market issues. This is exactly what Yellen’s bestie Christine Lagarde has been pleading all along. So whereas September may have been firming as the lift-off month, December is now the preferred prediction, if at all in 2015.

Last night the US ten-year yield fell 3 basis points to 2.21%.

Commodity Mix

As noted, the iron ore price fell 11.3% last night or $5.60 to US$44.10/t.

The story was nevertheless different in other commodities that have also been hammered this week. While China is often at the forefront of LME influence, London is also the hub of European base metal trading and thus developments in Europe are also influential. Base metal prices had been slammed all week so the supposed glimmer of hope for Greece and the fact many saw metals as oversold meant a price turnaround last night.

That turnaround sparked short-covering and by the close, nickel and zinc had rallied over 1%, copper close to 2% and lead and tin close to 3%. Only aluminium sat it out.

The European disconnect was also evident in oil prices last night. Weekly US inventory numbers came out showing an unexpected gain in crude and gasoline stocks, hence West Texas fell US$1.13 to US$51.83/bbl. Yet Brent was virtually unchanged at US$57.25/bbl. Having tightened into below three dollars recently, the Brent-WTI spread has eased back out to over five dollars.

Gold managed a US$3.50 rally to US$1158.00/oz, with a little help from a 0.6% fall in the US dollar index on euro strength.

The Aussie is this morning trading down 0.3% on a 24 hour basis at US$0.7426 but it did get down to around 73.70 yesterday as Bridge Street tumbled.

Today

The SPI Overnight closed down 34 points or 0.6%.

Alcoa reported June quarter earnings last night after the bell on Wall Street to kick off reporting season. Without looking into the details I note Alcoa shares are trading just a little higher in the aftermarket having fallen 5% in the day-session.

This report means JV partner Alumina Ltd ((ALU)) will kick off the local resource sector quarterly production report season today on Bridge Street.

The ABS will roll its local jobs numbers dice today.

Beijing will release China’s June CPI result.

All eyes will be on the Chinese stock market.

Rudi will make his weekly appearance on Sky Business' Lunch Money, noon-12.45pm.

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

By Greg Peel

The Dow closed up 93 points or 0.5% while the S&P gained 0.6% to 2081 and the Nasdaq rose 0.1%

Suspended Disbelief

Whatever is driving world stock markets at present, it bears little resemblance to what would normally be driving world stock markets. Try this quick quiz:

Oil is down 6%, iron ore is down 4%, copper is down 3%, the Shanghai stock market is down 5% mid-session (having already fallen 30%) and things look shaky for Greece. What’s your call for the ASX200 on the close?

Did anyone say up a hundred points? No?

It could be argued that the ASX200 didn’t collapse on Monday because it was not yet clear just what global impact the Greek “no” vote might have. The index fell heavily to begin with but then shuffled back to a midway position. Global markets didn’t collapse on Monday night, so that was the impetus to buy Australian stocks on Tuesday morning.

But that impetus soon turned into a tsunami. Short covering no doubt came into play but clearly the bulk of buy orders were market, rather than stock specific. The energy sector was down early, as one would expect, but rallied strongly to the close, and the miners were unaffected by the iron ore price. At 2.30pm the RBA left its rate on hold, as expected, and a final kick took gains over the ton.

Technically, anything under 5500 just seems to be a trigger for the buyers as long as the world is not actually falling apart.

There had been rumours floating around that Greece might be given an interim deal. But realistically the Australian market’s biggest problem (and arguably the world’s) is not Greece, it’s China. Yesterday, as further desperation saw Beijing simply suspend trading in most small stocks, the Chinese stock market just didn’t seem to matter.

Again I will say, no one wants to look a gift rally in the mouth. But right now it seems like the lunatics have taken over the asylum. We could be down a hundred points today -- not saying that’s my prediction -- and right now it would not come as much surprise. It’s a time for investors to just stand back and let the traders play their games.

Turnaround

The meetings in Brussels that broke up this morning, our time, ended with Tsipras’ latest proposal being rejected and the Greek prime minister being told to go back and try again. He has to the end of the week. An agreement on a longer term bailout plan is ever more distant, so it really comes down to whether the creditors bend to at least some sort of interim deal that would see Greece make its required payments to the IMF and ECB, and reopen its banks, before the whole tedious negotiation process begins again.

The outcome of the meetings was not known by the time Europe’s stock markets closed last night, but there was little sign of optimism when thy did. The French and German markets both fell 2%. Yet again the mood carried across the pond and as such, the Dow was down over 200 points late morning.

At that point, the oils were trading lower once more and base metals had been absolutely carted on the LME. Even gold had capitulated. The US ten-year bond yield was tumbling again. But as soon as Europe closed, the mood changed. For starters, the oil price turned around.

And there began Wall Street’s biggest turnaround rally in four years, of roughly 300 points on the Dow. What happened? Expectations of a deal in Greece? Not sufficiently certain. What traders point to was the fact the S&P500 traded under its 200-day moving average and that was enough to trigger technical buying which, like Australia yesterday, then fed on itself.

Most commentators suggest Wall Street isn’t really all that worried about Greece anyway. They should be worried about China, but didn’t seem to be last night. Tonight sees Alcoa post its June quarter result, unofficially kicking off the US earnings season. Perhaps Wall Street is suddenly looking inward, and deciding the home front is more important.

By the close, the US ten-year yield had fallen another 5 basis points to 2.23%. The US dollar index is up 0.5% at 96.77, and a stronger greenback was never going to be helpful for commodity prices right now.

Commodity Carnage

The oils, as noted, fell early in their sessions but managed to stage a turnaround. West Texas closed up US26c to US$52.95/bbl and Brent closed up US52c to US$57.33/bbl. With everything else going on in the world at present, a primary focus for the oil markets is the ongoing Iranian nuclear negotiations which will determine whether or not Iranian oil exports will flow once more.

A deal is close, it is assumed, although the deadline has once again been extended for Iran. That there has not yet been an agreement is bullish for oil, but these small deadline extensions suggest the two parties may soon be able to meet in the middle, which would be bearish.

Iran has no impact on metal prices, but uncertainties surrounding Greece, and China, and a stronger greenback, certainly do. Last night aluminium fell 1%, lead 2%, copper, tin and zinc 3% and nickel a solid 7.5%.

There goes the 50 mark for iron ore. It was down US$2.30, or 4%, to US$49.70/t.

And if gold can’t go up on the sovereign uncertainty of a teetering Greece, it must go down. Gold fell US$15.30 to US$1154.50/oz.

With some help from the greenback, the Aussie is down 0.7% to US$0.7445.

Today

If the Australian market were to turn around and fall 2% today, in the context of recent history this would not be unusual. These buying sprees, like we saw yesterday, tend to be isolated to single sessions. But who wants to try and guess?

The SPI Overnight closed down 15 points or 0.3%.

I could say all eyes will be on the Shanghai index today, but they certainly weren’t yesterday.

Standard & Poor’s now believes the odds of a Greek exit are better than 50/50. Tsipras has been told to come back with a better deal, but his people have told him not to concede. So it’s up the creditors, and to Germany, in particular. Interestingly, a French academic is currently making headlines by pointing out that in the early sixties, the US forgave Germany a WWII debt it knew could never be paid back, on the basis it was unfair to forever punish young Germans for the sins of their fathers.

Germany knows Greece could never pay back its debt either.

The minutes of the last Fed meeting are out tonight. Remember how the Fed used to be the main topic of conversation? And the US earnings season begins.

As do the Ashes.

Rudi will make his usual weekly appearance on Sky Business' Market Moves, 5.30-6pm.
 

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

By Greg Peel

The Dow closed down 46 points or 0.3% while the S&P lost 0.4% to 2068 and the Nasdaq fell 0.3%.

Rock’n’Roll

The ASX200 fell 100 points from the opening bell yesterday, which we can blame on Greek “no” vote fear. But it quickly found sufficient support to rebound to be around 70 points down by mid-morning. We might suggest (a), the Australian market has already taken a good hit on Greek fear, and Greece is not really a major influence on the Australian economy and (b), measures undertaken over the weekend suggested the more important market to Australia – China’s – just might find a bottom.

Sure enough, when the Shanghai Exchange opened late morning Sydney time, the Chinese index rallied close to 8%. Yet while one might expect this to provoke some more buying on Bridge Street, instead the ASX200 simply hung in space. It continued to hang in space as the Chinese rally quickly retreated, all the way to unchanged by the time the Australian market closed. Yet a little kick at the death saw the ASX200 finish 63 points down.

A kick at the death saw the Shanghai index finally close up 2.4%. Interestingly, despite the 30% drop the index has suffered, its prior exponential rally means the 30% odd correction has only taken the index back to its 200-day moving average.

Yesterday’s local sector moves featured a 2.5% drop for energy, compounded by a lower oil price, and 1.7% for materials, ditto iron ore. Otherwise, cyclicals copped it more than yielders, with the telco falling the least (-0.3%) and the banks holding up (-0.8%) as all other sectors fell over 1%.

While yesterday’s overall session was clearly “volatile”, the fact the index barely moved for the greater part of day, once having adjusted, suggests that at levels under 5500, investors are prepared to weigh up the balances and remain poised for whatever happens next.

From the “for what it’s worth” department, yesterday’s data releases included a 1.3% pop in job ads in June, according to ANZ, after a flat May, to an annual growth rate of 10.8%. This looks very positive, and the recent trend goes a long way to explaining why Australia’s unemployment rate has behaved itself when many expected it not too, but ANZ’s own economists warn against complacency.

What we’re seeing, notes ANZ, is a promising shift to growth in service sector employment, but this will prove fleeting on a net basis as the reduction in mining employment gives way to a big reduction in energy sector employment as the big LNG projects reach completion.

TD Securities’ inflation gauge showed a 0.1% increase in June to a headline annual rate of 1.5%. The core rate of 1.4%, which is the RBA’s benchmark, is in no way preventative of another rate cut.

Greece

The bad news for the Greeks is that the banks will not reopen tonight, as the finance minister had promised. His resignation came out of the blue but is no great surprise given he’d already been benched by Tsipras in negotiations with the creditors for being too much of a hot head, and clearly there’s little value in him hanging around now those negotiations have reached a critical point.

The good news is the ECB will continue to extend emergency funds to Greek banks, albeit with two caveats. The first is no increase on daily funding from last week’s level, meaning the banks are still at risk of running out of physical cash given long lines at ATMs. The second is a haircut on collateral, such that the assets the ECB requires to be put up against emergency loans, for example mortgages, will be valued less highly than they were last week, implying less bang for the collateral buck.

There is good news in that the German and French leaders, following a hasty phone hook-up, have told Greece “the door is still open”, but while Hollande is seemingly a little more sympathetic, Merkel remains insistent there will be no debt relief provided.

If the creditors wrote down the money owed by Greece, they’d have to do it for all eurozone members who would quickly put up their hands.

Eurozone officials are meeting tonight, so yet again it’s a case of waiting and watching.

Commodity Crash

The West Texas crude price and the iron ore spot price have been tracing out very similar price paths, down to the dollar, despite having little connection other than being vital global commodities. Following both falling into the forties, and then rebounding into the sixties, both had started to look wobbly even before Grexit fears intensified and China’ stock market tanked in earnest.

Thus it wasn’t going to take much to tip those prices over, and last night West Texas crude fell US$2.81 or 5.1% to US$52.69/bbl and iron ore fell US$2.10 or 3.9% to US$52.00/t. Brent crude was even harder hit, falling US$3.52, or 5.8%, to US$56.81/bbl.

Brent is the global benchmark oil price, and its fall reflects a switch in focus from supply-side issues – OPEC stubbornly pumping furiously and the US rig count now growing again – to demand-side issues – weaker demand from Europe and China. Falling Chinese steel production has been the red flag for the iron ore price, and China’s stock market correction, with a bit of Greece thrown in, has also directed focus towards demand.

Copper is the base metal benchmark, and last night it fell 3.2% on the LME on a similar basis. But other than a 2.5% fall for typically more volatile nickel, moves for other markets were not too severe.

Wall Street

European stock markets have already pulled back a long way thanks to Greece, so while the German DAX fell 1.5% last night and the French CAC 2.0%, it could have been a lot worse. That mood flowed over to New York from the open, and the Dow promptly fell 166 points.

But an hour and a half later, the Dow was back to square on the session. It only started to tip over again when someone pointed out what was happening on the Nymex. The big drop in oil prices impacted on the US energy sector, and Wall Street closed marginally weaker as a result. But all things being equal, Wall Street largely took Greece, and China, in its stride.

This was not so much the case in the US bond market, where a flight to safety saw the ten-year yield drop 12 basis points to 2.28%. The other supposed safe haven, gold, put on a typical rabbit in the headlights impression and is little changed at US$1169.80/oz.

The US dollar index is stronger, as might also be expected on a safe haven basis, although given similar attraction to the pound, yen and Swissy, the index is up only 0.3% to 96.27, with the euro the main victim.

The Aussie is down 0.3% to US$0.7496.

Today

The RBA board might otherwise be pleased the Aussie is now lower, when it meets today, except for the drivers responsible. China is the big worry, and falling commodity prices only enhance the problem. Australia’s March quarter GDP result may have surprised to the upside, but the first two months of the June quarter have seen a worrying trade deficit blow-out and if oil and iron ore tumble back down again, it won’t get any better.

Still, no one is calling a rate cut today.

The futures market is calling some relief on Bridge Street today, given global stock market falls were not as severe as feared. The SPI Overnight closed up 19 points or 0.4%.

Tonight sees the Greek saga continue.
 

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

By Greg Peel

The Dow closed down 27 points or 0.2% while the S&P was flat at 2076 and the Nasdaq lost 0.1%.

What Crisis?

The ASX200 closed last Thursday at 5600. The ASX200 closed yesterday at 5600. One would be forgiven for thinking there was not much going on in the world at present.

On Monday the ASX200 closed at 5422, following the worst session on Bridge Street in three years. That 2.2% drubbing, and in general the 3.2% fall from last Thursday to Monday, was all about joining in the global risk adjustment for a possible Greek exit, and all about a Chinese market plunging to a 20% correction. A Grexit is no less possible now than it was a week ago, and the Shanghai index has done nothing but fall ever since.

Yesterday revealed Australia’s trade deficit retreated to $2.75bn in May, following April’s blow-away record of $4.14bn. While that looks like good news, the fact is it’s still a significant deficit for an export economy, and it missed forecasts of $2.2bn.

Exports rose a net 1%, including a 6% rise for iron ore and 9% for coal. While there was some price improvement from April to May, increased values reflect increased volumes, and prices have since begun to fall back again. A 4% drop in imports included a 16% drop in capital goods, reflecting rapidly diminishing resource sector construction, often erroneously referred to in the press as “the end of the mining boom”.

Despite the improvement from April to May, these are not numbers that would warm the cockles of a central banker’s heart. It is notable that while the ASX200 rallied from the open yesterday, with a little help from a positive Wall Street, the rally initially stalled. Only after the release of the trade balance numbers did the index really take off.

This might suggest the market was yesterday driven by a Wall Street-style “bad news is good news” expectation that the RBA will have to cut again. Certainly, the banks led the charge. Utilities also had a good session. But so did materials and energy, despite lower commodity prices, and despite the fact that while these sectors do contain some reasonable dividend payers, they're not really “yield” sectors.

The underperformer on the day was the telco. Furthermore, the most volatile market of all when it comes to RBA speculation is the currency market, and the Aussie barely moved.

We might perhaps give a nod to a sudden burst of M&A activity, which started with Buffet and IAG, has seen rumours around Woolies, saw Asciano leap on Wednesday, and saw something funny going on yesterday in BlueScope.

Or we might simply assume yesterday saw a “Buy Australia” order or two from offshore and the momentum fed on itself. We’re certainly not going to look a gift horse rally in the mouth, but you have to admit, things are all just a little bit crazy at present.

On the subject of China, having failed to stem the tide of falling stock prices with last weekend’s rate cut, Beijing has taken to more drastic measures. Yesterday the government introduced rules to allow Chinese investors to put up their houses as collateral for leveraged share market investment.

What could possibly go wrong?

Greece

I have declared this morning’s Report a Greece-free zone. You all know the story.

Wall Street

The US added 223,000 jobs in June, short of expectations. The unemployment rate fell to 5.3% from 5.5% to mark its lowest level in seven years, but only because the participation rate fell back again. Some 432,000 left the workforce in June, mostly reflecting school leavers who stepped out into the world and promptly crawled back under the doona.

Wage growth was flat in June, for a 2% annual rate.

It’s another one of those neither here, neither there non-farm payrolls results. In isolation it would not drive any expectations of a Fed champing at the bit to make its move. But we know that the Fed is champing at the bit to make its move – at least many in the FOMC are – and thirteen months of 200k plus job additions out of fifteen would seem reason enough to finally shift off zero, if just to test the waters.

The result is probably not enough to stave off a September rate rise.

There was certainly no emphatic response in US markets. The dollar index dropped, but only by 0.2% to 96.10. The US ten-year yield dropped, but only by 2 basis points to 2.39%. The stock indices actually opened higher before drifting lower to midday and drifting back up again to a modest closing loss.

One has to take into consideration (1), most of Wall Street would have cleared off by lunchtime to get to their Fourth of July holiday destinations and (2), no one would want to go home with a big position in either direction ahead of Sunday’s Greek referendum.

Ironed Out

The iron ore price has fallen US$3.10 or over 5%, to US$55.80/t. The fall has been blamed on the latest Chinese steel production data, which showed a big drop.

And for the first time since December, weekly US rig count data showed an increase last week rather than a decrease. The irony here is that many a rig has been switched back on thanks to the oil price’s bounce back up to 60, but higher production could well see oil back in the 40s again.

The market’s response was not too dramatic, with West Texas falling US37c to US$56.51/bbl and Brent falling US18c to US$61.85/bbl.

An 1% rally for nickel and a 1% drop for zinc were the biggest moves in an otherwise mixed and uneventful session on the LME.

Gold continues to drift away, falling another US$2.70 to US$1165.60/oz.

The Aussie is 0.2% lower at US$0.7634.

Today

The SPI Overnight closed down 23 points or 0.4%.

It’s service sector PMI day today across the globe, with the exception of the US. HSBC will wave the flag for China.

Locally, we also see May retail sales numbers.

Wall Street is closed tonight.

I assume that when I sit down to write The Monday Report on Monday morning, they’ll still be counting in Greece. Unless the result is already decisive one way or the other.
 

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