By Greg Peel

The Dow closed up 75 points or 0.4% while the S&P gained 0.5% to 2108 and the Nasdaq added 0.7%.

Step-Jump

The rally on Bridge Street yesterday mimicked the rally on Wall Street on Monday night in simply step-jumping higher on a risk adjustment for Greece. On Wall Street the Dow opened 200 points higher and stayed there all day, and on Bridge Street the ASX200 opened roughly 100 points higher and stayed there all day.

All sectors jumped around 1.5-2.5% for a 1.9% index gain. Materials led the pack with 2.6% as the iron ore price attempts to find a new level post the China stock market scare. Industrials proved the laggard with only a 1.3% gain, suggesting investors are not yet brave enough to plough back into cyclicals (miners notwithstanding), while a 1.7% gain for the banks suggests investors are not too concerned over possible capital raisings, given much of that threat had already been priced in.

The day’s economic news made no difference to the macro risk adjustment, but was positive anyway. After jumping in May, following an RBA rate cut and a business-friendly federal budget, Australian business confidence improved further in June to mark a 21-month high for NAB’s monthly survey. NAB’s confidence index rose 2 points to plus 10, compared to a long-run average of plus 5, while the current conditions index jumped 5 points to plus 11, compared a long-run zero.

NAB was quick to point out, however, that the June survey was conducted just prior to the two weeks of turmoil in markets provided by the Greek saga and the Chinese stock market crash. The July survey may prove more sobering.

The Shanghai index actually fell 1.2% yesterday in a typically volatile session, but the good news is this coincided with the gradual un-suspension of listed stocks. There are now only 27% of stocks still halted, down from around 50% when Beijing threw the kitchen sink at the crashing market. As long as all stocks come back on without another index crunch then we can suggest the Chinese market might return to something more “normal”, although we recall there is a six-month ban on company stakeholders of more than 5% selling shares.

After a 13% four-day rally, a 1.2% fall is neither here nor there.

Yes or No?

European stock markets went quiet yesterday after a couple of sessions of Greece-driven rallies as they await the outcome of tonight’s parliamentary vote in Athens. At this stage the suggestion is parliament will likely pass the new deal, but not before the defection of a number of disgruntled Syriza party members. Tsipras will likely no longer hold a majority, but may yet win the day.

Last night Tsipras appeared on national television to explain to the Greek people that he gave it his best shot but in the end he had no choice but to bow to the creditors, for the sake of the country. His survival will now depend on whether Greece sees their prime minister as a David who put up a valiant fight against Goliath but was inevitably overpowered, or just a typical politician full of bravado and hollow promises who was ultimately shown up as a paper tiger.

Were there to be a forced general election in Greece, we would likely have to go through the whole sad farce all over again.

Homeland

For now, at least, Wall Street is prepared to look past the macro global turmoil of the past two weeks and refocus on domestic issues. Last night’s major economic data release suggests the US economic recovery is really a case of two steps forward and one step back.

Retail sales fell 0.3% in June when economists had forecast a 0.2% rise. Positive results for April and May were also revised down. Ever since the oil price tumbled late last year, economists have been expecting a boost in US consumer spending on the effective “tax cut” lower fuel prices provide. It didn’t happen in the March quarter but that was put down to the weather. But now it seems it’s not happening in the June quarter either.

This suggests the US June quarter GDP result will not indicate as much of a rebound out of the snow-bound March quarter as markets have been assuming. It also puts the spotlight back on the Fed, and potentially shifts the odds back to a December rate rise, rather than September.

The US earnings season shifted into gear last night with an earnings beat from leading investment/commercial bank JP Morgan, and an in-line from America’s largest mortgage provider, Wells Fargo.

The weak retail sales result was taken on the chin, notwithstanding its Fed policy implications, as the US indices continued to drift higher. The Dow has now crossed over the 18,000 mark once more and the S&P500 has comfortably recaptured 2100.

The US ten-year bond yield fell back 3 basis points to 2.40% and the US dollar index is 0.2% lower at 96.64.

The big news on Wall Street, and around the globe, last night was nevertheless the reaching of an agreement between Iran and the group of six nations over Iran’s nuclear policy. Sanctions can now be lifted, and Iranian oil exports can flow once more.

One might have expected US oil stocks, and oil prices, to head southward on the news but the opposite proved true. For several weeks now markets have been anticipating a deal being reached and there has been plenty of time to contemplate, and thus price in, the implications. Last night was basically a “sell the rumour, buy the fact”.

Commodities

To that end, oil prices did initially tumble form the open but quickly reversed. West Texas is up US$1.30 to US$53.31/bbl and Brent is up US72c to US$58.68/bbl. Aside from anything else, it is appreciated that there will be a long lead time between the actual signing of the agreement and the serious resumption of Iranian oil exports – perhaps six months or more.

After much to-ing and fro-ing over Greece and China in previous sessions, last night was a quiet one on the LME. Base metals prices movements were mixed and negligible.

Iron ore fell US50c to US$49.40/t, suggesting recapturing the 50 mark will not be a stroll in the park.

Gold is down US$2.60 to US$1154.90/oz.

Today

The SPI Overnight closed up 18 points or 0.3%

Beijing will release China’s June quarter GDP result today, along with a monthly data dump of June industrial production, retail sales and fixed asset investment numbers. Economists are forecasting 6.8% annual growth for the GDP, down from 7.0% in March.

Last month saw a very soggy Westpac consumer confidence survey result so it will be interesting to see how today’s July survey stacks up. Unlike NAB’s business equivalent, Westpac’s survey was conducted in the midst of the Grecco-Sino turmoil.

The US earnings season rolls on tonight and industrial production numbers will be released, along with the Fed’s Beige Book.

Fed chair Janet Yellen will testify before a House financial committee tonight and Senate committee tomorrow night for a scheduled biannual update.
 

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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.
 

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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?
 

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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.

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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.
 

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