Tag Archives: Europe & UK

article 3 months old

What Curve Balls Ahead Will Stop Stocks Rising?

By Peter Switzer, Switzer Super Report

I know I once joked with you that Greece as an economy and world power peaked in 340 BC but stock markets are still nervous about the negotiations that come to a head at the end of June.

But the Greeks aren't the only curve ball that we have to cope with in coming weeks — there's the possibility the Fed will raise interest rates in September and it meets on Wednesday, so all eyes and ears will be on what the Chairman Janet Yellen has to say.

This in turn could have a big impact on the bond market that many experts tell us is poised to explode or implode! Either way, it is just another uncertainty to throw into the mix for stock players.

On top of these issues the Yanks get a lot of economic data and we hear a fair bit from our Reserve Bank with two speeches, the minutes of the last meeting of the board and the RBA Bulletin being released.

I think we will be in a passive, follow the leader mode until we see what the Fed says and how the bond market reacts. And then how Wall Street responds will be crucial to how our market performs.

And adding pressure to all of this will be the Greek negotiations which oscillate from positive to negative and given how stock markets have responded to both sorts of news, I have to admit that Greece could be a big fly in the ointment for our stock market's overdue recovery.

Let's start with Greece as I am actually writing this from the place and if you looked at the Greeks out enjoying themselves you wouldn't think unemployment was 26%! The next date to focus on is June 18 with the weekend bringing the optimistic tidings that the "Greek government is ready to submit counter-proposals and that Athens and its creditors are closer than ever to a deal." (CNBC) That's the official line and it would be great to get this big question mark for stocks out of the way.

That's the optimist's view but this from CNBC concerned me: "Worried about Greece, the ECB told all the central banks in Europe to get liquid, resulting in the sale of German and U.S. government bonds, which pushed yields inversely higher."

I can't believe the EU and Greece are happy to roll the dice on default and the drachma!

The next issue to be aware of is the Federal Open Market Committee meeting on Wednesday with its June statement expected to give stronger hints about when interest rates will rise. September is the consensus view following a good run of economic data, but the Fed could hold out to be doubly sure that the US economic recovery is firmly entrenched.

Moving too soon, some argue could see the Yanks be in a situation similar to the Kiwis where the central bank there started raising rates last year and then as export prices fell, the Governor Graeme Wheeler had to U-turn and start cutting again!

That said it should be remembered that exports are only 10-15% of the USA's GDP, which means higher rates and a higher greenback should have a lesser drag on the economy.

On the subject of good economic data the latest reading of the Michigan Consumer Sentiment for June came in at 94.6 compared to final May read of 90.7 and that's progress.

Okay this takes us to the third issue to be mindful about — the bond market and how it could respond to the prospect of rising interest rates in the USA.

Since the GFC, bonds were the investment of choice for anyone scared of risky assets such as stocks.

However, as official rates start to rise thanks to the Fed, bond yields will have to rise and this happens when groups like mutual funds try to dump their low yielding bonds to get into higher yielding ones. UBS calculates that total US bond fund assets have surged to $US3.54 trillion as of March 31 and that was about a trillion dollars greater than from five years ago.

So bond prices will fall as sellers outweigh buyers and this could lead to a stampede, scary headlines but I don't think it has to hurt stocks permanently. It could be a short-term thing driven by the uncertainty of the bond market meltdown.

Experts on the bond market say a stampede has to be avoided as it pushes bond prices down sharply which then pushes up yields very high and that's when stocks could have some rivals.

This is why what Janet Yellen says this week will be vital. The message has to be that when rates rise — possibly in September, which will be the first rise in nine years! — they will be raised slowly and if the markets gets and believes this message then it will be very good for the bond market and then stocks.

A few months back I talked about the old "sell in May and go away" maxim and it looks like this year it has been a wise strategy as our S&P/ASX 200 index has gone from 5,901.80 on May 5 to 5,545.3 where we finished on Friday. That's a 6% loss and given the dramas likely over June and September, when the first rate rise could happen in the USA, the second part of that maxim "and do not return until St. Leger's Day" — September 10 — which could be a wise strategy.

The best buying could come earlier than this but timing the market is always hard and its even harder when a Grexit is added to the first US rate rise and then a possible bond market meltdown.

One final point, if a Greek debt settlement helps us believe in the economic future of the Euro zone and the first US rate rise not only does not KO the bond market but also pushes up the greenback, which then takes our dollar down, just when our economic fortunes are on the improve here, then this sets us up for the overdue stock market recovery.

I'm wishing for a lot but it's all very possible.
 

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual's objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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article 3 months old

The Overnight Report: As You Were

By Greg Peel

The Dow closed up 113 points or 0.6% while the S&P gained 0.6% to 2096 and the Nasdaq added 0.5%.

Mirror

Yesterday’s trade on Bridge Street was largely a mirror image of Monday’s trade. On Monday the index fell sharply from the open only to graft back to a close of down 6 points. Yesterday the index opened sharply higher only to drift back to a close of down 6 points. Clearly there is not a lot that is clear to traders at present.

What was clear was a financials sector buffeted yesterday by a foreign invader. And bargain hunting in the banks continues to boot. What remains inexplicable is ongoing volatility in the utilities sector, which should be arguably the least volatile sector in the market. It rose 1.0% yesterday to post the largest sector gain, having fallen around a percent on Monday and risen around a percent on Friday while the index has not much moved.

The last two days’ trading suggests the local market is not prepared to either sell down or buy up dramatically while we have two potential volatility-producing events to consider this week, being the FOMC meeting and Greece. But having said that, last night Wall Street regained no more than what it lost on Monday night yet this morning the SPI futures are up an extraordinary 46 points.

Someone’s been on the red cordial.

The minutes of the June RBA meeting, released yesterday, were far from startling. There was nothing in them the June statement did not convey. The bottom line is the board intends to remain “accommodative” but having cut in May, any further move will depend on more data in the interim.

As for “crazy” Sydney house prices, the June minutes reiterated previous RBA commentary that “conditions in the housing market in Sydney and parts of Melbourne had remained very strong, though trends were more mixed in other cities,” suggesting the housing “bubble” is not an impediment to another rate cut, should one be deemed necessary.

Reversal

There was no new news on the Greek front last night other than an outburst from the Greek prime minister, who accused his creditors of pandering to the IMF for political gain and attempting to “humiliate an entire people that has suffered in the past five years through no fault of its own”.

No fault of its own? Systemic tax avoidance, corruption and bold-faced government book-cooking? Pull the other one Tsippy, it plays Nana Mouskouri.

But while it seemed that everyone worried about a possible Grexit and the fallout therefrom held sway in global markets on Monday night, last night it was the turn of those either believing, as many still do, a compromise will be reached or those believing any Grexit fallout would be minimal. Wall Street last night reversed its losses from Monday night, following modest rebounds on European bourses.

A 4 basis point drop in the US ten-year yield to 2.32% suggests the US bond market may still be concerned, but then given the big sell-off in bonds this month, it is just as likely the market is squaring up ahead of tonight’s Fed statement and press conference.

Wall Street’s economic data release of the day was difficult to read much into. After surging to their highest monthly pace since 2007 in April, US housing starts fell 11.1% in May. But permits, which are required before starts, rose 11.8% in May to, again, represent the fastest pace since 2007.

Traders largely fobbed off the numbers, noting housing start/permit data are notoriously volatile and subject to significant revision.

Adding some fuel to Wall Street’s fire last night was talk of a bit of an M&A frenzy in the health insurance space. Of five roughly equivalent insurance names, two pairs are rumoured to be in merger talks with each other but the fifth is not necessarily to be left out either.

Commodities

Global stocks market may have shrugged off Greece last night but LME traders didn’t, sending base metal prices southward for another session. Copper was down 1.3% on the day amongst moves of 0.5-1.5% down for all metals bar nickel, which fell 2%.

Is the iron ore rebound honeymoon over? Certainly market analysts have been warning investors not to expect the snap-back rally to be sustained. Last night iron ore fell US$2.40 to US$62.10/t.

Having risen by US$4.60 this time yesterday morning, this morning gold is down US$4.60 to US$1181.60/oz.

The spread reversal between the oils continued last night with West Texas trading up and Brent down, but given Brent rolled into the August front month delivery contract last night the spread will be off kilter until WTI follows suit next week. July WTI rose US45c to US$60.07/bbl last night and August Brent fell US21c to US$63.74/bbl.

Commodity prices were little impacted by a slight move up in the US dollar index to 94.92, while a lack of anything surprising in yesterday’s RBA minutes means the Aussie is a tad lower at US$0.7753.

Today

As noted, the SPI Overnight closed up 46 points or 0.8%.

Tonight the Fed will release its June policy statement and Janet Yellen will front the press. As an indication of just how uncertain Wall Street was about when the next rate rise might be, this morning on CNBC saw a floor trader suggest “not this year” while two fund managers agreed the first rise will come in September, followed by another in December, and four more in 2016.

But one of those fund managers suggested the Fed doesn’t know either, at this point. We can only hope Janet Yellen does actually set a date tonight so we can all get on with life, but she will likely just keep the ball in the air.

Rudi will appear on Sky Business' Market Moves today (5.40-6pm) and then later host Your Money, Your Call - Equities on the same channel, 8-9pm.
 

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article 3 months old

The Overnight Report: Be Afraid

By Greg Peel

The Dow closed down 107 points or 0.6% while the S&P lost 0.5% to 2084 and the Nasdaq fell 0.4%.

No Prisoners

It’s not often that the Saudi Arabian stock market is seen as an element of influence in global financial markets, let alone downunder. The Saudi influence on oil and OPEC is, of course, critical, but given the Saudi stock market is not open to foreign investors, it is not a market worth worrying about. Until yesterday.

The Saudi Arabian stock market is now to be opened to foreign investors. It’s a no brainer that the most dominant sector in that market is oil. If you are an international investor in the oil sector, Saudi oil companies would represent must-haves as a proportion of your portfolio. But in order to release funds to buy Saudi oil stocks, you’d need to first sell something else.

The ASX energy sector fell 2.6% yesterday. The majors all fell close to 3%, suggesting a blanket “sell Oz oil holdings” trade.

Energy was influential in sending the ASX200 down 53 points from the opening bell, but that took it under 5500 and it seems, for now, 5500 is the line of support. Just like 5600 and 5700 before it. The buyers came in, and the index climbed back steadily all day to a relatively flat close. Bank and industrials were nevertheless the only sectors to actually finish in the green.

As to why utilities was the best performing sector on the market on Friday, and the second worst yesterday (-1.2%), is anyone’s guess.

Take it or leave it

Northern hemisphere markets had their first chance to respond last night to the latest breakdown of talks between Greece and its creditors, on Sunday, at which the European Commission followed in the footsteps of the IMF in throwing up its hands.

There are three critical dates looming for Greece. On Thursday night the eurozone finance ministers are due to meet and the suggestion is an ultimate, take it or leave it deal will be offered to Greece at that time. On June 25, a eurozone leaders meeting is to be held in Brussels. Talk is Alexis Tsipras has his final hopes riding on this meeting, because on June 30, Greece’s bundled IMF repayment is due and its bail-out tranche expires. Thereafter, there will be no money to pay wages and pensions.

There is likely no money to pay the IMF either.

Global financial markets are beginning to realise that this time, it might just be real. A possible Grexit has been on the cards since 2011 and markets have simply become inured to the concept, watching the proverbial can being kicked for so long it seemed nothing particularly untoward would ever happen. This time, however, a Greek default is very much on the cards.

The Greek ten-year bond yield jumped 90 basis points to 12.7% last night and the Greek stock index fell 4.7%. The German stock index fell 1.9%, France 1.8% and London 1.1%. Most of the damage on the Greek market was in the banks, which are currently being supported by an ECB emergency lifeline. If this is pulled, given Greece’s failure to reach an agreement, then the current “walk” on Greek banks will turn into a “run”.

It is likely that before that can occur, the Greek government will be forced to implement “currency controls”, basically freezing the banking system. Rumours suggest, denied by Athens, the government is readying itself for implementation this weekend if it comes to that. Such an event occurred most recently in Cyprus, but Cyprus did manage to stay in the eurozone. In Greece’s case, currency controls may also be the first step in a preparatory, parallel reintroduction of the drachma.

It must be remembered nonetheless, that a Greek default on its IMF repayments does not automatically trigger a Grexit.

Mixed Messages

Selling in Europe flowed over into the US, sending the Dow down 200 points from the opening bell. Trading over the rest of the session then very much resembled Australia’s session yesterday, as buyers came in and steadily push stocks higher. But only half the loss was recovered in Wall Street’s case.

Safety buying was evident in US bonds, with the ten-year yield falling 3 basis points to 2.36%, and to some extent in gold, which rose US$4.90 to US$1186.20/oz. There was no specific collapse in the euro nonetheless, possibly because whatever fallout may occur from a Grexit would be international. The US dollar index is down slightly at 94.82.

Wall Street was also scratching its head over mixed US economic data releases last night.

Economists were expecting the Empire State activity index for June to rise to plus 5.7 from plus 3.1 in May, so a fall to minus 2.0 was a bit of a shock. They were also forecasting a 0.2% rise in industrial production in May, so were bewildered by a 0.2% fall. On the other hand, a rise in the housing market sentiment index to 59 in June from 54 in May represents a nine-month high.

Just when it seems US economic data are sufficiently robust to deem a Fed rate rise pending, a run of weak numbers pops out. While this is frustrating for markets trying to get a handle on the US economic trajectory, it must be even more frustrating for the Fed, which by all indications is now itching to just get the ball rolling.

Commodity Crunch

Sentiment with regard Greece also impacted on commodity markets last night. The LME shifted into sell-mode, with tin falling 0.5%, zinc 1.0%, aluminium, copper and nickel 1.5%, and lead 2.5%.

Iron ore fell US50c to US$64.50/t.

The oils were also sold down, and again Brent crude was sold down more. West Texas fell US43c to US$59.62/bbl and Brent fell US$1.26 to US$62.61/bbl, squeezing the spread further to US$3. When it hits US$2, we’ll be back to what used to be “normal”, many years ago.

With all that is going on in the northern hemisphere at present, the Aussie is looking like it might be a safe place to be. It’s up 0.4% to US$0.7765.

Today

The SPI Overnight closed down 3 points.

The RBA minutes are out today, and the markets will be looking for some further colour on the bank’s easing bias, or not, on “crazy” Sydney house prices and on that recalcitrant currency.
 

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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.

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article 3 months old

The Monday Report

By Greg Peel

Poised

Activity quietened down on Bridge Street on Friday – a typical Friday session – as the dust settled on Thursday’s big snap-back rally. Materials and the banks gave a bit back in what was otherwise a mixed session across sectors, which saw utilities (+0.9%) find some yield hunters.

The ASX200 has moved up from under 5500 to be sitting at 5550. What happens next will be determined by what happens this week, with the Fed policy meeting taking centre stage on Wednesday night and the Greek spectre hovering.

Greece

With negotiations in Brussels now reaching what this time looks like an unresolvable impasse, given the IMF has stormed out, a Greek default seems inevitable unless either Tsipras sees no alternative but to capitulate to creditor demands or the EU comes up with some other conciliatory plan. The latter seems increasingly less likely.

As to what happens next were Greece to default, nobody knows. While other countries have in the past been forced to organise a work-out of their IMF loan repayments, no one has ever actually defaulted. And no one has ever left the eurozone.

European stock markets went into selling mode on Friday night, with Germany down 1.2% and France down 1.4%. While there has been much talk that global markets are ready for a Grexit, and that the fallout would be minimal, the “nobody knows” factor encourages investors to play it safe rather than sorry.

That feeling spilt over into US markets, sending the stock indices south from the opening bell. The Dow closed down 140 points or 0.8%, the S&P lost 0.7% to 2094 and the Nasdaq fell 0.6%. The day’s major economic data release met forecasts.

The US producer price index rose 0.5% in May at the headline – the biggest jump since 2012. But it was all about the bounce-back in oil prices, and in fact the core PPI, ex food and energy, fell 0.1%. The core rate is tracking at a mere plus 0.6% annualised, which is not in itself impetus for a Fed rate rise. Despite May’s jump, the headline is actually tracking at minus 1.1%, given the big fall in oil prices on a twelve-month basis.

Nonetheless, with the Fed holding a policy meeting this week, releasing a statement and holding a press conference on Wednesday night, it is also safer for Wall Street to retreat to the sidelines, Greece notwithstanding. Despite the German ten-year yield falling back to 0.83% from 0.89% on Friday night on Greece fears, the US ten-year closed unchanged at 2.38%.

The US bond market appears to have now settled itself ahead of what might happen next. No one is expecting the Fed to announce a rate rise in this week’s statement, but there is a chance Janet Yellen might expand on her previous “this year” suggestion and hint that the September meeting – the next to include a press conference – is closing in as the likely candidate. Recent US data have suggested a rebound is indeed occurring in the US economy out of the weather-impacted March quarter.

As to what might happen were the Fed to specifically set a timetable, once again, nobody knows. Opinions range from “already baked in” to “there’ll be chaos, just like 2013’s taper tantrum”. The middle ground argument suggests there will be some initial volatility, but that markets will right themselves fairly quickly.

Or Janet Yellen may not add any more colour on Wednesday night, and simply reiterate that a rate rise is “data dependent”. Then we can all speculate for another three months. Oh joy.

Commodities

Two pieces of news impacted on oil prices on Friday night. The weekly US rig count dropped again, which is a positive for prices, but data indicated OPEC is currently producing at around a million barrels per day more than its own 30 million bpd quota. The implication is that Saudi Arabia is determined to maintain its market share even if it has to accept lower prices.

The impact was a US50c fall in West Texas to US$60.05//bbl, but a steeper US$1.24 fall in Brent to US$63.87/bbl. At under US$4, the Brent-WTI spread has begun to look more historically “normal” now a combination of reduced US supply and expanded US supply infrastructure has reduced the Cushing storage premium. A few years ago that spread blew out to US$27/bbl.

After falling steeply on Thursday night, base metal prices stabilised on Friday night. All metals posted small, mixed moves, except for nickel, which fell 1.2%.

Iron ore fell US40c to US$65.00/t.

Gold was steady at US$1181.30/oz.

A steady US dollar index, at 94.97, supported stability in commodity markets. The Aussie is nevertheless down 0.3% to US$0.7732.

The SPI Overnight closed down 6 points.

The Week Ahead

Negotiations between Greece and its creditors continued through to last night but again ended in stalemate. Tsipras again offered an alternative reform package, but EU officials saw nothing new. Tsipras’ refusal to touch pensions and taxes is the stumbling block. He has offered to continue discussions, but EU and IMF officials have now said they are no longer authorized to negotiate further.

Last night’s meeting was considered by the creditors as the “last attempt”. EU finance ministers will meet on Thursday to decide what to do next.

The Fed policy meeting will otherwise be the focus of global attention this week.

The US economic calendar is a full one this week, beginning with industrial production, housing sentiment and the Empire State activity index tonight. Tomorrow sees housing starts, and Thursday brings the CPI, Philadelphia Fed activity index and leading economic indicators.

Friday brings the quarterly derivatives expiry, or “quadruple witching”.

ECB president Mario Draghi will speak tonight, ahead of eurozone trade, employment and inflation data due this week and the ZEW investor confidence survey tomorrow night.

The Bank of Japan will hold a policy meeting on Friday.

It’s also an expiry week in Australia, with SPI futures and index options maturing on Thursday. On Friday, the quarterly S&P/ASX index changes come into effect.

Tomorrow sees the release of the minutes of the June RBA meeting. Opinions on whether we’ll see another rate cut or not have bounced back and forward since that meeting was held. The RBA Bulletin will be published on Thursday.

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon. He shall host Your Money, Your Call - Equities again on Wednesday, 8-9pm.
 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

The focus of next week's market activity will be the Fed policy meeting and statement due on Wednesday night. As it's a quarterly meeting, Fed chair Janet Yellen will also hold a press conference.

For the past couple of weeks, US bond yields have started to "price in" a Fed rate rise, albeit the impetus for initial bond selling has been a rise in German yields. The Fed will possibly take heart that the US ten-year rate has risen from under 2% to almost 2.5% without causing any major volatility in US stock markets. With recent employment and retail sales data suggesting an improving economy, will Yellen take the opportunity of the June meeting to set a rate rise timetable?

Next week in the US also sees housing sentiment and starts, industrial production and inflation numbers along with the Empire State and Philly Fed activity indices. The Fed meeting will offer the most likely source of any market volatility but Friday's quadruple witching expiry also throws up the possibility of some sharp moves.

The eurozone's ZEW investor survey will also be in focus next week and on Friday the Bank of Japan will hold a policy meeting. New Zealand will release its March quarter GDP on Thursday.

In Australia, attention will be drawn to the minutes of the June RBA meeting. The Aussie dollar has been up and down like a yo-yo of late on every little turn in thinking with regard another rate cut, or not.

Australia also sees a quarterly expiry day this week, on Thursday, for futures and index options.
 

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article 3 months old

The Overnight Report: IMF Storms Out

By Greg Peel

The Dow closed up 38 points or 0.2% while the S&P gained 0.2% to 2108 and the Nasdaq rose 0.1%.

Bounce

The ducks all lined up in a row for the Australian markets yesterday. After a week-long sell-off which took the ASX200 almost to "official" correction territory, three days of stalling at around 5500, a big rebound on Wall Street overnight, a jump in oil prices and a big jump in the iron ore price, the stage was clearly set.

And so we saw a predictable 1.4% bounce, led by materials (+2.0%) and energy (+2.1%), the banks (+1.8%) and the telco (+1.3%). In other words, all the big boys – the stocks that are always clobbered when the "Sell Australia" button is pressed overseas.

An additional boost was provided by yesterday's May jobs guess & giggle, which suggested a fall in the unemployment rate to 6.0% from 6.1% in April, with April having been revised down from an initial 6.2%. The number beat economist expectations, but rarely does the number match expectations. The fall in unemployment is nevertheless consistent with other related indicators, CBA's economists noted yesterday.

The Aussie dollar spiked on the jobs numbers of course, given the RBA is still forecasting unemployment to rise and thus a falling rate suggests another cash rate cut is less likely. But overnight the US dollar index recovered, hence this morning the Aussie is actually down a tad over 24 hours at US$0.7757.

China

It was probably never going to matter to an Australian market in rebound mode yesterday what the monthly Chinese data dump might bring. As it was, the numbers can be viewed in one of two ways.

Chinese industrial production rose 6.1% year on year in May, up from 5.9% in April and matching forecasts. Retail sales rose 10.1%, up from 10.0% in April and matching forecasts. Given the past couple of months' numbers have surprised to the downside, the fact these numbers met expectations, and suggested slight improvement, can be considered a positive.

The fact that they remain lower than markets, and the Chinese government, would like, is a negative. The May fixed asset investment number also fell to 11.4% growth year to date, down from 12.0% in April, and that's not good news.

Combined with this week's earlier CPI result of 1.2% year on year, down from 1.5% in April, the indication is China's economy continues to struggle. More stimulus ahead? Most likely.

Retail Surprise

As Beijing mulled a lack of domestic consumer enthusiasm, over in the US the story was a different one.

US retail sales rose 1.2% in May to mark the third consecutive rise and to add weight to the rebound from the snowbound March quarter thesis. Economists had forecast 1.5%, but the "miss" was counterbalanced by revisions to the April number, to 0.2% from 0.0%, and the March number, to 1.5% from 1.1%. Perhaps the US consumer is beginning to appreciate lower oil prices after all.

The sales number led Wall Street to kick on from Wednesday night's big gains from the opening bell, but thereafter momentum began to fade. The US dollar index rose 0.5% to 95.02 on the sales number but when one might expect another rise in US bond yields on the same theme, instead the ten-year yield suddenly fell back 10 basis points to 2.38%.

Why? I'll give you one guess.

They shoot horses, don't they?

On Wednesday night, it appeared Greece's creditors were offering at least some form of white flag in offering Athens some breathing space. With the big June 30 IMF repayment obligation looming, the troika offered to hand over a portion of the next tranche of bailout funds if the Greek government would just agree to one of the various reforms insisted upon. That way, Greece could pay the IMF, avoid default, and negotiations could then continue.

But no, Alexis Tspiras will not have bar of it. One of the biggest stumbling blocks is the troika's demand the government raise the retirement age to 63 from 61, and reduce pension payments. Greece's pension payments are the highest in the eurozone, and one can see why Germans are insistent given the German retirement age was recently increased to 67 from 65.

Tsipras has refused point blank, and so in a pique of frustration, last night the IMF walked out on negotiations. Not only did the negotiators leave the building, the IMF recalled the team from Brussels to Washington. The IMF has never walked out of negotiations with anyone before.

The ball is now in Greece's court. Greece cannot afford its payment due on June 30, nor can it afford to pay wages and pensions beyond that point. Greece needs those bailout funds, and even if Tsipras capitulates and the bailout funds are made available, the actual handover has to be approved by all eurozone parliaments. Not only is blanket approval not necessarily a given, there's only a couple of weeks left for parliamentary votes to even be organised.

The clock is ticking. That's why last night European bond yields fell back again, and US bond yields followed suit.

Commodities

The good news is iron ore rose another US30c to US$65.40/t. The bad news is everything else fell last night.

Base metals were particularly hard hit. LME traders are nervous about Greece, and took no solace from China's monthly data, particularly the weak fixed asset investment number. This number plays right into raw material demand. And while rising US retail sales are positive, a rising US dollar is not. Tired of waiting for a decent rebound in base metal prices, last night traders threw in the towel.

Aluminium fell 0.5%, zinc fell 1%, nickel fell 1.5%, copper fell 2.5% and lead and tin fell 3%.

The oils also turned tail last night, with West Texas falling US61c to US$60.55/bbl and Brent falling US49c to US$65.11/bbl.

The International Energy Agency released a report last night in which it increased forecast global demand for oil in 2015, but also noted supply growth will remain strong enough to more than cover any increase.

Gold slipped back US$3.80 to US$1182.00/oz last night on the stronger greenback.

Today

The SPI Overnight closed down 8 points.

After yesterday's big surge, a bit of a pullback would not be unusual today. And it's a Friday, so steaks and red wine beckon. US stocks closed higher and bond yields closed lower, which might otherwise provide impetus for the Australian market, but as the dust settles on yesterday's snap-back rally, there's still a slowing China and default-bound Greece to think about.

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.)

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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.

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article 3 months old

The Overnight Report: Rebound

By Greg Peel

The Dow rose 236 points or 1.3% while the S&P gained 1.2% to 2105 and the Nasdaq jumped 1.3%.

Consolidation

Yesterday's session on Bridge Street looked a lot like last Friday's session, in which the index chopped around in a small range and was balanced by specific sector moves. Sitting under 5500, it appears the market was trying to decide whether enough was yet enough after last week's big falls.

Energy led the positive sectors yesterday on a jump in oil prices but elsewhere sector moves were mixed. Healthcare gave back some its gains of the past couple of days and the telco also pulled back, and this time supermarkets were sought. With foreign "Sell Australia" orders now apparently exhausted for the time being, traders have been fossicking around in the rubble for right stocks to buy at lower levels.

The macro has become less important for the moment given the 500 point adjustment. Yesterday's big plunge in consumer confidence – the biggest monthly drop in a year – was not any source of panic and the consumer discretionary sector fell only modestly. The bump up from an initially well received federal budget has been wiped out and confidence is back on the pessimistic side of the equation, at its lowest level for the year.

This despite two rate cuts and a supposedly household friendly budget.

The dust has settled and households have likely come to realise it was not such a great budget, it just wasn't a shocker like last year. Meanwhile, the stock market has fallen out of bed and every man and his dog has cried "bubble" with respect to the Sydney/Melbourne housing market. Little wonder consumers are nervous.

The RBA governor was also in on the bubble act yesterday, pulling out his best Patsy Cline to entertain guests at a luncheon. In a Q&A, Glenn Stevens described the Sydney housing market as "crazy". And on that note, the Aussie dollar spiked up a cent.

The Aussie had previously fallen during Stevens' formal speech, in which he reiterated that the central bank still had room to ease further if needs be. But the conundrum is that "room" and "crazy" are counterpoints. Up to now the official language from the RBA has suggested the central bank is keeping an eye on house prices but is not in panic mode. "Crazy" suggests panic might have begun to creep in.

Stevens also reiterated that he felt monetary policy was having less effect than it otherwise would now that we're down at historical lows. The RBA may still have room to ease but if this is likely to have no more effect than make house prices even more crazy, in the governor's view, then what chance another rate cut?

The Aussie is up 0.9% over 24 hours at US$0.7762, aided by a fall in the US dollar index of 0.6% to 94.58.

Compromise

The German stock market also tumbled last week and actually reached the 10% correction mark, but last night rebounded 2.4%. The impetus was, of course, Greece.

Yawn.

German chancellor Angela Merkel has now indicated she might be prepared to release a portion of bailout funds earmarked for Greece in exchange for at least one of the creditors' reform demands. The troika is insisting on a full package of reforms including asset sales, higher taxes and less generous retirement benefits and the Greek prime minister has to date described the package as absurd.

But if Alexis Tspiras can agree to at least one element, the troika could release some of the funds and allow Greece to make good on its onerous IMF repayment obligation at the end of the month. Presumably, another reform would be rewarded with another hand-out. But Given Greece's repayment commitments only get worse as the year goes on, the full tranche is still ultimately needed by Greece and on that basis Tsipras would eventually have to agree to all the reforms, one presumes.

So will he go for it, or will he see it as a patronising tease? We don't know yet, but having been beaten down, European stock traders saw a least a glimmer of hope and thus reason to go bargain hunting last night.

Rebound

That hope flowed across the pond and sent Wall Street surging from the opening bell. The Greek news spurred a rally in the euro, which was responsible for the drop in the US dollar index. The lower dollar provided a fillip for commodity prices, and thus another rally in oil prices helped add further fuel to the stock rebound fire.

On Tuesday night the Dow was back into negative territory for the year. Last night's rally took it back to close smack bang on 18,000, which seems to be the point of balance between Fed rate rise fears and economic recovery hopes.

On the former point, the German ten-year yield rose again and is now knocking on the door of the full 1.00%. US bond yields also pushed higher, rising 6 basis points to 2.48%.

Commodities

Last week gold broke down out of its longstanding trading range which suggested it could be set for a move back to 1100. But instead it completely stalled and on last night's fall in the US dollar, is back inside that range once more. Rising US$9.40 to US$1185.80/oz, suddenly gold at 1200 is looking more likely than 1100 for the time being.

Lead and zinc couldn't manage to join in the weaker dollar fun on the LME last night which otherwise saw a 0.5% gain for aluminium and 1% gains for copper, nickel and tin.

Iron ore jumped US$1.20 to US$65.10/t.

As noted, the oils were stronger again, with West Texas up US55c to US$61.16/bbl and Brent up US95c to US$65.60/bbl.

Today

Hold onto your hats, the SPI Overnight is up 62 points or 1.1%. The consolidation we've seen these past few sessions has already suggested the local market is itching for a rebound and just needs some specific impetus. Today Wall Street's lead may just be what the doctor ordered.

On that basis it is again unlikely the macro will have much effect, even though we see May jobs numbers today. It might be hard to gauge just what leverage Joe Hockey will seek to gain from whatever the result may be, as it's difficult for one to speak when one's foot is so firmly wedged in one's mouth.

The other spectre in the room today could be China, where May industrial production, retail sales and fixed asset investment numbers are due. However if they are bad, that implies firmer stimulus, so it is unlikely Beijing can conjure up anything to spoil the party on Bridge Street today.

Rudi will make his weekly appearance on Sky Business' Lunch Money today.

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.

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article 3 months old

The Monday Report (On Tuesday)

By Greg Peel

Stall

I suggested on Friday morning that despite a big fall on Wall Street on Thursday night, we might just see the ASX200 close higher on the session after a week of carnage. A fall of 5 points meant I was wrong, but not too far off the mark in principle.

The index appeared to completely stall on Friday, as if battle weary participants had called a ceasefire to bury their dead. Evidence of bargain hunting finally emerged, as the ASX200 flipped back and forward across the flatline for most of the session. The close of down a mere 5 points belied some more distinct moves within sectors.

Healthcare was the most highly sought after sector, rising 1.0%. The buyers liked the consumer sectors and industrials as well, but another 0.6% fall for the banks ensured an offset. Resource sectors were flat.

The situation now for Australian financials is an interesting one. Our banks have been creamed on the rise in US bond yields, given the attractiveness of solid dividend yields has been undermined for foreign investors. Yet as US bond yields rise, US bank share prices are rising with them. The US yield curve is now steepening (longer term rates moving up against shorter term rates) as Wall Street prepares for the Fed to begin "normalising" policy.

"Normal" is the key word here, because in a normal monetary policy world, one absent of any QE, rising rates and steepening yield curves provide banks with a greater earnings opportunity as they borrow short term and lend long term, into mortgages for example. For the past three or more years, Australian bank stocks have not performed as "normal" bank stocks. They have performed as utilities, or even, dare I say, fixed income instruments, as if those wonderful yields are a constant. Now they are returning to reality.

Onward and Upward

If we cite rising US bond yields as the most direct driver of last week's 5% drubbing on Bridge Street, then Friday night's surge of 10 basis points to 2.40% for the benchmark US ten-year yield would suggest a continuation of the theme today. Until, at least, the market is satisfied the interest rate differential shift has been sufficiently priced in.

The US bond market is already in nervous sell-off mode, so all it needed was a reasonable non-farm payrolls result on Friday night and they'd be off again.

Economists had forecast 210,000 jobs to have been added in May in the US, but the number came out as 280,000. The unemployment rate ticked up to 5.5% from 5.4% but only because the participation rate ticked up, suggesting more Americans are feeling confident enough to go back into the market to find a job. Wages also rose in May, at a 2.3% annualised growth rate, meaning increased employment is not about workers conceding to take lower wages just to get a job.

It was a trifecta of good news for the US economy – rising employment, rising participation, rising wages. It is evidence that expectations of a rebound out of the weak, weather-impacted March quarter may well be justified. But it also means the Fed will be getting closer to making the big move.

This is a worry for the stock market but not as much of a worry as it might have been earlier in the year. Earlier in the year, we might have seen the Dow down a couple of hundred points on this strong jobs number, but in the interim Wall Street has come to accept that the Fed will eventually raise, so there's no point in losing sleep over it. Exactly the same scenario played out in 2013 when it was all about the tapering of QE, and then in 2014 Wall Street started hitting new all-time highs.

On Friday night the Dow closed down 56 points or 0.3%, the S&P dipped 0.1% to 2092, and the Nasdaq actually rose 0.1%.

Commodities

The strong jobs number also sent the US dollar index up another 0.9% to 96.35. While not good for commodity prices in isolation, a stronger US economy is indeed good for commodities. Next week sees a raft of Chinese data for May, and the Greek spectre is still floating around, so traders were reluctant on Friday night to get too carried away.

Base metal prices closed mixed on smallish moves, with a 1% fall in lead cancelling out a 1% gain in nickel.

Iron ore rose US30c to US$63.80/t.

Having broken out of its trading range the night before, gold might have been set for a big drop on the solid jobs number but then gold always seem to take a day or two to think about such matters. It fell US$3.80 to US$1172.30/oz.

OPEC held its six-monthly meeting on Friday night and surprised no one by making no cuts to current production quotas. It was when OPEC surprisingly announced no cuts in its previous meeting back in December that oil prices collapsed.

Oil prices initially fell on the OPEC announcement but quickly recovered, likely because they were sold down earlier in the week in anticipation. Gasoline prices also jumped in the US on Friday night to provide added impetus for crude. This year's US summer driving season may yet be a good one. West Texas rose US99c to US$58.97/bbl and Brent rose US$1.15 to US$63.25/bbl.

The US dollar rally sent the Aussie down 0.8% to US$0.76.26 by Saturday morning.

China

Beijing released China's May trade numbers yesterday and again they were indicative of a slowing domestic economy.

Exports fell 2.5% year on year in the month but this figure was better than expected, following falls of 6.4% in April and 15% in March. However imports fell a hefty 17.6% year on year in May when a 10% fall was forecast. It's the seventh consecutive month of falling imports.

The numbers suggest Beijing is struggling to transition from an export economy to a domestic consumption economy and that stimulus measures to date are yet to prove effective. Commentators suggest time is still required for stimulus measures to have their impact. The government's decision to cut import tariffs on some consumer goods should drive a modest import pick-up soon, but clearly further fiscal and monetary policy measures are needed if Beijing is going to hit its target of 7% growth in 2015.

Greece

German chancellor Angela Merkel would like Greece to remain in the eurozone but warned last night that "time is running out". Greece's creditors have offered the country a new lifeline, albeit one previously discussed, which would see Greece given a nine-month extension on the IMF repayments due this month, that Greece likely cannot pay this month, and also given E10.9bn in additional bailout funds which the creditors had set aside as an emergency fund for Greece's banks.

The catch, of course, is that Greece must agree to a set of reforms, which include increasing sales taxes, cutting pensions and making it easier to hire and fire workers. Greek prime minister Alexis Tspiras has labelled these reforms variously "absurd" and "irrational" and was happy to tell the G7 leaders as much in a speech at their meeting in Bavaria.

In response, Tspiras received a visceral bollocking in a speech from European Commission head Jean-Claude Juncker, and the ire of every other leader in the room, including President Obama. Leaders are united in urging Greece to concede to reforms.

Tsipras has since said he is prepared to "make concessions". If his stance up to now is anything to go by, his idea of "concessions" is the creditors capitulating and letting Greece have the money without reforms.

And so it goes on.

Having become more confident last week that a deal was close to being reached, European stock markets turned tail again last night as it appears ever more likely a Grexit is the only outcome. Last night the German DAX fell 1.2% and the French CAC 1.3%. The DAX is now in correction territory.

Down for the Year

The dour mood carried cross the pond and saw the Dow falling steadily to be down 89 points around lunchtime. From there a rally was attempted and all bar around 20 points of the fall was recovered, but late selling sent the average back down again.

The Dow closed down 82 points or 0.5% and has wiped out all previous gains for 2015. The S&P fell 0.7% to 2079 and the Nasdaq dropped 0.9%.

Aside from Greek fears and week Chinese data, Wall Street was last night still coming to terms with Friday night's positive jobs number, and its implications for Fed rate rise timing. Having jumped sharply on Friday night, last night the US ten-year bond yield slipped back 2 basis points to 2.38%.

But the US dollar index, which jumped on Friday night on the jobs result, fell back 1.2% to 95.23 last night. The fall has been linked to an offhand remark made by President Obama to his G7 chums that he thought the dollar was too high.

And hence the Aussie is up 0.9% from Saturday morning at US$0.7696. It's thus basically a tad higher than where it was when local markets closed on Friday.

Commodities

The weak Chinese trade data did not have as much impact on the LME as one might expect, given base metal prices again showed minimal movement. The exception is nickel, which jumped 2%.

Iron ore was steady at US$63.80/t.

Gold was steady at US$1173.70/oz.

The oils were weaker on the weak Chinese data. West Texas fell US71c to US$58.26/bbl and Brent fell US50c to US$62.75/bbl.

The SPI Overnight closed down 24 points or 0.4% last night for a 28 point fall since the market was last open.

The Week Ahead

Greece will no doubt continue to be a source of nervousness and of back and forth news as the week progresses.

China's economy will continue to be in the spotlight this week as inflation numbers are released today and industrial production, retail sales and fixed asset investment numbers on Thursday.

With the strong jobs number still resounding on Wall Street, this week's important data releases begin on Thursday with retail sales and inventories followed by the PPI and consumer sentiment on Friday. More grist for the Fed rate rise mill.

It's a busy shortened week this week locally. Today kicks off with the housing finance, the ANZ job ads numbers and NAB's monthly business confidence survey, the first post-budget. The same is true for Westpac's consumer confidence survey out tomorrow. On Thursday it's the May jobs numbers.

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon. On Wednesday he'll be back as host on Your Money, Your Call, 8-9pm.

For further global economic release dates and local company events please refer to the FNArena Calendar.

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

The US May non-farm payrolls report, arguably the most globally influential piece of monthly data, is out tonight. As is now always the case, assumptions about how Wall Street might respond to whatever the result may be are never straightforward.

Assuming Wall Street is now prepared to accept a 2015 Fed rate rise as “baked in”, the current response trend will likely prevail: a very good result is bad, as it will speed up that rate rise; a very bad result is bad, as it implies the US economy is not rebounding out of the weak March quarter as expected. A bit of a beat or a bit of a miss on forecasts is good, as it is otherwise none of the above.

With global bond markets grabbing all the attention this week, and Status Quo again being exhumed to play the jingle for the ASX200, what the US jobs number looks like will be decisive in determining next week’s market direction.

But China will also be very much back in focus, delivering May trade, inflation, retail sales, industrial production and fixed asset investment numbers over the course of the week.

And there's always Greece.

In the US, data will again become important towards week’s end when retail sales, inventory and consumer sentiment numbers are delivered along with the PPI.

In Australia, most states will be closed for the Queen’s Birthday long weekend on Monday thus the ASX will also be closed, as will FNArena (albeit fully accessible).

Data-wise, we’ll see ANZ job ads and the NAB business and Westpac consumer confidence surveys out next week. On Thursday, it’s our own jobs numbers.

On the local stock front, we’re now into the pre-June 30 blackout period when corporate news is thin on the ground. The exception to this is the so-called Confession Session, when unexpected profit warnings are trotted out. We’ve already seen a few.
 

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article 3 months old

The Overnight Report: Wall Street Joins In

By Greg Peel

The Dow closed down 170 points or 0.9% while the S&P lost 0.9% to 2095 and the Nasdaq fell 0.8%.

Freefall

What began with a technical trigger for the ASX200 has since deteriorated into freefall as investors across the globe exit government bond positions. The benchmark for this sell-off is Germany, as representative of the stronger members of the eurozone.

Mario Draghi indicated after the ECB policy meeting on Wednesday night that he had no intention of upping the ante on what is already an extensive QE program, and at the meeting the ECB lifted its 2015 eurozone inflation forecast to 0.3% from 0.0%. This implies that if anything, in due course the QE program will be reduced as the eurozone economy improves.

So call the sell-off in German bonds a form of pre-emptive “taper tantrum”, brought about by a very overcrowded market. Throw in the fact US investors are now largely resigned to a Fed rate rise this year, with specific timing no longer important, and it just comes down to who’s going to blink first in the US bond market. It is a given that US bond rates will rise when the Fed hikes its cash rate but markets move ahead of such developments, so when to bail?

Well, Germany seems to have forced the hand.

If a 20 basis move up in the German ten-year rate on Wednesday night was the butterfly, the typhoon yesterday was a 2.4% drubbing for the Australian utilities sector on the ASX. All other sectors (bar tiny info tech) were down around the 1.5% mark, which is implicit of “Sell Australia” or simple index selling and here the technicals also contribute. But all other sectors represent at least some opportunity for growth. Utilities, on the other hand, are the chug-along cash generators – not offering a lot in capital appreciation but providing a nice steady yield.

It was yield that took us up and it is yield that is bringing us down. Foreign investors are not waiting around to see if the US ten-year can hit 3% or if the Fed announces a rate rise, whichever might come first. They are selling their peripheral yield plays, established solely on the basis of rate differentials between Australia and the rest of the world, and the premiums quality Australian stocks offer above government paper.

At just above 5500, the ASX200 is down 4.7% from last Friday’s interim high and 8.6% from April’s post GFC high of not quite 6000. This is exactly the sort of move Wall Street has been looking for, almost pleading for, for itself the past couple of years of new all-time highs. It may not be very comforting downunder, but in historical market terms it is typical, very healthy for a bull market, and provides investors with a fresh opportunity.

Particularly if that opportunity has been missed up to now.

Closer to Home

If we leave global bond rates aside for a moment, yesterday’s domestic data were enough to inspire selling anyway. That is unless we take weak Australian data as increasing expectations of another RBA rate cut, which would offset some of that global interest rate differential squeeze.

Economists were forecasting 0.3% growth in Australian retail sales in April. The forecast takes into account April was before the last RBA rate cut and ahead of the federal budget release. So at 0.0%, it was a bit of a shocker. Economists can only assume that Australian consumers were so petrified about what Mr Hockey might deliver, given his previous effort, that they spent April hiding in the cupboard with all their cash clasped in their shaky hands.

It is very likely we’ll see a better sales result for May. But yesterday also featured another shocker, in the form of the April trade balance.

Forget Wednesday’s positive March quarter GDP result. That’s ancient history. It told of stronger than expected export volumes but given spot commodity price falls take a while to flow through to forward trade contracts, what it did not fully reflect were lower commodity prices.

Australia’s trade deficit widened in April thanks to a 5.7% in (the value of) exports and a 3.9% rise in imports. Iron ore exports fell 13% and coal exports fell 22%. Part of the plunge in coal export value can be attributed to the wild east coast weather in the month, closing ports, but the other part is prices, as is the case for iron ore.

The good news is that the lag in movement of contract prices from the movement of spot prices probably means April represents the nadir for iron ore pricing, and from here on the iron ore price rebound should flow through. Coal prices have seen little recovery.

The Australian economy needs the non-mining sectors to take the baton as the resource sector suffers the double-whammy of declining investment and lower commodity prices. Consumers are an important element. If April’s numbers are anything to go by, the prognosis for the Australian economy is bleak. Cue Stephen Sondheim:

Where are the clowns? There ought to be clowns.

Greece

And speaking of records, the broken one was still scratching away last night.

“Shocking, provocative, disgraceful and dishonourable”. No, this is not a description of Sepp Blatter. This was the response from members of Greece’s governing Syriza party when prime minster Alexis Tspiras showed them the reform ultimatum Greece’s creditors had handed him – deemed requisite for Greece to receive its next bail-out tranche.

“Such extremist proposals cannot be accepted by the Greek government,” Tsipras is quoted as telling his associates. “Everyone must understand that the Greek people have greatly suffered over the last five years and some have to stop playing games at their expense”.

Earlier this week, Tsipras assured IMF chief Christine Lagarde that Greece had the money and would make good on its E300m payment due tonight. Last night Athens informed the IMF this would not be the case. Instead, all four June payments will be bundled and the total of E1.6bn will be paid at the end of the month.

While such bundling has been suggested before now, this sudden shift has been taken as representing an angry backlash from Tsipras regarding the so-called austerity ultimatum. Commentators are suggesting a default has just become a little more likely.

And so it goes on.

Wobbly Wall Street

European stock markets traded lower on the latest development in the Greek drama and sentiment carried across the pond. News also came through that the IMF had cut its 2015 US growth forecast to 2.5% from 3.1% and that Christine Lagarde had told her chum Janet Yellen that the Fed should not raise this year.

But Yellen has already said it will, and last night’s US economic data provided another reason to believe it must.

Last night US March quarter productivity growth was revised to a negative 3.1%. Low productivity leads to higher wages. Higher wages lead to inflation. Inflation leads to a rate rise.

So there was cause enough for US stock indices to fall last night, but realistically the backdrop of bond market volatility is finally giving Wall Street the jitters. Last night the German ten-year yield came back a whole 5 basis points to 0.84%, allowing the US equivalent to fall back 6 basis points to 2.31%. But the seed is now sown, and with US jobs numbers out tonight, it makes sense for bond traders to square up beforehand.

The Dow has now fallen back through 18,000 and the S&P through 2100. Not that this hasn’t happened more than once already this year, but given what’s been going on in the Australian market, one feels something has to give on Wall Street fairly soon.

Commodities

No one was prepared to take any bets on US jobs on the LME last night either. Throw in Greece and the IMF cut to its US growth forecast and all base metal prices closed lower. Cooper led the charge with a 1.4% fall.

Ditto in oil markets, although for oil markets there is the added expectation of tonight’s OPEC meeting not bringing any cuts to production quotas, thus inspiring pre-emptive selling. West Texas fell US$1.63 to US$57.98/bbl and Brent fell US$1.66 to US$62.10/bbl.

Iron ore doesn’t pay much attention to such things. It’s up another US90c to US$63.50/t.

Gold fell US$8.50 to US$1176.10/oz. A 0.7% fall is not particularly remarkable, but last night gold broke out of its long-standing trading range. Goodbye 1200, hello 1100.

Commodity price moves leant little to the US dollar last night, as it ticked up only slightly on its index to 95.51. This means the 1.2% fall in the Aussie over the past 24 hours to US$0.7688 is all about yesterday’s data shocks, and subsequent expectations of another RBA rate cut ahead.

Today

The SPI Overnight closed down 17 points or 0.3%.

With the Dow down 170 and the futures down 17, one would normally assume a weak session today. I’m going to stick my neck out, however, and suggest we close higher today. Wall Street is following, not leading, global bond rates fell back a bit last night, and yesterday in this Report I said: “Maybe the day to buy is when the SPI Overnight closes down.”

But then again I wouldn’t be at all surprised if at 4.00pm we’re down another percent.

Australia’s construction PMI is out today, and S&P/ASX will announce its quarterly index changes, which may affect some non-macro argy-bargy amongst affected stocks.

US jobs tonight.

Long weekend for most of Australia. The ASX will be closed on Monday.
 

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