VERTICAL VIEW – AS YOU WERE
Jun 17, 2015
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.
By Greg Peel, FNArena
http://www.verticalfinancialsolutions.com
VERTICAL VIEW – IMF STORMS OUT
Jun 12, 2015
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.
By Greg Peel, FNArena
http://www.verticalfinancialsolutions.com