Markets Today: More homework needed

Markets were disappointed by the lack of progress in Greece overnight; albeit they should be used to that by now. It did lead to a big drop in European yields and equity market, EUR also underperformed for much of the day.

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Markets were disappointed by the lack of progress in Greece overnight; albeit they should be used to that by now. It did lead to a big drop in European yields and equity market, EUR also underperformed for much of the day. Things weren’t so bad in the US, with equities managing to eke out a small gain after better job information. The commodities remained under pressure, with iron ore slipping significantly but oil recovered some ground. That left AUD lower through the day.

There is a lot of talking but not a lot of proposals just yet. Greece turned up to the Finance Minister’s meeting, with the original proposal (of which the referendum said ‘no’) and a good presentation. They’ve been sent back to do their homework and there are a number of suggestions flying around. These include short term loans, bi-lateral loans, third programs and lots of chatter.

While it is looking likely that the ATMs in Greece may soon run dry, and the pressure will rise on the Tsipris government, the big meeting now appears to be a summit on Sunday (again) with all the 28 leaders of the Euro area. Big confabs have a poor history of reaching agreement is all I shall say. We will hopefully see more in the interim. A proposal is expected on Thursday.

In the US, news was better, with the JOLTS job openings (which the Fed monitors) holding at highs. The trade deficit was a little wider, and due to lower exports mostly. That is inevitable with a stronger USD and the ports strike.

China’s equity markets continued their decline, but there are a few interesting ‘quirks’ which could either allay your concern, or increase them. Within the decline, there were a number of stocks limit down (ie the trading rules prevent further declines) but a raft of other stocks have been suspended from trading. This is allowed. Reuters reports that more than 200 firms applied to be suspended from trading yesterday, adding to the others who have already done so (~23% of the A share market). This, of course, means that the decline in the index is not reflective of the true position in the equity market, were all stocks allowed to trade.

Declines in the Chinese market weighs on sentiment in Australia and adds to concern regarding Australian exports from commodities to tourism. It is one factor that is presently weighing on the AUD, commodity prices and local equity markets.

The RBA kept interest rates unchanged yesterday, as expected. There was very little changed in the statement, which highlighted the global risks but also the large amount of policy stimulus already in the system to support global growth. A cautious outlook but one which sees conditions presently stable. Markets were relatively unchanged, which is as expected.

Coming Up

It’s a relatively quiet day on the economic front, which leaves us (yet again) watching the vagaries of the Chinese equity market and commodity prices

In Japan, since there has been a recovery in the trade balance, the JPY no longer reacts to the balance of payment data. While interesting, it drops back into insignificance. There are a raft of trade data released, globally, this week. With big swings in currencies over the last six months, it is here that the changes are having an impact (as it should). This is why we find it interesting.

The US is modestly more interesting, with the minutes from the last FOMC minutes. That should explain the changes in the dot points, but mostly is expected to reiterate the line that the Fed expect to raise interest rates this year, but they are very data dependent. We get more from the Fed, with the Fed’s Williams speaking on the outlook for the economy. He is a voter and known moderate hawk.

While there is a significant amount of uncertainty about the outcome for Greece, and China, it may be difficult for markets to have a significant reaction to any hawkish data in the near term; thus there is more scope for movement in weaker than expected comments or data for the very short term.

Overnight

On global stock markets, the S&P 500 was +0.50%. Bond markets saw US 10-years -2.68bp to 2.26%. On commodity markets, Brent crude oil +1.84% to $57.58, gold-1.5% to $1,156, iron ore -5.1% to $49.60. AUD is at 0.7448 and the range was 0.7398 to 0.7502.

  • US Trade -$41.9A, -40.9P, 42.7P
  • US JOLTS 5.363mnA, 5.3E, 5.33P

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