All is well, solved, sorted; just not signed. Markets are pretty content with the idea that Greece and its creditors will do a deal before the June 30 deadline. And the Fed will hike in September, and China can avoid an equity market accident. Excellent. That saw equities higher, yields higher in the US, oil and iron ore prices higher, gold lower and the USD solid across the board. Measures of market volatility and risk aversion have dropped back sharply too.

Phew, everything’s done then. Except the deal isn’t signed, the expected Fed hike isn’t until September and China’s equity market dropped almost 4% yesterday before ending the day up 2%. So we know that events aren’t done, until they are actually done, and lots can happen in the meantime.

The news overnight was pretty positive: in the US the durable goods orders were typically volatile and while causing a short-term negative sentiment blip, the housing numbers and Fed speaker Powell reinforcing his dot point forecast, stating that he favours two interest rate hikes this year, meant that the positive outweighed the negative overall. Powell noted that the USD is strong because the US economy is relatively stronger than other countries. This is all true, and the USD is duly appreciating.

The EUR underperformed, continuing the recent correlation of higher European equity markets and lower EUR. The news there was also very good: no real negative Greece news, the Flash PMI for the Eurozone was solid and the ECB continued to increase its emergency funding to Greek banks- but they showed fewer outflows. We just need to see the reforms voted for in the Greek Parliament.

The news from the UK was mixed. The new Government has promised a referendum on Britain’s inclusion in the Eurozone and its exclusion is referred to as Brexit. The ratings agency Moody’s has noted overnight that a Brexit would be negative for the UK. That’s not surprising really. But the BoE’s Weale, in an interview with the FT, notes that strong wages data point towards a rate hike. As a dissenter, that also should not be surprising.

The Chinese equity market fell again yesterday; apparently driven by a desire by regulators to have banks improve their risk controls on margin lending. The better than expected, but still soft, Market PMI didn’t help either. It was good enough not to push for more PBoC easing, but not good enough to generate positive growth momentum. This negative sentiment supported the USD, and weighed on the AUD through the day. But then, late in the day, equities rallied and the AUD duly followed; the change in sentiment driver is hard to come by.

Coming Up

Another very quiet day locally, left watching the Chinese equity market and the ongoing Greece negotiations. The data lull can often leave local markets fluctuating and following offshore moves. Australia does release the official skilled vacancies data, but that doesn’t tend to be monitored by markets.

US GDP revision is expected to show an improvement in the data, but doesn’t tend to be a strong market mover.

German IFO may show a drop due to poor sentiment surrounding the ongoing Greek negotiations and weak equity market (prior to the weekend), but as the flash release was pretty good it might not follow the traditional patterns. This introduces more two way risk.

Overnight

On global stock markets, the S&P 500 was +0.10%. Bond markets saw US 10-years +3.98bp to 2.41%. On commodity markets, Brent crude oil +2.13% to $64.69, gold-0.6% to $1,176, iron ore  +2.2% to $61.34. AUD is at 0.7734 and the range was 0.7679 to 0.7749.

• China Markit PMI 49.6A, 49.4E, 49.2P
• US Durable Goods: -1.8%A, -1E, -1.5P rev from -0.3
• Core orders +0.4%A, 0.5E, -0.3P rev from +1
• US New Home Sales: +2.2%A, 1.2E, 8.1P rev from 6.8
• EZ Flash PMI: 54.1A, 53.3E, 53.6P
• Fed Speaker Powell considered hawkish outlining his preference for two hikes this year

For full analysis, download report:

• Markets Today: 24 June 2015 (PDF, 321KB)

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