Below trend growth to continue
After markets last week ended with a whimper rather than a bang, things have already heated up this morning with news on Sunday evening from Brussels that the latest talks aimed at bridging the differences between Greece and her creditors have collapsed.
After markets last week ended with a whimper rather than a bang, things have already heated up this morning with news on Sunday evening from Brussels that the latest talks aimed at bridging the differences between Greece and her creditors have collapsed. Further pension reforms, and higher VAT on electricity, appear to remain the key sticking points, while Greece’s pleas for a commitment to debt relief (and which offers the best (only?) chance of the Greek government saving some face with its own electorate if it chooses to cave on pensions and VAT, continues to be rebuffed.
The Euro has opened over half a cent lower at the Wellington market open, seemingly to the benefit of other non-USD currencies (weakness in EUR/AUD seemingly offering some support to the AUD/USD rate). If market volatility picks up as markets get into their stride, that won’t last.
On Friday, with no fresh news on Greece to digest, the US dollar finished the day flat overall while bond yields in the U.S. and Germany showed only minor 24-hour moves (Treasuries marginally higher, Bunds fractionally lower). Equities fell again in both Europe and on Wall Street, though Shanghai earlier posted a new record high, +0.87% on the day and now 60% up year to date. This was despite news (Bloomberg citing EPFR data) that Emerging Market equity funds saw record outflows of $9.2bn in the seven days through Wednesday (Wednesday was when we learned China would not be included in the MSCI world index before 2017).
Neither US PPI (core +0.1% as expected but the broader core measures that also excludes erratic trade services prices as well as food and energy -0.1%) nor the UoM Consumer Sentiment Index (a market beating 94.6 up from 90.7) troubled the scorers much, even though they were the sources of much of the intra-day volatility in bond markets.
In FX, EUR/USD fully recovered from a sharp drop (to 1.1157) after German Chancellor Angela Merkel was reported saying that “a too strong Euro makes reforms harder for Ireland and Spain”. AUD finished Friday -0.31% to 0.7731 and NZD -0.41% to 0.6984%. In commodities iron ore fell -$0.48 to $65.13 (up from $64.45 a week ago).
CoreLogic RP Data’s preliminary weekend housing market auction/price stats shows Sydney’s auction clearance rate fell back to a still very high 86.5% from last week’s record 90.1%. Sydney prices -0.3% on the week (a 4th successive weekly fall) and reducing the YTD rise to 5.3% from 5.6%. Melbourne’s clearance rate was little changed at 78.0% from 78.4% with prices -0.4% on the week and so now only +1.0% YTD gain down from 1.4%.
Following Sunday evening’s breakdown of talk in Brussels between Greece and her creditors, this Thursday’s Eurogroup Finance Ministers meeting, and the furious activity that will doubtless precede it, now loom large in this week’s calendar and threatens to usurp the FOMC meeting in term of market significance. This really is the last Chance Saloon for political level agreement that avoids an otherwise inevitable default to the IMF on June 30, and the ECB later in July. Today, watch for a possible announcement that the ECB is raising the ‘haircut’ on Greek collateral currently accepted by the ECB in return for its funding of Greek banks under the Emergency Liquidity assistance (ELA) programme.
On the FOMC, we’ll get to read their post-16/17 June meeting statement and view the latest FOMC member ‘dot point’ forecasts, at 04:00 AEST on Thursday. We won’t be getting a rate rise, but markets may well be put further on (or off) the scent of ‘lift-off’ in Q3, notwithstanding the new ‘data not date’ dependence of future Fed actions.
Post the meeting, the only scheduled Fed speaker this week, as FOMC members come out of their pre-meeting purdah, is Cleveland Fed President Loretta Mester, considered quite centrist though a current FOMC non-voter. That will be at 5pm London time/midday NY time on Friday.
Locally, there’s no data of significance this week, but we’ll hear from RBA Assistant Governor’s Chris Kent in Canberra today (17:30 AEST) and Guy Debelle tomorrow (07:55 AEST). Tuesday also brings the June RBA Board minutes.
On global stock markets, the S&P 500 was -0.70%. Bond markets saw US 10-years +1.46bp to 2.39%. On commodity markets, Brent crude oil -1.90% to $63.87, gold-0.1% to $1,179, iron ore -0.7% to $65.13. AUD is at 0.7752 and the range since Friday’s local close was 0.7678 to 0.7755. Indicative range today 0.7725 – 0.7775.For more market prices, please see p.2 of the pdf).
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