Overnight and early trading
The ASX has opened higher on hopes of a Greek debt relief deal and China's share rally. At 11:37am, the benchmark S&P/ASX200 was up 0.81% to 5,515.10 points.
US stocks edged slightly higher overnight, however they finished well below intraday highs as the recent Chinese selloff continues to weigh down on stocks. The tone was set early by a surge in Chinese stocks, marking one of few winning days on the Chinese market.
The Dow Jones Industrial Average ended the day up 33.20 points, or 0.2%, to 17548.62. The Dow was up as much as 249 points, or 1.4%, earlier in the session before giving up most of the gains late in the session. The S&P 500 rose 4.63 points, or 0.2%, to 2051.31 and the Nasdaq Composite added 12.64 points, or 0.3%, to 4922.40.
The IMF has cut forecasts for global growth in 2015, from 3.5% to 3.3%, noting that a slow first quarter in the US and recent turbulence in Greece and China being catalysts for the cut.
Stocks in the US have been consistently weighed down from events abroad in the past few weeks, as the momentum in the housing market and job growth have been ignored. However with companies reporting on second quarter earnings and the continuing improvement of economic data, some investors feel that market focus could return in the coming weeks. The Dow and the S&P have slipped 0.4% and 0.6%, respectively for the month through Thursday.
Alcoa (NYSE:AA) kicked off second quarter earnings late on Wednesday, reporting an increase in profits, attributing the rise in profits to recent gains in aerospace and automotive divisions.
The VIX rose 1.58% overnight as the market had another day of wild swings, currently sitting at 19.97. The AUDUSD gained slightly overnight currently sitting at 0.7458.
In Europe stocks surged higher on the back of fresh optimism surrounding on-going Greek negotiations. Germany’s DAX soared 249.11 points, or 2.32%, to close at 10,996.41. The French CAC rose 118.20 points, or 2.55%, to close at 4,757.22, the Stoxx Europe 600 index ended the session 2.2% higher, while outside the currency bloc the FTSE 100 90.93 points, or 1.40%, to close at 6,581.63.
Overnight Eurozone officials indicated that serious overhaul proposals from Athens could be followed by debt relief, as the Greek proposal have moved closer to creditors’ demands. There are still a few matters standing in the way if a deal was to be agreed upon on Sunday: Tsipras will need to have a drastic turn around on pension cuts, tax increases and other austerity measures, otherwise a deal by Sunday seems out of reach. Greek banks and the local stock market remain closed and will not open until next Tuesday at the earliest.
The recent bounce in European stocks highlights the resilience and confidence of European investors. A broader euro economic upturn has certainly attributed to the recent confidence.
The euro had a late rally against the greenback, as optimism around a Greek deal surfaced. The Euro hit a low of $1.1000 however finding strong support to bounce, currently sitting at 1.1058.
In China stocks had the biggest move in six years, as the broad selloff was finally stemmed.
The Shanghai composite index rose 5.8% to close at 3709.33. The rise overnight comes amid eight losses in the past 10 trading days, contributing to the index losing a third of its value in the past month.
Shares including Hangzhou Iron & Steel Co., Zhejiang Huahai Pharmaceutical Co. and Leshi Internet Information & Technology Corp, have all shown a daily rise of 10% as trading for these shares resumed. However a total of 1,473 companies, or 51% of all stock on the Shanghai and Shenzhen markets remain suspended.
Chinese stocks have wiped away around $4 trillion in value during the recent decline, with regulators scrutinising the short selling of Chinese stocks. China’s outstanding loans fell to 1.5 trillion yuan as of July 8, which is down from a peak of 2.27 trillion yuan on June 18. It is still yet to be determined whether the latest moves from the Chinese government are enough to reverse the broader selloff, however normality will probably not be seen until margin buyers stabilize.
Local markets
The S&P/ASX 200 Index futures contract fell 0.5% to 5,368 with futures relative to estimated fair value had suggested an early decline of 0.7%.
Bank of New York Australia ADR Index -0.6% with BHP Billiton (LONDON:BLT) ADR -2.4% and Rio Tinto (LONDON:RIO) ADR -2%
Spot gold is up just 0.2% to $1,160 in a day that showed a range of $1,153 to $1,167. The daily candle is indicating a reversal is likely and we can expect to test $1,150 again before the week is out. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR
Crude oil finished in positive territory with WTI lifting 0.3% to $52.70 although it was Brent really showing the way, up 1.2% to $58.53. Brent’s rise was the greatest one day gain in 4 weeks after investor concerns eased on falling Chinese demand. Traders in Brent will now be watching Iran’s nuclear talks which have a deadline of today/tonight. WTI’s rise came with higher U.S. consumer demand. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
Iron ore’s stellar bounce of 9.9% to $48.99 is a relief from 24 hours ago to both small miners and the Australian economy at large. The performance is the best one day move since 2009 and the markets relief and confidence could be seen in yesterday’s 80+ point intraday reversal. The bounce is attributable to both the Chinese market 6% rally and a heavy sell off from yesterday’s spot price. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
Base metals which were up across the board has been led by nickel. Nickel rose 5% to $11,450 in which is now the best two day performance since 2012. Nickel’s volatility remains high and these gains could be easily lost with Greece’s deadline on a rescue package quickly approaching. Copper rose 2.4% to $5,615 on China’s market sentiment. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC. Atlas Iron (AGO): Upgraded to CCC+ from CCC by S&P; outlook negative
Australian unemployment figures remained steady yesterday at 6.0% when the market was expecting it to rise 0.1% to 6.1%. The participation rate within the Australian economy remains steady at 64.8%. The aggregate monthly hours worked increased a marginal 2m hours to 1,636.3m hours.
Ex-dividend
- GrainCorp (GNC)
- Programmed (PRG)
Broker upgrades
- South32 (S32): Raised to buy vs hold at Deutsche Bank (XETRA:DBKGn)
- Sydney Airport (SYD): Raised to overweight vs neutral at Commonwealth Bank
- Tassal (TGR): Raised to overweight vs neutral at JPMorgan (NYSE:JPM)
- Transurban (TCL): Raised to outperform vs sector perform at RBC
- Westfield (WFD): Raised to positive vs neutral at Evans & Partners
Broker Downgrades - Southern Cross (SXL): Cut to hold vs buy at Morningstar
AUDUSD relief rally
The AUDUSD had a relief rally yesterday to close at the interim resistance level of 0.7500 on the back of the massive jump in iron ore prices (+10%) and better than expected employment change (7.3% vs -2.1k) along with the unemployment rate. (6% vs 6.1%).
The overnight price actions indicated the rebound could not be sustained, therefore 0.7500 is likely to remain as the interim resistance level but the daily candlestick needs to close below the support level at 0.7400 in order to signal a further sell off, which we expect in the near term.
S&P/ASX 200 reliant on China
The ASX200 made a double bottom to add some decent gains as the positive sentiments were brought by a rebound in Shanghai composite indices (+5.8%). Volatility still exists in both iron ore prices and the Chinese stock markets, therefore one day’s positive run should not be regarded as an indicator of the direction.
The ASXSP200 is expected to continue to rely on the performance of the Chinese markets for direction and we expect weaker price action below the resistance level 5,500, while yesterday’s intraday low of 5,378 would be the support level.
