ASX at the close

Chris Weston, Chief Market Strategist at IG Markets

Considering as markets are of the belief that Greece is likely to receive confirmation of its loan extension today, there doesn’t seem to be much in the way of euphoric trading.

Germany is ruling the show and still needs to sign off on the proposal, but from all accounts the fact there is a special meeting to be held during the European afternoon (14:00 GMT) suggests that we should get something meaty for markets to sink their teeth into.

The European debt crisis has taught us to expect an eleventh hour deal every time and this is clearly seen in the lack of concern in the Eurostoxx index, the EUR and peripheral bonds. This does concern me, as there is always the chance that Greece backtracks or Germany walks away on a technicality in the wording; from a trading perspective there is always the risk of a ‘buy the rumour, sell the fact’ type event playing out.

If we do witness a deal, the market will want to see the complete picture and assess just how united the Monetary Union stands, or whether there is glaring fragility. From here they can assess the likelihood of Greece dominating in the headlines again in the coming months. It seems logical that we will be debating Greece for some time. Unless the structure of the original bailout is amended so we see lower interest rates and lengthening of maturities, with Germany agreeing to allow Greece run a primary surplus of 1.5% of GDP, then we are going to see this story come into traders’ mind-sets on a much more regular basis. Unfortunately this seems the likely path and the Germans know it, so while they have been getting the negative press that fact is they are the realists here.

EUR/USD a sell into $1.1500

It’s interesting then that our European equity calls are for a lower open, while Asia-based traders have not really been enthused either way, with EUR/USD still a sell between $1.1400 to $1.1450. EUR/AUD is interesting as both currencies are seen as having major vulnerabilities, however the pair has traded in a 23 point range today and on the daily chart and is tracking sideways. With this in mind, traders could look to trade in a range of A$ 1.4742 to A$1.4484, although a break of A$1.4484 would suggest more aggressive short positions. With a number of domestic concerns it’s amazing how the AUD is rallying against any currency.

Talk of Australia losing its AAA sovereign rating has been in focus, but for this materialise one has to take a view on Australia’s debt-to-GDP ratio. It seems as long as this percentage is below 30% then the rating remains safe, but this could be Australia’s effective ‘Grexit’ moment, whereby we simply don’t know what the implications mean for markets. Naturally we would see a strong move higher in bond yields, with foreign money exiting with ferocity, while the loss of confidence from businesses would cause equities to fall heavily. It would also provide the opposition with so much ammunition that it is hard to not see a change of government, although if Labor is governing then naturally they would argue that they inherited an irreversible situation.

The fate of Australia’s credit rating in the hands of politicians

It is important to understand that the fate of this most converted rating lies in the hands of Australia’s politicians, who will need to manage the fiscal position of the country with greater skill. Terms of trade (and subsequently revenue) will not only be impacted by Australia’s resource price makers, but also how China fares. From what we are seeing in some of the Chinese private sector surveys, it is not as pretty as the official numbers suggest. A 6 handle on China’s growth beckons.

Back to the present and it seems the currency market is lacking some direction, although this should change next week with Janet Yellen’s testimony. The same could be said for the ASX 200, although the trend seen since the 16 January is looking tired and showing signs of topping out and in danger of rolling over.

There aren’t any glaring short signals (on the daily chart) yet, but the earnings that are coming out don’t justify a move through 6000 either. Market internals are stretched as well, with 84% of companies now above their 50-day moving average. The ‘value’ trade is to buy the index closer to 5740 (trend support drawn from the February 2014 low), which also coincides with the 20-day moving average. Bull markets need pullbacks so that new capital can enter, so a pullback after the recent run should be seen as a positive development.

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Many are asking if we have turned a corner from the period of high volatility and in for a longer period of consolidation and lower volatility. Perhaps it just feels less volatile as we have become accustomed to greater volatility and expansive intra-day ranges and have adjusted strategies to match. Next week seems pivotal for volatility, which in turn will shape all parts of the financial markets and the strategies that market players express, so expectations around future Federal Reserve policy and Greece’s future in the Monetary Union should make next week quite a binary event with regards to volatility.

Comments

    • 5×8, there is also a reported 9 trill. being set fire to in the oil and gas sector over there. How this pans out for the US is anybody’s guess. But for my call they are in a much worse position than we are. With these amounts of money at stake we will soon know.
      When I first heard of a trillion I wrote it out, its a staggering number of zeros. WW

    • The Traveling Wilbur

      I don’t know what Captain Stevens is complaining about in regard to this… imagine what funding costs would be if all this cash was not sloshing around out there. : )

    • Some of the comments on that article are instructive…

      … things like suggesting that Greece be stripped of its wealth. Absurd neo-fascist drivel.

      I for one hope the Greeks tell the Germans to get stuffed. Germany is very quick to point the finger, but they never mention that their banks organised this situation, and their exporters benefit from a lower currency.

      The Eurozone is a failure. The sooner the nations whose economy don’t resemble Germany’s can adopt their own currencies, the better.

      • They never mention either all the debt they owed after WWII – which was forgiven.
        They never mention the Nazi looting and destruction of Greece, mass murder, committing every kind of debauched fascistic crime imaginable – and the total inadequacy of compensation.

        I’m with the Greeks.

        They should exit.

      • Yes, the Germans have some nerve. But then, that’s how they win World Cup’s. [email protected]

      • ErmingtonPlumbing

        “The sooner the nations whose economy don’t resemble Germany’s can adopt their own currencies, the better.”

        Why not just kick the Germans out of the euro, let them go back on the Deutsche mark and watch their currency go to the moon, smashing their smug manufacturing dominance.

        It would allow all of the EU to become more competitive, including not just Greece, Portugal and Spain, but France and Italy too, who’s unemployment numbers are also trending up.

        wouldn’t it be better for Europe’s future, to kick out one country instead of 3 or 4?

      • [email protected]

        Ermington lovin’ your thinking.
        the twist an …. mob need to remember what the consequences are if this contretemps expands.
        The deutchemark can only appreciate.

  1. The Traveling Wilbur

    VIX futures down to 17.68. Yep. 17. Unbelievable. It’s not my game, but that looks like an obvious buy between now and oh, I don’t know, say 2pm GMT? (Or until a few hours prior to that probably).

  2. The Traveling Wilbur

    Many are asking if we have turned a corner from the period of high volatility and in for a longer period of consolidation and lower volatility.

    Me and the VIX appear to agree with this – lower vol. for longer. Sans Greece of course (but that will be over one way or another, for the moment, soon). And further to this, another reason for that question being able to be asked at this time is that we are finally passed the point where “good news is bad news” (for the markets) and that in itself has calmed minds and volatility indices.

    Next week seems pivotal for volatility, which in turn will shape all parts of the financial markets and the strategies that market players express, so expectations around future Federal Reserve policy and Greece’s future in the Monetary Union should make next week quite a binary event with regards to volatility.

    Yup. It’ll either be volatile. Or it won’t. Binary indeed.

    • Pffft! FED QE comes back (i.e USDs to pay back all that juicy carry with) or vol stays. How else are you going to get more USD than the next guy? The Swissy is back at 0.95 for crying out loud

      • The Traveling Wilbur

        Maybe the SNB just have it in for day-traders? PS on that topic, if you’re not happy about current CHF levels imagine how the other 95% of the populous you had been betting against are feeling when they see that number… (those still able to look that is…)

      • Not happy? What? I went back in at 86. I just marvel at the algopudity of it all.

        Speaking algopidity must be time for a JPY ramp? I reckon there’s 50 pips in the session

      • The Traveling Wilbur

        @Nudge

        Sounds like a complex case of Schrodinger’s penis. Should be seen to immediately.

        EDIT: This comment does not constitute medical advice.

      • 🙂 In the eye of the beholders imagination – or desire………

        Looks like the Euro’s blood is running from it’s face.

  3. ISPs will hand pirates over to the movie houses, potentially without a court fight, under Australia’s proposed piracy code.

    As of September 1, Australian internet service providers will be forced to send warning notices to alleged movie pirates, under a draft Copyright Notice Scheme industry code unveiled today. Get caught three times in 12 months and rights holders can “facilitate an expedited preliminary discovery process” – in other words ask your ISP to hand over your details – bypassing a drawn-out court case like the current battle between Australian ISP iiNet and the backers of Academy Award-winning film Dallas Buyers Club.

    So that makes Sept 1 as good a deadline as any…

    http://www.smh.com.au/digital-life/computers/gadgets-on-the-go/isps-to-dob-in-movie-pirates-under-proposed-threestrikes-rule-20150220-13kc2c.html

    George Brandis says new scheme will shut down websites supporting terrorism and will provide funding for organisations to establish a counter-narrative

    Orwell? 1984? Just f#cking wow!

    http://www.theguardian.com/australia-news/2015/feb/20/coalition-pledges-18m-to-combat-extremist-websites-and-social-media?CMP=soc_568

    • I’m allegedly going to rout all my alleged pirate activity through a VPN address in Australia as a result of this.

      Or I could wait six months to buy the latest series of Archer on DVD

      Shit, then I’d actually have to own a DVD player….

      Looking forward to the first laser printer getting a cease and desist pirating letter from these scum

      What did they do to Malcolm? Must have been a better cheque than Conroy’s?

      • The government should be ashamed of themselves.

        I would love it if they would come to the rescue of one of my failed business models.

        Funny – I haven’t ‘shared’ one song since Spotify made music accessible.

      • “I would love it if they would come to the rescue of one of my failed business models.”

        It’s pretty hard to compete with people offering your product for free though! Don’t get me wrong, the entertainment industry treats its customers like absolute crap (at least they do in Australia) and it drives me insane, but they have spent money creating a product and they should be able to profit from that. I mean if someone comes along and offers your product for free, it’s going to badly distort the market.

        All that being said, I’m extremely worried about these proposed new laws.

      • Everybody with a ‘product’ has to manage their distribution to maximise their revenue/profit.

        The coke heads in the moving pictures industry have haf their heads up their bums for a decade or two too long and they are still fighting it.

        The music industry lost zero revenue from me as a kid taping stuff off the radio or dubbing mixes with my mates – we had no money to buy anything

        They ripped us off with $30 CDs until Napster showed us what convenience and choice looked like and how much we were being ripped off.

        It took the music industry another 10 years to work out their clients aren’t stupid and have a need for multi device digital convenience – hence Spotify and all of a sudden I am generating revenue for them again.

        I already pay for television for sport and news.

        I would rather shoot myself in the face than go to a movie theatre or try and find a DVD rental store who I will inevitably owe late fees to. I would actually only watch 10 or so movies in a year. (5 of which I would say weren’t worth my time let alone $10).

        I like a few of the new series that are totally unavailable on my pay TV – or even if they are – I don’t want to have to bother being at home or recording things.

        So at the moment – even if they banned my ability to access online content – The industry would be getting zero revenue from me using their current business model

        If they launch a Spotify equivalent – I will subscribe tomorrow

        I know they are trying to hang onto that guy who has a four metre pile of DVDs in his ugly lounge room – but seriously – how many of those guys are actually left?

        My two year old freaks out when his Bananas in Pyjamas takes longer than 6 seconds to buffer on YouTube – imagine telling him in a few years time that he has to wait three months for his favourite show to be released locally!

        VPN providers must be LNP donors too!