Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets
News that Greece deferred its IMF payment due this week resulted in a bund rally as the sell-off in Greek bonds resumed. While optimism had been growing that progress had been made in negotiations between Greece and its creditors, it’s clear there is still a long way to go and some of that optimism might have been a little unfounded.
In the background, though, there was always the option Greece could bundle up its payments for the entire month and essentially buy itself a bit more time. This development came after news Greece had rejected proposals from creditors, saying the proposals were suppressive.
Comments by the IMF suggesting the US should defer lift-off until the first half of 2016 also caused a rally in treasuries and sparked some market volatility. The greenback managed to grind higher and even reclaimed some ground against the euro, which had been unjustifiably rallying this week.
Of course, focus now shifts to the latest read on US jobs as this remains one of the key metrics of the Fed’s opinion on lift-off. The market is looking for 226,000 jobs added with the unemployment rate remaining steady at 5.4%. After yesterday’s gains, I feel the greenback will remain bid heading into today’s data.
Cautious tone around the region
There aren’t many bright spots around the region, with China continuing to do its own thing while a degree of caution is prevailing among the rest of the region. A weaker AUD is somewhat supporting the ASX 200today after AUD/USD dipped back below $0.7700. Traders continue to look for selling opportunities in the AUD and I feel strength is likely to be taken advantage of by sellers.
This week’s pop above $0.7800 was taken advantage of by traders and the pair is on the back foot yet again. Support in the $0.7600 region is likely to be tested again in the near term. The healthcare space has been a clear beneficiary of the currency trade and we’ve seen the likes of CSL extend gains.
Meanwhile, the financials aren’t doing particularly well but I feel as the dividend yield rises, so will the interest in these names. Investors will be looking to beef up portfolios with some high yielding stocks heading into the end of the financial year.
Greece weighing on Europe
Ahead of European trade we are calling the major European bourses weaker. Not even a weaker euro looks like it will make too much of a difference at the open today unless we see it fall further.
In the grand scheme of things a day’s weakness is really not enough to make an investment case, particularly given the fact many analysts are already working on forecast of EUR/USD below $1.1000. We’d really need to see the pair resume its weakness for it to lend equities some support. There isn’t any key data on the European calendar today but I suspect focus will remain on Greece.