by Greg McKenna filling in for Chris Becker
Macro Wrap
It’s all about Greece and Europe again overnight as stocks fell across the board, commodities came under pressure and the USD was up once again. For mine, the Greece story is a convenient example of why, once again, the sanguine outlook that markets find themselves holding constantly doesn’t fit with this enduring GFC but this weakness is as much about the deterioration in the global economic outlook above and beyond this Greek and European debacle.
Have a look at Morning Links and the articles I’ve linked on China and it is easy to see why the Australian dollar and commodities are under pressure. It’s not just about the over used “risk off” term. Rather it’s risk off with a fundamental basis behind the wind back and this recognition of the fundamentals mean that the falls we are seeing may have further to go yet before resolution, even if Greece and Europe somehow muddle through. We are in for some “downside price discovery” as Doug Kass might say.
The chart of the CRB is above, which fell 3.35 pts last night to its lowest level since November 2010. It sits at 288 now but I can see it heading back toward the 2010 low around 250. Ugly!
The Macro backdrop is also continuing to deteriorate. The key measure from last night was the release of thee Eurostat Industrial Production data for the Eurozone which came in at -2.2% against expectations of the punditry of -1.4% and as you can see in the chart below things aren’t looking great at the moment for IP in Europe:
The futures on overnight trading are pointing to a fall of around 30 points or 0.74% given where the SPI futures are sitting. As I noted yesterday the impact of the Chinese RRR cut on global markets was non-existent in the current environment.
Bonds:
- US 10 year Treasuries closed 7 points lower at 1.77% while German 10 year bunds closed down another 6 basis points to 1.45%. In the UK gilts dropped another 8 points to close out the week at 1.88%
- Reflecting the re-ignition of the Greek and Spanish problems peripheral bonds were under pressure again with Italian 10’s up 19 points to 5.67%, Spanish 10’s up 22 points to 6.18% and Greece up 2.57% to 26.30%.
Currencies:
- The USD continues to build topside momentum with the euro under pressure again and now holding just above 1.28 and still headed toward my 1.2660ish target.
- The Australian Dollar can not avoid the carnage in global markets and as the worlds favourite punt has now fallen to the bottom of my 0.9960/80 target zone I’ve had for about 5 cents now. As I noted yesterday it does only seem a matter of time before it breaks lower toward my longer term 90/91 cent target I wrote about last week. I’ll update the outlook later today.
Equities:
- The Eurostoxx 50 was smashed overnight falling 2.33%. The FTSE 100 was off 1.97% with the rest of Europe largely falling in the range of 2-3%.
- The US equity markets are under less pressure than their European counterparts and the big three indices of the Dow, S&P and NASDAQ down around 1%, give or take.
Commodities:
- Crude fell another 1.4% based on the WTI benchmark and sits at USD 94.78 bbl
- Gold (USD) was down a little again and sits at $1556 USD an ounce
- Our friend Dr Copper was belted falling 3.71% and like other growth benchmarks has now also fallen off a cliff.
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