ASX at the close

Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets

Uncertainty breeding fear

Asia is trading risk-off as confusion continues to reign in global markets – a Greek deal is yet to come together and the threat of a messy default looms. It’s almost as if investors don’t know how to move on without closure on the Greek issue.

The plan was to have an agreement between Greece and creditors which would have then been discussed by finance ministers and EU leaders. However, this did not play out and you get the sense leaders will have to work deep into the weekend to try knock something up by Monday.

Greek PM Alexis Tsipras remained optimistic a deal will be struck while German Chancellor Angela Merkel said she felt things had regressed a bit. In fact, the only development in Asian trade was a comment by Merkel suggesting it is not possible to find new money for Greece beyond what is left in the bailout programme.

Regardless, price action is certainly in a holding pattern as the eurogroup plans to reconvene on Saturday. The potential scenarios seem endless but the optimists feel a Grexit will not eventuate due to the union’s desire to remain whole. Capital controls being imposed will now be the biggest risk for Greece and markets in the near term.

China extends losses

While investors are in ‘wait and see mode’ on Greece, traders have been finding shorting opportunities as some markets trade risk-off. Recent falls in China are being greeted by mixed feelings among traders with a degree of scepticism that we could see a rebound at any time. For now, though, the bears are certainly in control with equities getting mauled.

Reasons for the slump in China stretch far and wide, including deleveraging, frothy valuations and extreme volatility causing nervousness.  While some markets in the region seem to have ignored some of the wild swings in China for a while, it’s now certainly casting a shadow on some key markets.

Apart from the Nikkei, which remains steady near 15-year highs, we have seen an unwind in some key markets today, including the ASX 200, which is now only up around 3% for the financial year. Volume in the domestic markets has also been huge today and perhaps this has something to do with the fact it was options expiry yesterday.

Last financial year we saw the local market sold off right up until 30 June as investors unwound underperforming stocks only to rebound significantly on 1 July like clockwork. Perhaps we are in for similar price action this time round but clearly there is a lot more at play right now than at the same time last year.

Weaker open for Europe

Uncertainty around Fed lift-off, the Greek deadlock and heavy losses in China remain the dominant themes. This makes it a very confusing landscape for investors and uncertainty breeds fear.

Heading into European trade, we are calling the major bourses weaker with a speech by BoE Governor Mark Carney likely to be the highlight in the absence of fresh Greek developments.

Looking at next week’s calendar, the main event will be what happens come 30 June when Greece’s IMF payment is due. Thereafter, focus switches back to a data-dependant US with payrolls numbers the highlight.

The week will be made even more interesting by the fact it is a short trading week for the US with Independence Day on Saturday, resulting in the holiday being moved to Friday. As a result, there will be a raft of releases to keep an eye on between Wednesday and Thursday ahead of the long weekend.

All these releases will have a bearing on how the greenback trades and we have been seeing it rise into non-farm payrolls releases off late.

Comments

    • Chinese Stocks Tumble as Morgan Stanley Says Don’t Buy the Dip – Bloomberg Business

      http://www.bloomberg.com/news/articles/2015-06-26/shanghai-composite-heads-for-worst-month-in-year-as-futures-drop

      Chinese stocks tumbled, with the Shanghai Composite Index heading for its biggest loss in eight years, amid mounting concern that the nation’s longest-ever bull market has peaked.

      Friday’s rout was paced by technology shares and smaller companies, the leaders of China’s world-beating rally through mid-June. About 66 stocks fell for each one that rose on the Shanghai Composite, which sank 7.9 percent to a seven-week low of 4,170.18 at 2:29 p.m.

      China’s $8.8 trillion stock market has plunged from first to worst on global performance rankings as leveraged speculators unwind their positions and a growing number of analysts warn that valuations have climbed too far. Morgan Stanley advised clients to refrain from purchasing mainland shares in a report on Friday, saying the Shanghai Composite’s June 12 high likely marked the top of the bull market. … read more via hyperlink above …

  1. The Pope and the market … Dr Oliver Hartwich, Executive Director of The New Zealand Initiative writes …

    https://nzinitiative.outreach.co.nz/?Ns=&Na=view-msg-public&SMESG-oid=9185&Scontact=2149250d

    Pope Francis’ encyclical Laudato Si’ has been both praised and criticised for its focus on the environment. That is indeed what a large chunk of this circular letter sent to the bishops of the Catholic Church is about.

    However, the pope’s tractate on the environment is just an application of his general lament on the modern world. Anthropocentrism and relativism are identified by the pope as evils of our time.

    Yet reading through the encyclical, I am not sure that Francis actually understands what he is writing about. Some of his observations are so far off the mark that they would be offensive if one took them seriously. … read more via hyperlink above …

  2. Hey Hugh, just curious as to why you have to post every link as a separate comment? Often I’ll see quite a number of comments on a thread and find out it’s all just you.

    • The Traveling Wilbur

      Obviously just another diligent RE agent maintaining expectations of their clients judiciously. Very judiciously. Sounds like best pratice to me and is only likely to encourage even more sales and even higher prices. Well done to all involved, especially the motivated buyer who will no doubt be so pleased to be the subject of this latest round of in-depth journalistic reporting.

      /reusa.

      • +1 Could be described as dog whistling on property, i.e. the power of suggestion…. another success story (not for most who could never buy into Malvern, Toorak etc.)! Similar to clapping and group hugs that are encouraged by RE agents at auctions, memes such as property always goes up, rent money is dead money etc. Fairfax was one of the top 10 quality broadsheets internationally in 1980s… now it’s click bait, lifestyle, AFL/NRL and RE propaganda….

        Re. the ASX, if the AUD declines, my hunch is that it should attract newer and more international investment looking for if not a safe haven, stability and chasing some yield, assuming international funds do their research on individual stocks and sectors.

    • 2big2failMEMBER

      I stopped reading Domain. Same story every day..($$$$ over reserve type of a story)

    • The Traveling Wilbur

      Engine problems? Barry should’a bought a Holden.. oh. Wait. I mean a Ford. Oh, f’k. This post isn’t goin’ well. Maybe… yep, got it… a Prius!

  3. Racial tensions spill over into property auction | afr.com

    http://www.afr.com/news/policy/tax/racial-tensions-spill-over-into-property-auction-20150626-ghym44

    A Melbourne property auction turned nasty when a spectator turned to a Chinese family and demanded to know whether they had the correct residency status to purchase a home.

    The Property Council said it was concerned about “xenophobic sentiment” after the ugly incident, which occurred as a parliamentary inquiry in Canberra began hearing evidence about the factors driving the housing affordability crunch in Sydney and Melbourne. … read more via hyperlink above …

    • This is indeed ugly. Worse, it’s easily avoidable. The fault is entirely with the Government.

    • “There’s a misconception from the public about Asian buyers because they read the sensationalism in the papers. The majority of them are normal buyers like any families who want a good home.”

      haha hilarious – yes just local and foreign speculators that want a home…. well not really a home… just a place so they can beggar thy neighbour and rentseek off the community.

      Housing – what a total f..g mess.

    • PantoneMEMBER

      “Property Council of Australia chief executive Ken Morrison said foreign investment was the solution to Australia’s high property prices.

      “A new home purchased by a foreign investor enables up to four others to be built, adding to local supply,” he said. “

      COMPUTER SAYS NO

    • billygoatMEMBER

      Nauseating that the agents play the race card. I couldn’t finish reading the article. At least the 60 year old had balls to ask ‘the’ question that is not asked by anyone with any authority or responsibility. I hope the whole mess comes crashing down – majority of Aussies are sheep lead to slaughter & those that speak up are shot down by someone seemingly in authority – in this case a f*#king real estate agent defending his industry’s flogging property to foreign nationals with the expectation that they are lauded for maintain high property prices – insanity!