Chinese indices finally found some footing yesterday and bounced back a bit enabling other equity markets around the world to breathe a sigh of relief and rebound as well through today’s European and North American trading sessions.
The big question now, however, is whether this is a momentary pause or the start of a base building process? It’s hard to say whether the rebound was because of all the measures the government has introduced to reduce selling pressure including trading halts, bans on selling by insiders and large shareholders and threats to arrest short sellers, or because indices have completed a full retracement of their March rally and were approaching their 52-week lows.
In the best of circumstances one would expect markets to remain volatile for some time after China’s big upward and downward shocks of the last several months, but with so much interference in the market now, it's hard to say how long this may last and what could happen when selling bans eventually come off.
Looking to markets that were getting hit by contagion effects like commodities and Japanese markets, we have seen a reduction in fear trades with stock markets in Japan and Australia rebounding and JPY, a popular haven for capital in times of crisis, giving back some of its recent gains.
Commodities have also been on the rebound today with Brent and WTI crude oil rebounding 2.5-3.0% and copper gaining 2.2%. This has enabled resource currencies to rebound, particularly NOK, which has also benefitted from a reduction in Grexit fears today.
Overall, it was a quieter day for news surrounding Greece, and the market took a lack of negotiating in the media as a sign that perhaps some actual work was getting done for a change. Greece is working on a new proposal apparently with help from France. If true, this is particularly significant as the creditor group appears to be fracturing into two factions, one consisting of France, the IMF, EUCO Chair Tusk, the US and maybe others looking for a deal that combines more reforms with debt relief, and the Germany led faction which also includes a number of northern and eastern European countries still stonewalling on debt relief. German finance minister Scheuble apparently offered to trade Greece to the US for Puerto Rico, suggesting they aren’t really open to ideas from elsewhere.
Renewed hopes for a deal boosted major continental European indices 2.3-3.5%. UK and US markets also rose but since they didn’t fall as far they didn’t bounce as much gaining 1.5% for the FTSE
and 0.5% for the S&P. Greece has submitted new reform proposals on time with a Parliamentary vote on some interim reforms scheduled for Friday morning. If this one doesn’t get immediately squashed, there’s a Eurogroup finance ministers meeting set for Saturday morning and the big EU summit planned for Sunday.
Heading through the US afternoon and into Asia Pacific trading, much of the initial enthusiasm has faded and many markets have been falling back toward where they started the day. With limited economic news on the way, volatile Chinese markets remain the big wild card. Ongoing negotiations surrounding Greece and Iran could also play a role if there are any new developments.
The main scheduled data event tomorrow is the Canada jobs report. While some retrenchment following a big increase like we was last month happens often, the 10K decrease street is expecting seems a bit much to me, considering that oil prices held up near $60 through June and PMIs were in the mid 50’s. I’m thinking a 15K increase with a tilt toward part-time since its summer. This report could spark significant trading in CAD with the street still divided on whether the Bank of Canada will cut interest rates again next week or not.
There have been no major corporate announcements after the US close today.
Significant announcements released overnight include:
UK interest rate and QE target no changes as expected
IMF GDP forecasts
World cut to 3.3% from 3.5%
US cut to 2.5% from 3.1%
Canada cut to 1.5% from 2.2%
UK cut to 2.4% from 2.7%
Germany unchanged at 1.6%
Russia raised to (3.4%) from (3.8%)
Japan cut to 0.85 from 1.0%
China unchanged at 6.8%
India unchanged at 7.5%
Other advanced (excludes G7 and Eurozone, includes ANZ) cut to 2.7% from 2.8%
Canada housing starts 2.2K vs street 190K
Canada new house prices 1.2% vs previous 1.1%
US jobless claims 297K vs street 275K
US natural gas 91 BCF vs street 87 BCF
Germany trade balance €19.5B vs street €20.5B
Sweden unemployment rate 3.9% vs previous 3.7%
Greece consumer prices (2.2%) vs street (2.4%)
Greece unemployment rate 25.6% as expected
Upcoming significant announcements include:
9:50 am AEST Japan producer prices street (2.2%)
11:30 am AEST Australia home loans street (3.0%)
3:00 pm AEST Japan consumer confidence street 41.7
7:45 am BST France industrial production street 2.4%
9:00 am BST Norway consumer prices street 2.0%
9:00 am BST Italy industrial production street 1.2%
9:30 am BST UK construction output street 3.1%
9:30 am BST UK trade balance street (£2.1B)
10:00 am BST Greece industrial production previous 0.4%
8:30 am EDT Canada jobs change street (10K)
8:30 am EDT Canada full-time previous 31K
8:30 am EDT Canada part-time previous 28K
8:30 am EDT Canada unemployment rate street 6.9%
1:00 pm EDT US Baker Hughes drill rig count previous 862
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