Lighthouse Morning Market Wrap – Growth and Europe concerns

Worrying about worrying

The markets opened the week quietly in Sydney yesterday morning but as soon as Japan and the rest of Asia joined the fray it was fear, loathing and worry everywhere. The worry is about Europe of course and of the lack of leadership that is expected to be writ large by this week’s EU Leaders summit. The ASX 200 opened terribly but then came back across the day but the Dow fell 1% last night with the S&P 500 off 1.5% and the NASDAQ 2%. In Europe it was a bad night as well with the FTSE of 1.1% and continental European Bourse off 2% or more.

Cyprus isn’t a big country but its request for €4 bln to bailout its second biggest bank and the island nation re-iterated the rolling nature of the crisis with Cyprus now the 5th country to ask for a bailout. The Greek Finance Minister also resigned, Spain formally put its hand out for cash and the Head of the German Bundesbank in a most unhelpful bout of honesty said the EU is in a “critical condition”. The irony is that it is he, as head of the Bundesbank and German Chancellor Merkel who can offer the medicine to the patient but are withholding it – but we all know that don’t we?

Across the pond in the US however the data was more positive than the economic punditry had been expecting with new home sales up 7.6% to 396,000 in May while the June Dallas Fed survey came in at 5.8 which was nice compared to the -2.0 the market had expected and particularly given last months -5.1. We did hear from Richmond Fed President Jeffrey Lacker on potential new Stimulus measures from the Fed  but he said that more stimulus would just cause inflation.

I’m a long term China bull but I think the rescue of the economy from the 2008/2009 weakness has caused in many places the same type of imbalances that we have in the west with regard to debt and the need to get out from under it. For those who look to Beijing to stand and support its own economy and in doing so the globes and the Australian economy I offer you this article in the Shanghai Daily. I do this for no other reason than to reiterate that the global economy is the problem for markets it’s not just Europe so Stock prices, Commodities and Commodity currencies do and will remain under pressure and global interest rates will also remain biased lower until growth looks up – sustainably.

Lets have a look at some of the markets we follow.

CRUDE: The tropical storm would normally be putting upward pressure on WTI but for the moment the global concerns predominate and the price traded down to 78.00 for the current contract overnight before rallying to close at 79.20 Bbl. Crude is clearly trying to make a base at present but we remain wary of a fall toward 74 and potentially 66 Bbl

EUR/USD: The EUR is still biased lower although in the short term the dailies haven’t turned completely bearish on the basis of my indicators just yet. A break of 1.2436 would be needed to open the way back to the recent lows. Feels more like a range than a trend at present.

AUD/USD: The AUD is really doing very well, all things considered and has dragged itself back above parity after a low just below 0.9970 overnight. In truth though the AUD’s life is not its own at the moment and it is simply being buffetted by the ebb and flow of global worries. On the day it’s likely to be capped at 1.0040 and supported above last nights low. Slighthly longer term you can see in the chart above the fight that is the AUD at present as it is in a downtrend but keeps coming back from the lows

ASX 200: What a terrible open yesterday before a pretty good recovery over the course of the day. SPI futures however suggest a fall of  1% on the open today and I remain of the view the ASX 200 is going substantially lower .

On the Data Front

Guy DeBelle speaks in Australia today but this is a low impact event.

We’ll be watching for the other regional surveys of activity in the US to confirm what the Dallas survey said overnight, or not as the  key indicators of just where growth is headed for the US at the moment. Will it confirm the recent deterioration in the growth outlook? .

Have a great day

Greg McKenna

Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

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