Lighthouse Morning Market Wrap – Not in my lifetime

Not in my life time!

The fact that the Case Shiller housing index printed better than expected (+0.67) seems to have predominated in trade in the US overnight with equity markets finishing in the black. The conundrum in this is that the Richmond Fed index was weak at -3 for its first fall in 6  months while at the same time consumer confidence in the US fell to its lowest level in 5 months at 62 in June from 64.9 previously. The Conference Board said this was the 4th month in a row and expectations of the future, particularly income, have been downgraded again.

At the close of play the S&P500 was up around 0.5%, the NASDAQ up 0.6% and the Dow rose 0.3%. Earlier European bourses were swinging wildly before closing roughly steady to higher awaiting the EU summit later this week. Our own SPI futures are up a little in overnight trade suggesting a slightly positive tone in today’s trade.

The big news in the run up to this leaders summit on Thursday, European time, was the reporting that Angela Merkel had said that there will never be shared responsibility for debts in her lifetime. We are not surprised by this obviously but as it is consistently with the previously articulated positions of the German political/policy maker class. Indeed Dow jones reported that the Bundesbank President is winding up the rhetoric,

The creation of a “debt union” in the euro zone would delay much-needed reforms and ultimately break promises made to the German people when the euro was launched, Bundesbank President Jens Weidmann said in an advance release Tuesday of an opinion piece in Austria’s Der Standard newspaper.

While continuing the European integration process is “worth all efforts,” the creation of a debt union, “in which decisions do not also mean responsibility, or the liability is taken over for others without control, would increase the current political and economic instability,” he wrote.

“The sources of the crisis in the euro zone would not be tackled, necessary reforms would be delayed” as a result of diminishing pressure to act, he said.

On currency markets the EUR came back from the earlier weakness but it has significantly underperformed the commodity bloc including the AUD and NZD with the latter closing at an all time high against the EUR with EURNZD around 1.5790 this morning. GBP found some support overnight and continues to benefit relative to the EUR as well – the recent low around 0.7950 looks in danger.

Just briefly in other news:

  • Egan Jones has downgraded Germany from AA- to A+on the back of “massive, additional, uncollectible receivables,”.
  • News Corp is reported, in the WSJ, to be considering splitting itself in two – shares rose 8%.
  • Greece appointed a Professor, Yannis Stournaras, as its new Finance Minister
  • France is planning to increase the minimum wage 2% – Merkel and Weidmann will love that!

Lets have a look at some of the markets we follow. (Apologies for the quality of the charts if you click they are perfect – I cant figure out what is wrong)

Copper: There is nothing sexy about this copper chart but the reason I put it in was that like crude and a number of other markets copper is consolidating near recent lows. Equally important though is the fact that these lows are also near the lows from December 2011 – should they break then we will know that markets have taken a material step down with regard to the outlook for growth and sentiment. Watch copper as a lead indicator.

EUR/USD: interesting time in the EUR which, as you can see in the candles, keeps bouncing back from intraday lows (longer tail than body). however as noted yesterday the  EUR is still biased lower although as I noted yesterday 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 still be needed to open the way back to the recent lows – 1.2440 was last night’s low. Feels more like a range than a trend at present.

AUD/USD: The AUD bounced nicely overnight back to 1.0060 and there is a growing chance that the AUD looks for the top of the recent short term range above 1.01. Presently we’d think that 1.0180 would hold it for now but chances are it does better for a day or two in the run up to the EU Summit.

ASX 200: The ASX 200 just clawed its way back inside the range yesterday – i remain of the view it will head lower .

On the Data Front

Nothing In Australia today but in the US tonight we have Durable goods and pending home sales.

Have a great day

Greg McKenna

www.twitter.com/gregorymckenna

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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