Global Markets Overview - June 19, 2015

Fed genius adds to support

‘Double witching’ certainly played a big part in the indiscriminate selling on the ASX yesterday.

‘Double witching’, which involves monthly index options and futures (June expiry) expiring together, pushed the cash market in one direction yesterday as investors closed out.

This means new positions will be installed today – there should to be a reasonable bounce back over the course of the trading day.

What’s spiking my interest

· Janet Yellen is schooling other central bankers in communication. In one press conference Yellen managed to push the local currency (USD) lower, increasing US competitiveness. We saw a 100-point positive reversal on the DOW on news ‘it’s steady as she goes’ at the FOMC while simultaneously telling global markets she will be raising rates in 2015. Genius!

· Headline CPI in the US was solely driven be a massive spike in petrol pricing (+10.2%) so ignore that. Ex-food and energy CPI is pretty mundane and a little under expectations at 1.7% from 1.8% previously – the CPI read should completely rule out two rate hikes for the Fed funds rate in 2015.

· China – still silent on a further cut to rates for either the reverse requirement ratios or benchmark interest rates. Expectations would be for one more. However, the housing price decline is slowing, which could rule a cut out altogether.

· Japan – BoJ minutes were gearing up to be something exciting but, with Kuroda clarifying his position around the ‘weak’ JPY this week, the short covering rally has been stopped dead in its tracks. So nothing to see here.

· Grexit: Emergency meeting set for tonight. Pro-EU rallies in Athens. Further politicking from both sides. Plus fear mongering statements such as: ‘Greek banks may be insolvent as early as Monday’. Bank deposits are fleeing the country harder and faster than ever. Yet the market reaction was positive (DAX +1.1% ASE +0.4%). The markets are clearly convinced Greece will stay in the EU and all will be rosy.

· Australia – Janet Yellen’s genius is Glenn Stevens’ headache. AUD is through 78 cents again and remains as stubborn as ever above 76 cents - no interbank market or economist consensus is calling for a cut in 2015. AUD is blowing in the wind until the Fed lift-off.

· ASX’s discount to the MSCI world index widened further due to the witching hour of trade yesterday. I have changed my tune on the ASX for fundamental reasons and the underperformance to MSCI is reinforcing that view.

· The end of financial year trading begins Monday – the ASX is currently up 2.4% for the financial year. Fundies will want a stronger close to the financial year than that - a sentiment rally is very probable.

Ahead of the Australian open

We are currently calling the ASX up 41 points to 5566. The bounce will be index-wide and likely to be seen in all sectors.

EVAN LUCAS Market Strategist

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