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An eerie hush for traders

No US, UK, German or Hong Kong trade yesterday – the leads for today’s intraday trading are non-existent.

Traders
Source:Bloomberg

With that in mind, yesterday’s jump in the ASX needs to be taken with a pinch of salt. However, the ASX is clearly finding a new trading range.

The state of play:
 

- The ASX is now range-bound between 5600 to 5750 points – CBA and TLS are the interesting stocks to watch currently as they too appear to be caught in range trading: TLS between $6.08 and $6.30; CBA between $81 and $86.

- The ASX has now only lost 69 points in the month of May – the VIX index has actually fallen this month from 18.1 to 15.4, a 14.9% decline. The range inside the VIX over the month of May, however, is the widest it has been since October 2014 (12.1 to 20.7).

- The fall in call/put spreads to current levels puts the perceived ‘risk’ in the ASX back at the same level as it was during mid-2014 when the Fed made it clear there would be no changes to the Fed funds rate in 2014 as it unwound QE3 – the low in the VIX then was 9.3.

- It’s also at the same level it was in 2013 and 2014 when Mario Draghi back-stopped the Eurozone with his ‘whatever it takes’ speeches.

- I reiterate what I said yesterday; complacent markets are scary markets – and complacency is leeching back into trade and thinking.

- Greece is edging closer to a ‘deal’ – however, the detail, size, scale and scope of that ‘deal’ is being blurred by the hour. Politicians are starting to chirp louder and louder about three key terms - ‘fairness’, ‘austerity’ and ‘empty coffers’. The Greeks owe the IMF €1.6 billion in debt payments in the next five weeks – where is that money coming from? So far the Greeks have used the IMF’s emergency fund to pay off its debt repayment – that is clearly unsustainable and a self-fulfilling cycle to default either now or in the future.

- Commodities continue to bounce around. Iron ore recovered a further 2.1% to go with the 3% on Friday night. Brent also jumped up and is holding above $65 a barrel.

- Interestingly, the price of petrol in Australia is back at the same levels it was in August last year at $1.38 a litre (before the oil bear market) – the boost in consumer confidence on the back of the falling oil price is likely to be reversed by this rise. The fact the RBA is unlikely to move rate again will only add to possible pessimism.

- Earnings growth has been further downgraded this week. Consensus estimates for the ASX in CY15 are for EPS growth at 1.89%.

- Current PE for the ASX 200 (as of May 25) is 20.87 times. The estimated PE at the end of CY15 is 16.75. Return on equity is currently 11.12% (May 25), estimated to be 13.58% by year end. This is not the most confidence-inspiring of fundamentals.

Ahead of the Australian open
 

Further lack of volume and direction from global markets due to the public holidays is likely to allow the ASX to follow its own momentum. We are currently calling the ASX down six points to 5715; the SPI futures market is suggesting an 11-point decline. Trade today will be a very tough day to call and is likely to see fluctuations as there is no major data in Asia at all.

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