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The state of play
- S&P 500 and the DOW both bucked the historical trend of ‘sell in may go away’ to finish up for the month – (but was down in the final session, meaning the opening session in June is to the downside)
- The S&P made a new record high on Thursday at 2130 – that equates to a trailing PE of 18 times its highest level since 2010. However, unlike 2010 when QE was on the up and rates were plummeting to the floor – 2015 sees anaemic EPS growth (actual and forecasted), GDP is struggling, QE is a memory and the Fed funds rate lift-off is months away.
- Growth in the second half of the year is going to have to work very hard to reach the forecasts laid out. There is a likely bounce coming and a solid bounce at that - but the rate and size needed to reach the forecasted level are not likely.
- Expectations would be for uneven moves in equities (both positively and negatively), and the moves in the bond market will be interesting considering the likely Fed event in the second half of the year. Will the back-end of the curve remain low to support equities?
- The semantics around ‘when’ lift-off starts aside; the growth outlook in the second half of the year is a dilemma for equities, particularly when they are trading on an 18 times plus trailing PE. The winter months are going to be rocky.
- Greece – T-5 and counting ‘defaulting’. Will they miss it? Yes, they will. However, that isn’t the end of Greece.
- There was a ruling made in 1970 that if you have several debt payments pending in one month, the sovereign nation can bundle all payments together and paid it off all at once at the conclusion. So although Friday is a mass headline, the noise around it just that – noise they have till June 19.
- There has only been one nation in history to take this path and that is Zambia, and it pushed that nation to the cliff (and slightly over it). So, Greece is going to feel the pinch post the payments.
- ‘Grexit’ is likely to be used as a headline almost every single trading day till June 19 – the likely outcome is for a bailout to be reached; a long lasting plan to remove Greece from its current path is not.
- Massive week for Australian economy data – inflation reads, building permits, current account numbers, services PMI, Trade balance, and retail sales.
- The big two: GDP and the RBA.
- GDP: Australia’s annualised growth is estimated to be 2% annualised – ‘below trend’. The question the numbers need to answer is how much of it has been affected by the collapse in mining both on the spend side and the activity side? And; is there any sign non-mining is at least growing slightly.
- The RBA: No cut, but the language in the statement will be everything – If there is no clear recognition of what is happening in inside business confidence and spending of if there is no clear signs of concern around growth expectations – the AUD will rise and the equity market will fall as the conclusion will be Australia is moving closer to a growthless era and the RBA has nothing left to combat it as the easing cycle has finished.
- May might have been the month of complacency but June is likely to be the month of concern.
Ahead of the Australian open
We are currently calling the ASX 200 down 23 points to 5755. The SPI futures market closed down 19 points to 5763 on Saturday.