The macro flux

The macro picture remains in a period of continual flux:

Source: Bloomberg
  • Greece appears to be at the crescendo before the final act – but it is far from over.
  • China has stabilised its equity markets – its economy is now in focus (to the upside).
  • The US is at the beginning of its earning season but that may be a side issue to the renewed sense that Fed lift off is only eight weeks away.

What’s spiking my interest  

The Greek bailout deal is far from complete. News the IMF is just inches from walking away from the deal, coupled with Alexis Tsipras’ comments saying he ‘doesn’t believe in this deal’, will keep it in focus. This will remain a constant theme throughout 2015.

China is releasing a plethora of data today – whether or not the ‘stability measures’ were meant to filter into the economy or not is a side issue but the likelihood they have is high.

GDP estimates are for 6.8% year-on-year growth in Q2. That is in line with the central government’s wish of ‘around 7.0%’. However, it may even be stronger than that – consecutive trade balances have seen strong export numbers and massive surpluses. In Q1, financial services made up 10% of GDP.

The turnover in Q2 was consistent with daily records (both up or down) – this may have seen this component of GDP spike further and could push Q2 GDP to the 7 handle.

Industrial Production hit a decade low in March at 5.9%. It had been creeping up in April and May but I suspect leakage from the QE programs to ‘stabilise’ the equity market may have seeped into this figure (see possible upside). The same argument could be made for retail sales.

The likely positives from China data today are skewed to the upside and the AUD’s test of the 73 cent handle may be a little further off. Commodities plays are also likely to have a positive flow through on the likely increase in expectations around the metals complexes.

The US rate cycle – with Greece dying down, the prospect the US can commence rate lift off has been growing. Over the past 72 hours, the USD has seen solid buying (until the surprisingly weak retail sales figures last night). Janet Yellen is due to address Congress tonight, then the Senate tomorrow.

Will the Q&A session coax out detail around a possible timeline? Will it also get Yellen to give a clearer picture of the Fed’s thinking? It certainly might. However, her track record has been almost flawless following her first meeting’s Freudian slip – expect her to keep her cards close to her chest but it is a risk.

The macro flux is far from over and will be a constant them for the remainder of 2015 – my word of the year has been vigilance. It remains my word of the year.

Ahead of the Australian open

We are currently calling the ASX up 12 points to 5589 – no surprises there considering the lead from the US. The near-2 percent rally yesterday seemed somewhat restrained. It’s pleasing to see liquidity creeping higher.

  • Volumes in the ASX are still depressed compared to pre-GFC levels but are finally start to grow after five years of declines – the wall of worry (money) is breaking down. Whether that is due to confidence in the markets or the fact money market rates are at record lows is a debate for another time.
  • Volatility over the year remains in a ‘comfort’ band despite the fact it has been steadily rising over the past three months.
  • Earnings estimates are also under review to the upside as the AUD’s decline over the year is seen as a positive and business conditions and confidence have steadily risen over the year

Earning season this year could be a slight positive rather than the expected negative.

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