Greek no vote and falling commodities point to a nervous day
Faced with a combination of the Greek no vote, weakening commodity prices and nervousness about the possible spill over effects of plummeting Chinese markets, investors will be thinking safety first this morning.
While local markets look set to open lower this morning, the real test for world markets will be tonight’s reaction on European equity and bond markets. These are the markets directly in the firing line from any problems that do emerge in Europe. In particular, European bonds will reflect any growing concerns about the ECB and its long term capacity withstand the impact of debt defaults by Greece.
The conclusive no vote by Greece seems likely to lead either to a watering down of the troika’s conditions for extending further credit to Greece or to a full blown “Grexit”. From a market point of view both alternatives carry risks. The former will increase potential for similar demands from other European nations, while the latter will create a period of uncertainty and possible doubts about the long term viability of the Euro.
The local market will not be helped by Friday night’s large drop in oil prices or further weakness in the spot iron ore price. Oil has broken out of the holding pattern that was in place from much of May and June as traders waited on an expected cut in US shale oil production. The possibility of a significant increase in supply if sanctions against Iran are lifted, together with a strengthening $US have seen oil prices capitulate with potentially negative implications for energy stocks today.
Weaker prices today will dispel near term hopes of the ASX 200 index breaking clear to the upside of its 200 day moving average around 5585. Last week’s low at 5390 now represents initial support while a break below that could see a test of the 78.6% Fibonacci retracement of the October/March rally. This retracement level cuts in at 5309.
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Frequently Asked Questions about this Article…
The Greek 'no' vote has created uncertainty in global markets, particularly affecting European equity and bond markets. Investors are concerned about the potential for Greece to exit the Eurozone, which could lead to instability and doubts about the Euro's long-term viability.
Falling commodity prices, such as oil and iron ore, can negatively impact energy and mining stocks. This can lead to a broader market downturn, as seen with the ASX 200 index struggling to break above its 200-day moving average.
European bonds are in focus because they reflect investor concerns about the European Central Bank's ability to handle potential debt defaults by Greece. Any instability in these bonds could signal broader financial issues in Europe.
The ASX 200 index's 200-day moving average is a key technical indicator for investors. A failure to break above this level suggests market weakness, while a drop below recent support levels could indicate further declines.
US shale oil production impacts oil prices by influencing supply levels. Expectations of production cuts had previously stabilized prices, but recent developments, such as potential increased supply from Iran, have led to a drop in oil prices.
A 'Grexit', or Greece exiting the Eurozone, could lead to a period of uncertainty and raise questions about the Euro's long-term stability. This scenario poses risks for both European markets and the broader global economy.
Investors are nervous about the Chinese markets due to recent significant declines. These drops could have spillover effects on global markets, adding to the current climate of uncertainty.
The strengthening US dollar contributes to falling commodity prices by making them more expensive in other currencies. This trend can negatively impact global demand and lead to lower prices for commodities like oil and iron ore.
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