Another European deferral and stronger US data pushed shares higher overnight. A strengthening USD and subsequent pressure on commodity prices may take the gloss off the positive momentum this morning, although the dominant influence on today’s share market performance is likely to be the RBA’s interest rate decision and accompanying statement this afternoon.
The IMF gave Greece until the end of the month to cover repayments due this month, easing a credit crunch this Friday. Markets rallied in relief, but the long term viability of the European Union continues to ebb away as policy makers turn themselves inside out to avoid hard decisions. Comments from Greek leaders suggest there is still no engagement with economic reality. As a default becomes more likely, markets have steeled themselves, and the potential impact outside Europe is now greatly diminished. However, even a shrunken European economy still represents around one sixth of global GDP, and the world will feel the impact.
The RBA is judged unlikely to move interest rates again so soon after May’s cut. The focus becomes the bias, and traders will examine the statement closely. The RBA avoided typifying its stance in the last statement, with many analysts suggesting this is a “soft” easing bias. The risk today is that the RBA has no such bias, and making that explicit could see the AUD rally and shares fall.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.