How much further has the Grexit derisking rally got to go?
For equity markets, this week has been all about removing the “Grexit” risk premium built into valuations. Markets have been quick to make this adjustment; with the ASX 200 index closing 5.3% above last week’s low.
Market attention is now likely to focus on how much further this de-risking rally has to play out. Traders will be looking to assess fair value for stocks against a macro background of downside risks to China’s economy and commodity prices and the likelihood that the US will soon begin to lift interest rates. Given this backdrop, the current rally in the ASX 200 seems likely to end well short of high just below 6000 it established in April.
Buyers may also soon start to become cautious ahead of the upcoming profit reporting season in light of the price recovery over the past week. As with yesterday’s production report by Woodside this morning’s release by Santos’s has revealed the impact of falling oil prices with the risk of worse to come given excess supply capacity in international markets.
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Frequently Asked Questions about this Article…
The 'Grexit' risk premium refers to the additional risk factored into stock valuations due to the potential exit of Greece from the Eurozone. This risk has been removed recently, leading to a rally in equity markets, such as the ASX 200 index, which saw a 5.3% increase.
The ASX 200 index has experienced a rally, closing 5.3% above last week's low. This increase is attributed to the removal of the 'Grexit' risk premium from market valuations.
The continuation of the current de-risking rally could be influenced by downside risks to China's economy, fluctuations in commodity prices, and the potential for the US to raise interest rates soon.
Investors might become cautious ahead of the profit reporting season due to the recent price recovery and concerns about the impact of falling oil prices, as highlighted by recent reports from companies like Woodside and Santos.
Falling oil prices have negatively impacted companies like Santos and Woodside, as evidenced by their recent production reports. The excess supply capacity in international markets poses a risk of further price declines.
The article suggests that there is a likelihood of the US raising interest rates soon, which is a factor traders are considering when assessing fair value for stocks.
Downside risks to China's economy could potentially dampen the current stock market rally, as traders assess these risks against stock valuations.
Investors should consider macroeconomic factors such as China's economic risks, commodity price fluctuations, and potential US interest rate hikes when evaluating the fair value of stocks in the current market.
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