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ASX 200 finishes down, but not out, at 5475 -63.3 pts. Chinese moves misfire. Europe teeters. Dow futures down 170.

http://www.blogcdn.com/www.dailyfinance.com/media/2012/08/euro-cliff-b-615cs081412.jpg

The Euro teeters on the edge

  • After a resounding ‘No’ vote in Greece on Sunday the markets were always going to get hit. The question is; is this a panic or just buyers shuffling to the sidelines? Judging by the volume numbers today, it was more fence sitting than ‘get me out’ type trades. Certainly the late afternoon bounce was encouraging.
  • The equity market was whacked early as expected but good news on the jobs front, rebounding 1.3% online and in print, coupled with an inflation read at a benign 1.5% in June according to TD Securities/Melbourne Institute, brought some buyers back.We will also await the RBA meeting tomorrow for more guidance but odds are they will remain on hold with a watching brief. There was some bargain hunting around but we shall see if other markets are as relaxed about a possible Grexit.

TD monthly inflation numbers give RBA room to cut if needed

  • The upside of the crisis is the lower AUD. A big cheer has gone up from Governor Glenn Stevens as the AUD looks to be finally heading his way. It has only taken a Greek meltdown to get it below 75c but it has happened. A six and a half year low will help exporters.
  • Banks and other financials bore the brunt of the mark down early but bounced back really well as the afternoon wore on with Commonwealth (CBA) – 0.42% nearly in positive mode after a near 2% fall early and the other three only off around 0.5%.AMP – 2.41% and Lend Lease (LLC) – 1.75% were the worst performers apart from wealth managers that fell harder on a report that major banks could be a seller of their wealth management arms and equity market weakness.BT Investment (BTT) – 2.18%,Perpetual (PPT) – 3.86% and Challenger (CGF) – 2.91% the worst affected.
  • In resource stocks, iron ore miners were weak, not surprising given the continued weakness in the ore price. On the futures market, the most active September iron ore futures on the Dalian Commodity Exchange touched the daily downside limit of 4 per cent, falling for the seventh day to 394.5 yuan a tonne, the lowest level since April 23.BHP – 2.18%, RIO– 2.55% and Fortescue Mining (FMG)- 5.77% all off with gold shares the bright spot on a weakening dollar and a better gold price. Evolution Mining (EVN) + 7.3% was a stand out with Northern Star (NST) + 3.33%, Regis Resources (RRL) + 2.63% and Newcrest (NCM) + 2.63%.Energy stocks ran on empty today with big falls in Oilsearch (OSH) – 3.96% ,high flyer LNG – 5.16% andWhitehaven Coal (WHC)- 5.37%.United Group (UGL)- 5.48% was a big loser today on news that MLC has cut its stake
  • In the industrial space, Telstra (TLS) -16 % escaped unscathed but consumer stocksWoolworths (WOW) -1.77 %, Wesfarmers (WES)- 0.86% and Slater and Gordon(SGH) -5.22% resumed their falls, whilst one of last weeks’ winner Bluescope Steel(BSL) – 7.8% came back to earth with a thud.
  • The Affinity Education (AFJ) – 2.86% and G8 Education (GEM) – 4.09% proposal has taken another turn in GEMs favour as they picked up another 3% on market to take their stake to 19.9% and sit in the box seat. Affinity have engaged corporate advisers to fight the opportunistic takeover pitched at around 68c but look to have played themselves into GEMs hands after the profit downgrade last week.
  • In more local takeover activity, Pulse Health (PHG) unchanged has lobbed a $158m bid at Vision Eye Institute (VEI) + 11.85% in a scrip bid of 1.6 Pulse for every Eye. Expect to see far more M&A activity in these market conditions as companies with string balance sheets and ambition us the weakness to swallow their rivals.
  • Also in the news today was AGL (AGL) -1.77% writing off $600m as a result of a review of the business that will also see several assets in Queensland, South Australia and New South Wales put up for sale. The stalled expansion of the Camden coal seam gas project south of Sydney has been formally cancelled, but the Gloucester project will continue.
  • While we are talking utilities and gas prices, producers like Origin Energy (ORG) -3.66 % and Santos (STO)-3.37% have been accused of profiteering and hoarding capacity on pipelines, as industrial users seek more open access to scarce supplies at competitive prices. The accusations came in submissions made to the ACCC in its inquiry into gas supply on the east coast, which chairman Rod Sims has warned would trigger tough measures should any anti-competitive practices be unearthed.
  • Meanwhile in Asia, Chinese authorities threw the kitchen sink at the market over the weekend with a huge coordinated effort to stabilise things.Unfortunately it looks to be somewhat delusional to believe that you can hold the world on your shoulders much as Atlas found out. After brokers agreed to pump in $19bn and the defer IPOs, the market looked like opening around 7.8 % firmer but was smashed to losses not long after the opening before putting on around 2.4% at lunch then falling again in the afternoon making a mockery of the support package. The market is now only up 0.22% as the authorities seem to have been unable to stem the tide. Having fired a bazooka to fix the plunging market, it begs the question what happens if the market continues to tank.
  • Turning to Greece in surprise news, Yanis Yaroufakis has fallen on his sword after the historic ‘Oxi’ vote. Is he a true Oxi Moron? Seems he was made aware of the hatred of the euro group partners and resigned to help the PM do a deal. His parting comments on his tweet summed it up. “I shall wear the creditors’ loathing with pride”. This will help mend some fences and make Tsipras job somewhat easier and the markets will take this as a slight positive.
  • Tonight will be crucial to see how Europe jumps. Interestingly the Greek budget is now in balance and they can pay their obligations to the pensioners and civil service from income. It is just the debt that is the issue!

Bear in mind the difference between this ‘crisis’ and the GFC. Not even close, as the good work from Dr Shane Oliver and his team at the AMP shows, we have a long way to go yet on panic levels of contagion.

And the usual safe haven of gold has done very little. Even in AUD terms.

Unfortunately for the Greeks, they seem to not have learnt that too much partying leads to a big hangover. I suspect that in coming days they will find out the true cost of their national pride.

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An early Greek cure for a hangover was recently discovered on this papyrus. The “drunken headache” cure. Feeling the worse for wear, you would have strung together leaves from a shrub called Alexandrian Chamaedaphne, possibly wearing the strand around the neck. Given the problem with paying for drugs with Euro/Drachma, this may make a comeback.

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What happens now to Greece? No one knows. A step into the unknown for both the EU and the Greeks themselves. Good luck but at least without Yanis there may be some hope of a settlement.

Clarence

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