ASX 200: it’s all about Greece right now

June 23, 2015

Most major equity markets are in the black in Asia, with the notable exception of those in China that continue to face panicked selling after the retail dominated Shanghai Composite witnessed its worst week since the GFC. Most equity markets in the region have been buoyed by the notion that Greece will avoid defaulting on its debt in the near-term, with Athens conceding some ground to its creditors overnight. There’s no agreement yet, but the market is hopeful that Greece and its creditors will find common ground before Athens is due to repay €1.5 billion at the end of month. Negotiations are expected to continue throughout the week, with another summit reportedly planned for Wednesday.

The optimistic tone stemming from European has helped to push the ASX 200 around 1.3% higher at the time of writing. It’s not surprising that Australia’s major banks are leading the charge, with the sector 1.5% in the black at the time of writing. In fact, all major sectors are in positive territory as we head into the close. A softer Australian dollar is also helping to boost the equity market, although the flow-on effect is limited due to the somewhat volatile nature of the Australian dollar.

Stronger than expected Chinese manufacturing data may have similarly helped to augment sentiment. HSBC’s June flash China Manufacturing PMI jumped to 49.6 from 49.4, beating an expected increase to 49.4. However, the index remains in contraction territory for the fourth straight month, after only a brief push into expansion territory in February. This is likely why we didn’t see a massive reaction from either the ASX or the Australian dollar.

Market outlook

Buying into a hyped market is always a risky proposition, but if the euphoria continues the rally may gather speed. The risk is that Greece and its creditors fail to find more common ground this week and talks collapse, potentially resulting in the first default of a developed country. Locally, there’s not much to keep an eye on this week, and the small amount of local economic data due to be released may take a backseat to events in Europe.

From a technical perspective, the ASX 200 is nervously holding below 5,700, but it has broken out of its medium-term downward trend. The question that everyone is asking is, is the correction over? This week is very important for the ASX 200, both from a technical and fundamental perspective – we’re eyeing off a very important zone around 5,800.

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