ASX outperforms US, market has an Aus. rate cut priced as a probability, ECB's firm stance on Greece upsets equities, ASX futures down 24 points

No, you're not seeing things - the first chart is indeed showing Australia's ASX 200 outperforming the S&P 500 on a year to date basis. Now Australia, while still managing to hang onto some respectable headline economic figures, is by no means an outright superior trade at present; and we're just about to begin our earnings season today, which may influence this relative performance over coming weeks. However, one thing is for sure, the swift strengthening of the US dollar is no doubt a concern for the US economy and as I've been saying for a long time, I don't think the US Federal Reserve has the luxury of raising rates any time soon. And if they do, it will be a one-off token gesture (for the time being) to signal that they believe rates 'should' be higher, even though the primary measure of inflation is not forcing their hand.

Despite my view on US rates, right now we have a market that is still in love with the idea of the US raising rates, even if the statistical probability of this has been pushed from September 2015 to October 2015. At the same time, February Australian 30-day cash rate futures are trading at a price that indicates most investors believe that there is now a probability that the Reserve Bank of Australia (RBA) will cut rates by 25 basis points to 2.25% tomorrow - the market has priced in a 67% chance of this happening. So to add fuel to the fire of this US dollar strengthening theme, we now have positive interest rate differential expectations going for the US dollar. Let me say that again slowly - positive interest rate differential expectations; i.e., the expectation of the market is that that US interest rates will rise relative to those in Australia, even though neither central bank has moved yet. As a result we get (please see the third chart in today's article) a falling AUDUSD currency pair (in orange), a highly inverse correlation to the strengthening US dollar index (in black).

One wild card in this situation with regard to the intentions of the central banks is the price of oil. As we all know the price of oil has been volatile ever since it began falling dramatically in mid-2014. You'll see from today's second chart that the price of oil (in this chart I've shown WTI crude) has had its best session in two months. I'm not going to guess at when traders should jump back into a long oil trade, but we've just passed what seems to be a few weeks of consolidation and at least it looks as though traders have a level of buying support to base their risk from. Getting back to the point, if oil were to rise back to levels between US$70-US$100, rising headline inflation could give central banks a reason to talk tough again on interest rates and the mood could change for the US. But for now, I don't believe they have a credible excuse to raise rates.

By taking a quick look at the lower Commodities section of today's Global Markets matrix at the bottom of today's articles, readers will note the positive night across the board in commodities - this is beginning to creep into the five-day column. Traders will be relieved by a 1.75% lift in copper prices and one would imagine (given what happened during big down days in oil) that the lift in oil prices will buoy the market.

A very quick word on Greece - the European Central Bank and the newly formed Greek coalition were never going to get along, so the unfriendly press conference that has been much publicised was no surprise. Greece has already been given extremely favourable terms on its debt repayments from previous bailouts and the political response from Greece to snub the ECB's continuing efforts to work with the country is very much a spit in the face to other bailout recipients who have taken their medicine and cooperated with debt repayment plans and austerity measures, such as Spain and Portugal. There's just no way the ECB can offer Greece better terms than what it has, and the victorious Greek voters may now receive the first taste of what I believe was some broadly poor judgement.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: AU AiG performance of manufacturing index out at 9:30am, third party Japanese PMI out at 12:35pm, HSBC Chinese PMI out at 12:45pm, all Sydney time.

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