Article / 23 June 2016 at 0:57 GMT

Today's Trade: ASX higher as 'leave' fears recede

Trading Desk / Saxo Capital Markets
  • Local markets opened higher as fears of a Brexit dimmed
  • Sterling rallied as 10-year Treasury yields fell from a two-week high
  • Crude retreated after US inventories declined less than forecast
  • AUDUSD is benefiting from copper extending its gains 

By Saxo Capital Markets (Australia)

The local market opened slightly higher on expectations the "remain" camp will win today's Brexit vote. The ASX200 was up 19 points at the start to 5290, while the All Ords was up 17 points to 5365. The banks and large miners were driving the gains.

 Miners such as BHP were driving early gains in the ASX. Photo: iStock


  • US stocks snapped a two-day winning streak Wednesday as oil prices fell and investors braced for the UK’s coming vote on membership in the European Union. The S&P 500 finished lower after swinging from gains to losses throughout the session, while European shares edged higher as fresh polls showed British voters may elect to leave the EU even as bookmakers’ odds imply a one-in-four chance of that happening. 
  • Sterling rallied as 10-year Treasury yields fell from a two-week high after investors bought $46 billion of debt at auction. 
  • Crude retreated after US inventories declined less than forecast. Concern that the UK could secede has whipsawed riskier assets this month, wiping more than $1 trillion off global equity values last week alone. 
  • Bookmakers’ odds on the “Leave” vote prevailing have fallen to about 28%, from 43% a week ago, following the murder of pro-Europe UK MP Jo Cox. Even so, opinion polls suggest the vote is still too close to call, with central bankers including Federal Reserve Chair Janet Yellen indicating a victory for Brexit would destabilise global financial markets.
  • The Dow Jones Industrial Average slipped 48.90 points, or 0.3%, to 17780.83. The S&P 500 fell 3.45 points, or 0.2%, to 2085.45, and the Nasdaq Composite Index lost 10.44 points, or 0.2%, to 4833.32. The Nasdaq Biotechnology Index jumped 0.7% after ending a nine-day losing streak on Monday, the longest in two decades.
  • The MSCI All-Country World Index ended Wednesday little changed after rising 2.6% over the past three days. The Stoxx Europe 600 Index rose a fourth day, climbing 0.4%. The FTSE 100 Index of UK stocks climbed 0.6%, with trading volumes 14% above than the 30-day average. 
  • MSCI’s Emerging Markets Index rose 0.5% as stocks in eastern Europe, the region that arguably has the most to lose in the event of a Brexit, rallied. 
  • Chinese equities traded in Hong Kong-led gains in Asia. Index futures signalled another mixed day in Asia, with contracts on Japan’s Nikkei 225 Stock Average down 1.2% in Chicago, while those on Hong Kong benchmarks advanced 0.1%. Futures on Australia’s S&P/ASX 200 Index and the Kospi index in Seoul retreated 0.3% and 0.2% respectively in most recent trading.
  • The pound rose 0.4% to $1.4757 after earlier climbing as much as 0.8% to its highest level since December 30. A poll on EU referendum voting intentions conducted by Opinium showed 45% would opt to leave and 44% to remain. A separate survey by TNS had 43% backing Brexit and 41% voting to stay.
  • The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, resumed declines, falling 0.4% after snapping a four-day losing streak on Tuesday. Brazil’s real and South Africa’s rand were the biggest gainers among major currencies. 
  • The yen added 0.3% to 104.41 per dollar, trading close to its highest level since August 2014. Japan’s Ministry of Finance would be unlikely to use unilateral intervention in the currency market as a tool should the yen surge on a vote in favour of Brexit, said people familiar with the matter who didn’t want to be identified.
  • Benchmark 10-year Treasury yields fell two basis points, or 0.02 percentage point, to 1.69%, dropping for the first time in five days. The US Treasury auctioned $28 billion of seven-year debt late Wednesday, after selling $5 billion in 30-year inflation-linked bonds and $13 billion in two-year floating rate notes earlier in the session. Federal Reserve Chair Janet Yellen reiterated on Tuesday that a vote to leave the EU could have “significant economic repercussions”, even as she warned against exaggerating its global impact.
  • Oil declined for a second day in New York after US government data showed crude stockpiles shrank by 917,000 barrels last week amid a jump in imports, a drop that was less than energy analysts had anticipated. 
  • West Texas Intermediate futures fell 1.4% to settle at $49.13/barrel, after climbing to as high as $50.54. Copper rose for a fourth day and most other industrial metals gained as the dollar weakened before the UK vote. Gold dropped 0.3%.

Source: Bloomberg,

Local markets and commodities

  • Bank of New York Australia ADR Index -0.2%. BHP Billiton ADR -0.9%. Rio Tinto ADR +0.6%
  • Spot gold traded with very little volatility, to close down just 0.1% to $1,266. Gold fell to a two-week low on Wednesday after its biggest one-day drop in four weeks on Tuesday, as expectations that Britain will vote to remain in the European Union reduced risk aversion and lent a firmer tone to stocks. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil gave up the prior day's gains, with WTI and Brent down 2.3% and 2.2% to $49.02 and $49.80 respectively. Oil prices on Wednesday sank after a smaller-than-expected US inventory drawdown. Crude futures rose early in the day, before the US Energy Information Administration reported a stockpile decline of 917,000 barrels for the week ended June 17.
  • While it was the fifth consecutive weekly draw for crude, the number posted by the EIA was smaller than a 1.7 million-barrel drawdown forecast by analysts in a Reuters poll. It was also about a third of the 5.2 million-barrel drop reported on Tuesday by the American Petroleum Institute. US gasoline demand over past four weeks rose 3.9% year-on-year, but stocks of the motor fuel rose 627,000 barrels last week, while distillates grew 151,000 barrels. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore was the only commodity to really make a move higher, up 2.8% to $52.29. Fortescue FY16 Total debt repayments now at $2.9bln. Repayments are to generate $21mln in interest payments. Term loan repayments came from accumulated cash. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals like gold saw little movement as it sat and waited to see what happens with Brexit. Copper rose for a fourth day and most other industrial metals gained as the dollar weakened before the UK vote. China exported 85,000 tonnes of refined copper in May. It was the second-highest monthly outflow on record, eclipsed only by the 102,000 tonnes that left the country in May 2012. 
  • The copper market, which is more accustomed to tracking what goes into China, the world's largest single consumer of the stuff, is now fretting that more, maybe much more, may be on its way. With domestic production also rising strongly, up 7% year-on-year in May, and the seasonal northern hemisphere summer lull in fabricating activity fast approaching, it is tempting to view last month's export surge as a warning sign that the Chinese market is saturated. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Alumina (AWC): Alcoa to file form-10 on split next week
  • Caltex Australia (CTX): Considering options for storage assets: Australian
  • Fortescue (FMG): To repay $500mln senior secured term loan that’s due 2019, according to regulatory filing
  • Gateway Lifestyle (GTY): To build 200 modular homes at Old Bar: AFR
  • Wesfarmers (WES): Enlists Archie Norman for UK home-improvement push
  • Woolworths (WOW): Said to have considered sale of $A2bln pub business: Australian

Stock to watch: S32 (S32.xasx)

S32, the BHP spinoff and miner of metals has taken time after its share price recovery to consolidate. S32 has found a ceiling at $A1.70 for the past two months. Failing to break, S32 would likely retrace to $A1.50. A breakout however would be fuelled with the consolidated energy to climb first to $A1.85 before targeting its initial IPO value of $A2.00. Either way, S32 looks to be at a point where it's looking to make a clear move.

Source: Saxo Bank
Broker upgrades and downgrades

  • Ardent Leisure (AAD): Raised to buy vs neutral at Goldman Sachs
  • Charter Hall (CHC): Cut to neutral vs buy at UBS
  • Platinum Asset Mgmt (PTM): Cut to underweight vs equal weight at Morgan Stanley

Open positions

Original trade view


As copper is extending its gains towards the recent June high of 214.50, AUDUSD seems to be benefiting from it.  AUDUSD is now approaching the next resistance level of the 0.76 handle which was a strong support level during March–June 2015. 

The recent rally in bond yields is also boosting AUDUSD but the 10-year bond (XT) is hovering at the previous resistance level of 97.75, therefore any reversal may restrict the current upside momentum in AUDSUD.

The price actions of EURUSD continues to be choppy as it climbed back up to the downtrend line. The interim resistance level is expected to be at 1.1356 which is the 50% retracement (May high-May low) but EURUSD has potential to rally above the 1.14 handle should the "remain" vote come out, although the downside risk is largely higher.

GBPUSD briefly broke above the long-term downtrend yesterday and it would need to be monitored in the next 30 hours.

Source: Saxo Bank


Source: Saxo Bank

 AUS200.i and US500.i

The AUS200 appears to have found solid resistance at 5,300 despite strong price actions from the big banks. It is unlikely to see a daily close above this level regardless of the Brexit outcome, as 5,300 is also a 61.8% retracement level between the May high 5,429 and the June low 5,095.

As crude oil (CL) ended three consecutive days of gains, the US500 looks to have formed a temporary double top at 2,100. The uptrend line (from Feb) still continues to limit the upside momentum but the major catalyst for the next direction of the US500 would be the developments of the EU referendum today.   

 Source: Saxo Bank

 Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more 

Data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets
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