Today's Trade: ASX lifts on Brexit, Wall Street turnarounds
- The local market off to a shaky start, with the main index proponents higher
- BHP rise 1.8% and Rio, 1% with the big banks all around 0.9% higher
- Shock around the world as a pro-Europe UK MP Jo Cox is assassinated
- Overnight US equities recover from a five-day retreat, while GBP erased losses
- Yellen says the looming Brexit vote a factor in the Federal Reserve’s decision
By Saxo Capital Markets
Overnight and early trading
At the 10.15am AEDT (0015 GMT) market open, the benchmark S&P/ASX 200 index rose 22.7 points, or 0.44%, to 5,168.7, while the broader All Ordinaries index climbed 22.8 points, or 0.4%, to 5,252.5.
Pundits said a strong turnaround during the latest session on Wall Street was driving the gains, but caution around the Brexit vote would keep the advance in check.
US equities recovered from a five-day retreat, while the pound erased losses after the killing of a British lawmaker coincided with diminished odds the UK will vote to leave the European Union.
Campaigning for the referendum was suspended by both sides on Thursday after Labour Party lawmaker Jo Cox was murdered as she met constituents in her district. Treasuries gave up most of their gains, while oil tumbled to a one-month low amid a selloff in industrial and precious metals.
Those odds slid below 38 after surpassing 44 hours earlier. Others said a snapback in markets was unsurprising given how fast stocks fell at the open, with the S&P 500 dropping to as low as 2,050.37, roughly where it began a rally on May 24.
The so-called Brexit debate has dominated trading this week, with Janet Yellen saying the looming vote was a factor in the Federal Reserve’s decision to hold rates Wednesday.
The Bank of Japan’s decision to leave its stimulus unchanged came less than 12 hours after the Federal Reserve Bank reined in its projection for rate increases this year. The Bank of England and Swiss National Bank also kept rates unchanged, citing worries about the potential damage caused by Brexit. The referendum is due to take place on June 23.
Data on Thursday showed initial jobless claims rose more than forecast last week, while the cost of living in the US excluding food and fuel rose in May, propelled by rising rents.
Index futures foreshadowed a mixed day for Asia, with contracts on Australian and South Korean benchmarks rising at least 0.5% in most recent trading, while those on indexes in Hong Kong fell.
Nikkei 225 Stock Average futures added 0.6% to 15,460 in Osaka, before sliding 1.9% to 15,565 on the Chicago Mercantile Exchange.
The Guardian newspaper reported an eyewitness saying Cox’s assailant had shouted “Britain First”. That’s the name of a group that campaigns against immigration and Britain’s membership in the EU. The JPY jumped 1.7% to 104.26, strengthening for a fifth day to the highest level since 2014.
The currency gained against all 31 of its major peers after Bank of Japan Governor Haruhiko Kuroda and his board stood pat on stimulus, opting to continue to gauge the economic impact of their negative interest rate policy ahead of an election next month.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, slipped 0.2%. While Fed officials still forecast two 25 basis-point rate hikes this year, traders have cut back their bets on an increase, pricing in only a 2% chance of a boost in July and less than 40% odds of one as late as February 2017.
The Colombian and Argentinian pesos, along with the Peruvian sol, were the worst performers in emerging markets.
Yields on 10-year US Treasuries added one basis point, or 0.01%, to 1.58%, after falling as much as six basis points to 1.52%. Rates on 30-year debt also trimmed declines, after retreating to their lowest level in sixteen months.
The yield on similar-maturity German bonds fell below minus0.03% for the first time, while Japan’s reached as low as negative 0.21% and Australia’s dipped below 2% for the first time ever. Rates on Switzerland’s 30-year bonds dropped below zero for the first time on record.
Gold for immediate delivery reversed course to fall 1% to $1,278.43/oz, after earlier touching its highest price since July 2014. Silver sank 1.9%.
Copper led losses among base metals, driving the London Metal Exchange LMEX Metals Index down 1.8%, the most in more than a month, amid concern the global economy is losing strength.
Nickel, aluminum and zinc all slipped at least 1.4% in London.
Information sources: Bloomberg, TradingFloor.com
- The S&P/ASX 200 Index futures +0.7%; futures relative to estimated fair value suggest an early gain of 0.4%.
- Bank of New York Australia ADR Index -0.5%. BHP Billiton ADR -0.2%. Rio Tinto ADR +0.5%
- Spot gold has had a crazy ride in the past 24 hours. Gold rallied hard to trade at levels not seen since August 2014 at a price of $1,315/oz as investors sort a safe haven (in terms of the EUR and GBP it was a three year high).
- A tsunami of selling swept in to leave the precious metal down 0.9% for the day. A daily range of $38 is substantial especially with the price action seen. Last night gold stocks in Toronto were down and we’d expect to see gold stocks here to follow. Saxo Strats Head of Commodities, Ole Hansen has stated: "The US job report took us from the lows on June 3. Brexit worries then gave us the next boost and yesterday the FOMC provided enough dovish ammunition for it to make a new high." Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Crude oil has bear the brunt of risk-off with WTI and Brent down 3.1% and 3.0% to $46.11 and $47.14 respectively. The dollar's rally on fears of Britain's exit from the EU hammered commodities priced in the currency. The sixth straight day of declines marked the longest bear run for crude futures since January. Also weighing on the oil complex was a lower-than-expected drawdown in US crude inventories in spite of peak summer driving demand in the United States. Oil stocks: WPL, WOR, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore is continuing to hold above $50/tonne as it rose just 0.1% to $50.70. Rebar inventory was at 4m mt as of June 10, close to the lowest level since Jan. 22, according to data tracked by Shanghai Steelhome. Mount Gibson (MGX AU) was raised to "outperform" from "neutral" at Macquarie Research.
- The 12-month target price is A$0.30 per share. Trafigura Group’s first-half profit was boosted through a deal where the Angolan government paid millions of dollars for a dormant iron ore project, allowing the trading house to avoid a 50 percent drop in net income. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Base metals were sold off across all metals. Copper and nickel led losses in industrial metals and an index of mining stocks fell as concern mounted that the global economy is losing strength. Copper slipped as much as 1.6% amid a broader commodities retreat as European equities touched a four-month low. “Industrial metals are pairing back some of the strong gains seen yesterday,” says Ole Hansen. “The focus is squarely on outside market developments. Global stocks are weaker and bonds higher on Brexit worries.”
- China’s plans to cut base-metal overcapacity is limiting today’s losses, especially as many fund managers are holding a bearish wager on copper, Hansen said. The country will boost stockpiles, accelerate the closing of excess capacity and provide tax breaks for producers as the country grapples with a raw-materials glut amid the slowest growth in decades. The policy was released on the State Council’s website on Thursday. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
- In other news: ANZ Bank (ANZ): Mulling sell down of wealth, life units: Australian; Arrium (ARI): Posco denies report on interest in buying; Crown (CWN): Rating placed on watch negative by S&P amid demerger plan; Qantas (QAN), Virgin Australia (VAH): Slowing Asian growth trims airfares, profit: BI Midyear Outlook; South32 (S32): Among most preferred at UBS as market uncertainty may lead investors to safe havens; Vocus (VOC): May consider bid for NextGen to add national fibre network: AFR.
Broker upgrades and downgrades
AUDUSD sold off on the back of the disappointing employment numbers which showed zero full time changes but it made a sharp reversal to climb back up towards the resistance levels 0.7380 and 0.74 handle.
We are still biased to the downside therefore we would consider taking short positions above the 0.74 handle with stops above 0.7450.
AUDUSD monthly chart
EURUSD monthly chart
The long-term downtrend (from September 2011) seems valid and the overnight high of 1,315.30/oz also touched the 200 week moving average.
Furthermore the XAUUSD appears to have now tested the lower uptrend of the rising wedge, therefore 1,300 is expected to remain as a key resistance level despite the breakout yesterday.
The AUS200 extended the losses on the back of the sharp sell off in the big four banks yesterday but after it found a support level at 5,100 in the SYCOM sessions, it made 50 points recovery. While the selling pressure still remains, we may see further retracements to the upside if the short covering continues. The next resistance level is at 5,200.
The crude oil still looks weak therefore if the US500 retests the previous uptrend, there could be some selling opportunities at 2,090-2,100.
AUS 200 monthly chart
Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
-- Edited by Adam Courtenay