Today's Trade: ASX pumped as Brexit fears deflate
- Mail on Sunday survey shows “remain” at 45% and “leave” on 42%
- EUR and GBP strengthened, while stocks futures in US and Japan jumped
- ASX catches the optimism, up 62 points or 1.2% just after trading opened
By Saxo Capital Markets
Overnight and early trading
The ASX/S&P 200 was up 62 points or 1.2% in early trading, the "leave" vote looked less likely according to weekend polls.
The big four banks were all up by between 1.9% and 2.3%, with NAB's British spin-off CYBG up 5%.
A risk-on tone is setting market sentiment this morning in Asia, with prospects the UK will vote to stay in the European Union in Thursday’s referendum.
With the EU vote due this Thursday, a poll from Survation taken on Friday and Saturday for the Mail on Sunday showed “remain” backed by 45% and “leave” by 42%, reversing positions from Survation’s previous survey.
Sterling climbed to its strongest level versus the dollar since June 9 after a poll taken on Friday - the day after pro- Europe lawmaker Jo Cox’s killing - and Saturday showed the campaign for Britain to remain in the EU ahead by three percentage points.
The EUR also strengthened and futures over the US and Japanese stock indices jumped as crude extended last session’s rebound.
Shares slid on four of the five days, including a 30-minute plunge on Wednesday that followed testimony from Federal Reserve chair Janet Yellen that fanned apprehension about prospects for economic growth.
The pain was worse below the surface, with the S&P 500 Bank Index dropping 3% for its third straight decrease. The Nasdaq Biotech Index fell 4.1%, extending its losing streak to nine days, the longest in two decades.
The gauge has lost more than 10% during the skid. Anxiety flared globally as concerns ranging from Japanese stimulus to Britain’s referendum on secession from the European Union pushed the Chicago Board Options Exchange Volatility Index up 14% after a 26% increase a week earlier.
The volume on American exchanges averaged 7.5 billion shares, the most since March. Ten-year Treasury yields fell a third straight week by a cumulative 24 basis points, the biggest three-week plunge since February.
Campaigns on whether the UK should leave or stay in the EU were suspended for a second day on Friday after Labour Party lawmaker Jo Cox, who backed "remain" was murdered while she met constituents.
The odds for British secession as compiled through bookmakers by Oddschecker were lower for most of the day, before rebounding toward the end of the European session.
Italian and Greek lenders, among the worst hit earlier this week, led gains today. Total and BP rose more than 1.9%, tracking gains in oil. The volume of Stoxx 600 shares changing hands was 64% higher than the 30-day average, and a measure of eurozone volatility fell 4.7%, the biggest rise in three weeks.
Local markets and commodities
- The S&P/ASX 200 Index futures unchanged; however markets should be up anywhere between 0.5% to 0.8% given the early moves we have seen in US equity futures.
- Bank of New York Australia ADR Index +1.6%. BHP Billiton ADR +3.1%. Rio Tinto ADR +2.6%.
- Spot gold rose 1.4% to close at $1,297/oz although it has dropped this morning to lows of $1,280/oz. Gold was supported by a softer dollar and cautious interest rate comments by a voting US Federal Reserve policy member, and was headed for a third week of gains. The Bank of England escalated its warnings about fallout from the vote, saying it could harm the global economy and that sterling looked increasingly likely to weaken further if "leave" wins. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Crude oil has seen a benefit to the risk on approach by the markets, with WTI and Brent up 2.9% and 2.8% to $47.98/barrel and $49.17/b respectively. US oil prices rose on Friday for the first time in a week as the dollar fell and investors cautiously bought some riskier assets as anxiety eased about Britain's possible exit from the European Union.
- Oil services firm Baker Hughes reported its weekly rig count rose by 9 to a total of 337. At this time last year, drillers were operating 631 rigs in U.S. oil fields. This is the third consecutive weekly increase in the rig count. Analysts said that investors had closed some short positions after a week of volatile trading, which helped to bring about some correction in oil prices on Friday. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore gained 0.7% to $51.05. Vale is holding discussions with Asian mining companies about a potential sale of a minority stake in its Brazilian iron-ore assets that could fetch as much as $7 billion, according to people familiar with the matter.
- The Rio de Janeiro-based company joins other global miners such as Freeport-McMoRan, Glencore and Anglo American who are trying to pay down debt through asset sales. Vale has held early talks with bankers about selling some assets, including all or part of its fertilizer business and partial stakes in its Brazilian copper operations, people familiar with the matter said last month. The company also discussed putting more precious-metal streams on its mines, they said. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Base metals were generally up with aluminium, copper and nickel rising 0.5%, 0.2% and 2.2% to $1,615, $4,552 and $9,065 respectively. Production of nickel will trail consumption by 60,000 tonnes this year, Dmitry Kuznetsov, overseas marketing manager at Norilsk Nickel said. The deficit will widen to 100,000 tonnes next year, if prices stay at current levels and force more supply cuts. Still, high inventories and depressed oil prices will curb price gains for nickel. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
- In other news: ANZ Bank (ANZ): Online broking arm set to be first unit sold after wealth unit review: AFR; APN News & Media (APN): Will remain in ASX 200 after spinoff; Duet Group (DUE): May be eyeing more wind farm assets: AFR; Lend Lease (LLC), Mirvac (MGR): More foreign investors could default on apartments: Australian; Metcash (MTS): FY results expected; NOTE: Adj. net income est. A$173.1m (8 analysts, range A$161m-A$181m); Australian supermarket goliaths outperformed by Metcash: Chart; Unity Pacific Group (UPG): To pay capital distribution of A80c/security; Virgin Australia (VAH): Ratings confirmed by Moody’s, outlook negative.
AUDUSD and EURUSD
The EURUSD again tested the key resistance level 1.13 handle but failed to stay above it. Early Asian trade saw the EURUSD rally to take out last week’s top as the first poll taken after the murder of opposition lawmaker Jo Cox showed the campaign for the UK to remain in the European Union was gaining momentum.
AUDUSD has been following the price actions of copper (HG) in the last couple of days and it continues to make lower highs, therefore the downtrend (from April) appears to be valid for now. We maintain our bearish bias as long as this downtrend holds, and the support levels are 0.7325 and 0.7282.
EURUSD monthly chart
AUDUSD monthly chart
The previous uptrend (from Feb) is expected to be the key resistance level while 2,050 would be the support level.
The AUS200 was set to follow the soft leads from the last Friday's US session, however early trading in Asia is witnessing a massive "risk-on" mood given the gain in momentum of the UK voting to stay in the EU.
The next resistance level is 5,200, as last week's sharp sell off may lead to aggressive short covering this week.
US500 monthly chart
AUS200 monthly chart
-- Edited by Adam Courtenay
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Join us for the Weekly Macro Call each Monday at 1030 AEDT (0030 GMT)