Article / 15 June 2016 at 1:41 GMT

Today's Trade: ASX red streak continues

Trading Desk / Saxo Capital Markets
  • Benchmark ASX down 30 points in early trade, mostly weighed down by miners
  • Falls not as extreme as yesterday due to more upbeat data in Europe and US
  • Overnight JPY strengthened against all but one of its 31 major peers
  • Germany’s 10-year bunds dropped 0.03%, to negative 0.01%,

By Saxo Capital Markets

Early trading

Shares on the ASX/S&P 200 were well lower in early trade, with the selling not as severe as yesterday but enough to push the ASX 200 index below 5200 points.

The benchmark is 30 points, or 0.6%, down at 5173, with miners weighing the heaviest after commodity prices, including iron ore, dropped overnight.

Still, local trade was expected to match the US, where a four-day decline served as the longest losing run since February.

In overnight trading:

Stocks posted their longest slump since February, the GBP tumbled and demand for haven assets sent German 10-year bond yields below zero for the first time, as new opinion polls fueled anxiety that the UK will vote to leave the European Union.

The MSCI All-Country World Index fell for a fourth day as sterling slid to a two-month low. Ten-year Treasuries ended the session little changed after a rally in the safest government bonds sent yields to unprecedented levels across much of the world.

The yen strengthened against all but one of its 31 major peers and US oil retreated to $48.49/ barrel. The biggest US exchange-traded fund tracking Chinese shares slumped in extended trade after MSCI said it would again delay the country’s inclusion in its benchmark indices.

Data on Tuesday showed US retail sales rose more than forecast in May, as the Federal Reserve started a two-day policy meeting. The futures market indicates there’s zero chance of an interest rate hike this week, with the chances of an increase by the December meeting now less than 50%.

The S&P 500 fell 0.2% to 2,075.32 after losing as much as 0.7% during the session. The CBOE Volatility Index erased earlier gains to fall 2.2%, following a six-day advance. The CBOE Volatility Index (VIX), turned lower to trade near 20.5 after earlier topping 22 for the first time since Feb. 24.

The Stoxx Europe 600 Index slid 1.9% to cap its steepest five-day decline since February, while a measure of euro-area stock volatility jumped 12% amid the anxiety over the Brexit polling.

The MSCI Emerging Markets Index fell 0.8%, its steepest four-day decline since January, as equity benchmarks in Russia, South Africa, and the Philippines declined at least 1.3%.

Futures on Asian equity indexes signaled further losses there, with contracts on Japan’s Nikkei 225 Stock Average down at least 0.8% in Osaka and Chicago. Contracts on indexes from Sydney to Seoul dropped more than 0.2% in most recent trading.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF slipped 2% in after-market trading, as MSCI said China still needed to improve the accessibility of the A-share market to warrant inclusion in its indexes.

Yields on Germany’s 10-year bunds dropped three basis points, or 0.03%, to negative 0.01%, meaning that investors who buy and hold the securities until their due date will get back less than what they paid.

Treasuries maintained gains, with the yield on 10-year notes holding at 1.62% after falling over the previous five days. A measure of bond volatility jumped to a three-month high.

Ten-year Japanese yields fell to an unprecedented minus 0.175% and those on on similar maturity debt in Australia and New Zealand also touched fresh lows.

The GBP weakened 1.1% to $1.4114, its lowest closing level since April 7. A gauge of the pound’s anticipated volatility over the next two weeks - a period that includes the referendum - climbed to the highest level on record.

 Unstoppable? The Yen appreciated yesterday against all but one of its 31 peers. Photo: iStock

The Japanese Yen strengthened for a sixth day against the euro and gained versus all its major peers except for the Argentine peso. The Bloomberg Dollar Index, a gauge of the greenback against 10 major peers, rose 0.5% to its highest level in almost two weeks as investors dumped riskier currencies.

The New Zealand dollar sank 1%. The MSCI Emerging Market Currency Index dropped 0.4% to cap a 1.4% slide over the past four days. The Hungarian forint and Poland’s zloty led declines. The yuan was down 0.1% early Wednesday in offshore trading, to 6.6084 per dollar after the MSCI announcement.

Commodities followed equity markets lower, with oil down for a fourth day. West Texas Intermediate crude slid 0.8%, while Brent declined 1% to $49.83.

The surplus in the global oil market is shrinking more quickly than expected and the market will be almost balanced next year as demand rises faster than production, the International Energy Agency said Tuesday.

Zinc led a decline in industrial metals, falling 2.8%, while copper lost 1% and aluminum gained 0.6% after Chinese smelters reached an agreement that could to cut production.

Gold climbed 0.1% in the spot market to $1,285.72/oz, touching its highest price since May 6.

Sources: Bloomberg,

Local markets and commodities

  • The S&P/ASX 200 Index futures -0.2%; futures relative to estimated fair value suggest an early decline of 0.2%.
  • Bank of New York Australia ADR Index -1.4%. BHP Billiton ADR -2.4%. Rio Tinto ADR -2.7%.
  • Gold stayed near its highest in almost six weeks on Tuesday as worries about a potential British exit from the European Union and expectations the Federal Reserve won't raise rates at its June meeting kept it close to four-week highs. Spot gold rose as high as $1,289.80 an ounce earlier but was last up 0.14% at $1,285.46 an ounce. It has gained about 6% this month, the biggest rise since February. Gold priced in sterling also hit a near three-year high of 910.04 pounds as the British currency fell to its lowest in eight weeks. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil has slid with WTI and Brent falling 1.1% and 1.4% to $47.93 and $49.26 respectively. US oil fell for a fourth day on Tuesday, swept lower by concern over next week's vote on Britain's possible European Union exit, which overshadowed signs of a return to health for crude prices. This overshadowed a more upbeat forecast for oil demand growth from the International Energy Agency, which said the oil market is essentially balanced after two years of surpluses. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore has seen its greatest sell off in three weeks, plunging 4.4% to $50.57. Prices fell as restrictions on steel mills in Tangshan, China impacted physical trading. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals were mixed. Money managers cut their bullish copper bets to a four-month low in London last week, when stockpiles tracked by the biggest metals bourse surged the most in a decade. Speculators held a net-long position of 9,837 contracts as of Friday, London Metal Exchange data show. That’s down 60% from a week earlier and the lowest since mid-February. Prices touched a four-month low of $4,483.50 a metric ton last week. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • Other news: A2 Milk (A2M): Raises FY16 sales, earnings guidance; Alumina (AWC): Alcoa may see better 2Q EPS due to alumina pricing: Rosenblatt; Amcor (AMC): Plans to close Belgian plant, cut 224 jobs: Belga; Asciano (AIO): S&P keeps co.’s ratings on watch negative pending acquisition; Boral (BLD): May be close to purchase in US: AFR; Computershare (CPU): Sells Melbourne HQ for A$88.88m: AFR; Fortescue (FMG): Iron ore price falls 4.4%, most in 3 weeks; Graincorp (GNC): Australia predicts bigger wheat crop after Autumn rainfall; Macquarie (MQG): Among cos involved in 3 indicative bids for Port of Melbourne: Australian; Origin Energy (ORG): Said to be close to sale of Cullerin Range wind farm: Australian; Rio Tinto (RIO): To buy back $1.7b of 2018 bonds to cut debt; South32 (S32): Colombia nickel miners delaying strike start: Union.

Stock to watch: Santos (STO)

STO has been rising of its upward trend line multiple times this year. However, with yesterday’s heavy sell off and closing on this trend line, last night’s fall in oil and rising fears in Brexit could be the breaking point to this trend.

STO is now at the price tag in November where it suffered a 25% fall over night. Should STO finish the day below yesterday's close, a fall to the Fibonacci 38.2% retracement which has been a key psychological level in November and March will be a firm possibility.

On the other side of the coin, holding this trend line and ideally closing at the 50% retracement will add confidence to the stock price and will have a target of $5.00 and the 61.80% Fibonacci level.

Santos monthly graph

Source: Saxo Bank
Broker upgrades and downgrades

- Mesoblast (MSB): Cut to neutral vs outperform at Credit Suisse
-Sky Network TV (SKT): Raised to neutral vs underperform at First NZ Capital

Open positions

Original Trade set up for XAUUSD is here


The US dollar index rallied to close above 95 which acted as a solid resistance level back in April but it is still trading within a descending channel. The EURUSD found the strong resistance level at the 1.13 handle, then it broke below the key support level 1.1219.

We are expecting a huge volatilities today as there are a couple of big data releases tonight at 1030 AEST (0030 GMT) as well as the Federal Open Market Committee meeting tomorrow. It is very unlikely that the Fed would raise the interest rate this time, but the focus would be on the comments on the future timing of the hike.

The uptrend on the AUDUSD seems to be valid as the AUDUSD fell short of the 50% retracement level 0.7325 last night. The crude oil (CL) extended the losses while the price of the copper (HG) looks to have found the support level above 200. The support level is at 0.7325 and the next resistance level is the 0.74 handle.

AUDUSD monthly chart
EURUSD monthly chart

Source: All charts, Saxo Bank

AUS200 and US500

The big four banks continue to weigh down on the AUS200 as it came close to the lower uptrend of the ascending channel. The support level is expected to be 5,150 which is 38.2% retracement between the February low 4,701 and the May high 5,429, while the next resistance level is at 5,257. We have a bias to the upside as the AUS200 has been heavily sold off in the last few trading sessions.

The US500 extended the losing streak although it found the support level at 2,061.65 which is 61.8% retracement between the May low 2,025.30 and the June high 2,120.50.

Since the recent sell off has been aggressive, there is a scope for a potential reversal tonight as we approach the Fed meeting at 4am. The resistance level would be 2,100 and the support levels are 2,061.65 to 2,040.

AUS 200 monthly chart
US 500 monthly chart

Source: All charts, Saxo Bank - create charts with SaxoTrader. Click here to learn more  

Today's Trade sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

-- 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 10:30 EST (0030 GMT).


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