Article / 22 June 2016 at 0:49 GMT

Today's Trade: ASX200 gains ground despite jitters on eve of UK vote

Trading Desk / Saxo Capital Markets
  • Crude oil was mixed with  diverging WTO and Brent price trends
  • Oil investors fear a tightening in supplies from the economic crisis in Venezuela
  • Billionaire investor George Soros sayssterling may slump 20% on a quit result
  • A rebound for the big four banks has underpinned the S&P/ASX200
  • Gold posted its biggest loss since May 24; copper gained ground
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 has gained ground despite anxiety over the impending UK vote on the EU. The S&P/ASX200 was up 0.29% to 5,289.70 at 1038 AEST (0038 GMT), with support from a rebound in banking stock helping to support the index.
  • US stocks climbed with global equities, while gold sank the most in four weeks amid easing concern among investors over the UK vote on European Union membership. The pound retreated along with oil.
 While most of the world is focused on British voters, oil traders are troubled by the ongoing economic crisis in Venezuela, and its likely impact on crude supplies. Photo: iStock

  • The S&P 500 Index rose 0.3% in light trading two days before the British referendum. While sterling reversed a rally as opinion polls showed the outcome of the vote was still too close to call, momentum behind the Brexit campaign appeared to be ebbing. European shares advanced and the euro fell the most in a week after Mario Draghi said the European Central Bank is prepared to act if threats to its inflation outlook emerge. Gold sank 1.5% as crude snapped a two-day climb on concern over US supplies. Financial markets remain on edge ahead of Thursday’s referendum in the UK, amid concern a vote to leave the EU could anti-establishment sentiment elsewhere and fuel global instability.
  • While most polls are still split on the outcome, betting shops put the probability of a Brexit at about 26%, the lowest level this month. At the same time, investors are grappling with further evidence that world growth remains tepid, with Federal Reserve Chair Janet Yellen telling the Senate that she wants the economy to be on a “favorable path” before the central banks consider hiking interest rates.
  • The S&P 500 climbed to 2,088.90, following its steepest gain in almost four weeks on Monday. The Dow Jones Industrial Average rose 24.86 points, or 0.1%, to 17829.73, rising for a second consecutive day and the Nasdaq Composite Index gained 6.55, or 0.1%, to 4843.76. The US benchmark stands 1.8% below an all-time high set in May 2015, with volumes 9% below the 30-day average. Equities climbed after zigzagging most of the day, bolstered by a third straight advance for oil and gas companies, the longest in two months, even as crude oil prices dropped.
  • Microsoft Corp. rallied 2.2% and Apple Inc. climbed 0.9% to lead technology shares higher. Falling biotech stocks dragged down health-care equities, while the dollar’s first climb in five sessions weighed on raw-materials companies.
  • The S&P 500 is trying to extend a rebound after anxiety that Britain would secede from the EU helped send the gauge to its worst weekly drop since April. Those declines halted a run- up from late May that put the index within 0.6% of an all-time high on June 8. The 2,100 point area is where previous rallies have faltered in the past year.
  • The MSCI All-Country World Index rose 0.3%, after climbing 2.3% over the previous two days. The Stoxx Europe 600 Index added 0.7%, with banks rising for a third day, while mining companies followed commodity prices lower. Futures on Asian equity indexes were mostly higher, with Chicago-traded contracts on Japan’s Nikkei 225 Stock Average rising at least 0.1% with those on indexes in Australia and South Korea. Futures on Hong Kong’s Hang Seng China Enterprises Index fell 0.1%.
  • The pound slipped 0.3% to $1.4652, after earlier reaching $1.4783. The currency surged 3.5% over the previous two days. Billionaire investor George Soros said sterling may slump more than 20% should British voters choose to leave the EU, a devaluation that would be bigger and more disruptive than when he profited by betting against the currency in 1992.
  • The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.3%. The gauge had weakened every day since the Fed left benchmark rates unchanged last week and Yellen said the Brexit vote was a factor in the bank’s decision.
  • The yen retreated, halting a rally that matched the currency’s longest under the reign of Japanese Prime Minister Shinzo Abe. The yen weakened 0.8% to ¥104.75 per dollar, after surging 3% over the last seven trading sessions. A technical indicator -- the relative strength index -- had reached a level that indicated a reversal was likely.
  • The Bloomberg Commodity Index, which tracks returns on raw materials, fell 1% Tuesday as West Texas Intermediate crude dropped 1.1% to settle at $48.85 a barrel in New York, after rallying 6.8% in the past two sessions. US crude inventories probably declined by 1.5 million barrels last week, according to a Bloomberg survey before American government stockpiles data is released Wednesday.
  • Gold posted the biggest loss since May 24, as bullion futures for August delivery declined 1.5% to settle at $1,272.50/oz in New York. Silver futures for July delivery dropped 1.1% to $17.319 an ounce. Corn futures slumped the most in three years in Chicago amid an improving supply outlook for the U.S. and Brazil.
  • Ten-year Treasury notes fell for the first time in four days, sending yields up two basis points, or 0.02%age point, to 1.71%. The rate jumped eight basis points on Monday, the biggest increase in a month.
  • Source: Bloomberg,
Local markets
  • Bank of New York Australia ADR Index +0.5%. BHP Billiton ADR -0.3%. Rio Tinto ADR +0.4%.
  • Spot gold sold off 1.8% to $1,267/oz. Gold fell to a ten-day low on Tuesday as global shares rose and expectations that Britain could vote to leave the EU rescinded. Gold’s downside risk could be limited according to Saxo’s Ole Hansen if the UK stays in the EU. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil was mixed with the first distinct spread move in some time. WTI lost 0.2% to $48.95/barrel while Brent rose 1.5% to $50.97/b. Oil prices reversed their losses in post-settlement trade after API data showed a bigger-than-expected draw on inventory. US crude stocks fell sharply last week, including a large draw at the US hub in Cushing, Oklahoma. Royal Dutch Shell shut its gasoline-producing fluidic catalytic cracking unit at the 316,600 barrel per day Deer Park, Texas refinery.
  • Oil investors worried about the possibility of global crude supplies tightening from the economic crisis in Venezuela. Output from Venezuela, which sits atop the world's biggest oil reserves, was 2.37 million barrels/day in May, down 5% from April and 11% from last year's average, according to OPEC data. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore slipped back 0.4% to 50.87. BHP shareholders will be taking note of Vale's alleged partnership with China and the possible ramifications that may endure as a preferred supplier. However the additional cash injected into the Vale’s balance of $7bn would be welcome as the liabilities mount from the Samarco disaster, seeing BHP is the much healthier financially in the JV. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals kept relatively quiet, with copper the exception rising 1.4% to $4,700. Copper exports from China increased for a third month to the highest level since 2012 as demand waned and stockpiles expanded in the world’s largest refined producer. China shipped out more copper as its factories and builders prepare for summer, when activity slows, and an economic rebound levelled off. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • Adelaide Brighton (ABC): Mulls bid for LafargeHolcim ops which may be ~$A2bn: Australian.
  • AFT Pharmaceuticals (AFP): Drug delay may impact FY17 revenue
  • Eclipx (ECX): To replace Pacific Brands (PBG) in S&P/ASX 200.
  • Murray Goulburn and the milk industry at large wait for the opening farmgate milk price for July 1. Opening below $4.75, the last closing price, would cause more grief for the co-op.
  • Origin Energy (ORG): CEO successor might be external candidate as investors seek ‘cultural renewal’: AFR.
  • Rio Tinto (RIO): Revamp hints at possible $9b BHP-style spinoff; New Rio CEO ousts rival Harding in management reshuffle.
Broker upgrades
  • Pulse Health (PHG): Raised to buy from hold at Bell Potter

Open positions

Original trade view

AUDUSD strengthens

The AUDUSD strengthened to break the recent June high 0.7504 on the back of the strong gains from the copper but it failed stay above the 0.75 handle.

The AU 10 year bond (XT) reached the all time high of 98 last week but it has been falling towards 97.75 which has acted as huge resistance levels between February 2015 and May this year. This level is expected to be a support level therefore we maintain the bearish bias on the AUDUSD unless the bond yield continues to rise.

AUDUSD trend

Pound, euro and dollar

The US dollar index (DX) rallied off the support level at 93.44 and filled the gap that was created this Monday.

As we get closer to the UK referendum tomorrow, the GBPUSD is hovering below the key resistance level at the 1.47 handle, while the EURUSD remained below the downtrend and the 50% retracements level 1.1356. Today’s focus will be on Janet Yellen’s testimony at midnight tonight.

Banking rebound boosts S&P/ASX200

Rebounds by the big four banks are boosting sentiment on the S&P/ASX200 (AUS200.i) which has now recovered all of the last week’s heavy losses.

The next key resistance level is 5,359 where we see shorting opportunities, while the support levels are 5,200 and 5,179 where the gap was created earlier this week.

S&P/ASX200 chart
Signs of caution in S&P/500

The S&P/500 (US500) remained below the previous uptrend line (from February), which is expected to be a resistance level at 2,100.

Both crude oil and copper are extending their gains, so we currently do not see any negative catalysts on the equity indices, although price actions are likely to be cautious in the next 48 hours ahead of the EU referendum.

S&P/500 trend
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

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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 AEST:


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