- Local markets opened in the green led by the big-four banks
- Global equities had the biggest rally in three months
- Base metals rallied, with copper rising 1.5%
- AUDUSD should be well bid if copper and crude oil continue to strengthen
By Saxo Capital Markets (Australia)
Local markets opened subdued but in the green, with the ASX200 up 9 points at the start to 5266. The big banks were driving the positive mood while the supermarkets lost ground.
- Global equities had the biggest rally in three months, the pound strengthened the most since 2008 and Treasuries fell on signs the campaign for the UK to stay in the European Union was gaining momentum before this week’s referendum.
- The S&P 500 Index climbed the most in four weeks, though gains faded in the final hour of trading amid speculation the rally had gone too far ahead of Thursday’s vote and testimony tomorrow by Federal Reserve Chair Janet Yellen.
- The Stoxx Europe 600 Index notched its biggest gain since August and emerging-market shares rallied. Sterling jumped 2% and Spanish bonds gained.
- Oil advanced with industrial metals, while gold fell a second day.
- The S&P 500 climbed 0.6% for its biggest gain since May 25. It rose as much as 1.4%. The index recovered after falling in six of the past seven sessions, a stretch that followed a climb to within 0.6% of its record high on June 8. The benchmark posted its worst weekly retreat since April amid global anxiety that Britain will choose to secede and central banks’ efforts to boost growth are losing their potency.
- The MSCI All-Country World Index advanced 1.7% at 1600 in New York, for its biggest increase since March 11. The MSCI Emerging Markets Currency Index increased 0.8%, and a gauge of commodities advanced for a second day.
- All major western European markets climbed, with the UK’s benchmark FTSE 100 Index adding 3.1%, while sterling surged. The volume of Stoxx 600 shares changing hands was 29% higher than the 30-day average and a measure of euro area equity volatility slid 10%, the most since March.
- The MSCI Emerging Markets Index of shares climbed 1.9%, the most in more than two months. Benchmarks in Poland and Hungary climbed at least 1.2%, while equities in Turkey gained 2.4%.
- Stocks rose for a second day in Moscow, with Rosneft OJSC jumping 3.7% after two people familiar with the matter said Russia is seeking buyers for 19.5% of country’s biggest oil company.
- The pound strengthened against all except one of its 31 major peers, rising the most since December 2008 against the dollar. Among Group of 10 currencies, the Swedish krona, Norwegian krone and Australian dollar all advanced at least 1.1%.
- Oddschecker data show less than 30% odds of a Brexit, from 40% at the close on Wednesday. Federal Reserve Chair Janet Yellen, who’s due to address lawmakers this week, said last Wednesday that the British vote was a factor considered by officials as they decided to keep interest rates unchanged.
- The yen dropped 0.1% to 104.26 versus the greenback, having surged 2.7% last week as the Bank of Japan refrained from expanding monetary stimulus at a time when Brexit risk was spurring demand for safe-haven assets.
- India’s rupee fell 0.4% after central bank Governor Raghuram Rajan said he’d step down when his term ends in early September.
- Nigeria’s naira weakened to 260.50 versus the dollar. Central bank Governor Godwin Emefiele announced the end of the currency peg on June 15 after holding the naira at 197-199 per dollar since March last year.
- Treasuries due in a decade fell, lifting their yield by six basis points to 1.67%, the biggest increase in a month. Two-year yields also rose before the sale of $26 billion of the securities on Monday. The yield on benchmark German 10-year bonds increased two basis points to 0.04%, while those on Italian and Spanish securities with similar due dates declined as investors regained confidence to buy higher-yielding alternatives to bunds.
- Yields in Japan, Germany and the UK slid to record lows last week as the potential for a British exit from the EU fuelled demand for the safest assets.
- Gold futures for August delivery slipped 0.2% to settle at $1,292.10/oz in New York. Bullion rallied to the highest in almost two years last week as global central bankers sounded the alarm that a British exit from the EU could be disruptive to the global economy.
- West Texas Intermediate crude climbed 2.9% to settle at $49.37/barrel as the dollar weakened. Oil prices fell to a one-month low on Thursday as speculation the UK would leave the EU intensified and central banks signalled their worries about global growth.
- Nickel led gains among industrial metals, rallying 1.9% in London. Copper added 1.6% and zinc rose 0.8%.
Source: Bloomberg, TradingFloor.com
Crude oil pulled itself back to the $50 level as the chance of a Brexit dimmed. Photo: iStock
Local markets and commodities
- The S&P/ASX 200 Index futures up 0.5%; futures relative to estimated fair value suggest an early gain of 0.4%
- Bank of New York Australia ADR Index up 2.7%. BHP Billiton ADR up 2.4%. Rio Tinto ADR up 3%
- Spot gold was down 0.7% at $1,288.93/oz, off an earlier low of $1,277.34/oz. Gold fell on Monday after polls showed the campaign for Britain to remain in the European Union regaining some momentum, sharpening appetite for assets seen as higher risk and sparking a sharp rally in stocks. Three opinion polls ahead of the vote showed the "Remain" camp recovering some momentum, although the overall picture was still one of an evenly split electorate. That helped pull gold back from its highs. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Crude oil pulled itself back to the $50 level with WTI and Brent rising 1.5% and 21.7% to $49.37 and $50.55 respectively. A lower probability of UK leaving the EU and a softer USD added to the buying pressure. Analysts said oil prices should stay firm as long as a Brexit looked unlikely, although a strong rally may be difficult amid more supply outages like those out of Nigeria and Canada that boosted the market to the 11-month highs of over $50 earlier this month. Oil prices continued to recover despite data showing US energy firms adding oil rigs for a third week in a row, suggesting higher production to come. Data from market intelligence firm Genscape pointing to a drawdown of 568,213 barrels at the Cushing, Oklahoma for the week ending June 17. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore was flat at $15.06. Reports that Vale are looking to sell $7bln of a minority stake in its iron ore production speaks of the uncertainty of the world’s biggest iron ore miner. Then of course is the capital expenditure needed on S11D which looks to total $15bln and be the most efficient mine on its books, producing 90m/t p.a. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Base metals rallied and mining stocks rose to a one-week high as optimism grew that the UK will vote to remain in the European Union. Copper rose 1.5%. Money managers are still bearish on copper. Speculators expanded their net-short position in Comex futures and options by 27% to a record 47,109 contracts in the week to June 14, US government data show. Aluminium, nickel and zinc all rose 1.1%, 1.7% and 1.9% respectively. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
- ANZ Roy Morgan Australia weekly consumer confidence data due 0930 AEST (2330 GMT)
- RBA to release minutes of June meeting; due 1130 AEST
- Australia house price index seen rising 0.8% q/q; due 1130 AEST
- AGL Energy (AGL): QIC said to be major backer for $2bln renewable energy investment fund: Australian; AGL may sell shrs to fund Alinta bid
- Arrium (ARI): Adviser Deutsche Bank has met with Blackstone ahead of auction
- Macquarie Group (MQG): Among possible suitors for Aberdeen Asset Mgmt: Numis
- Perseus (PRU): Plans equity raising of up to $A102mln
- Seven Group (SVW): Caterpillar May machine sales fall 12% vs April 12% decline; NOTE: Is an authorised Caterpillar dealer in West Australia, NSW and North-East China
- Tegel (TGH): FY revenue rises to record, profit increases
Broker upgrades and downgrades
- Boral (BLD): Cut to underweight vs equal weight at Morgan Stanley
- Dexus (DXS): Cut to underweight vs neutral at JPMorgan
- GPT Group (GPT): Raised to neutral vs underweight at JPMorgan
- Metcash (MTS): Cut to neutral vs overweight at JPMorgan
- Westpac (WBC): Raised to buy vs hold at Shaw & Partners
Original trade view
AUDUSD and EURUSD
started the week exceptionally strong as polls showed UK voters were more likely to choose to stay in the European Union and as the market prepared for remarks by Federal Reserve Chair Janet Yellen Tuesday.
Resistance was met at the red downtrend and EURUSD gave up a large chunk of its gains after reaching an intraday high of 1.1381. Support for the day should be marked at the 1.13 handle down to 1.1290. In order to run higher, EURUSD will have to settle above the red trendline, which opens up a retest of the 1.14 handle.
also started the week with a rally that took our domestic currency toward levels seen the day of the local central bank’s last interest-rate cut. The Aussie is gaining as part of a global rally in higher-yielding currencies and as traders cut their bets on the Aussie declining against the greenback in the week to June 14 according to the Washington-based Commodity Futures Trading Commission.
As long as copper and crude oil continue to strengthen, AUDUSD should be well bid with the first level to test and clear at the 75 handle.
Source: Saxo Bank
Source: Saxo Bank
AUS200.i and US500.i
The AUS200.i along with global equities had an exceptionally strong day yesterday, with every sector in the green with the exception of healthcare. Given our AUS200.i
was sold down deep last week, the magnitude of the bounce should not have come as a surprise, especially after seeing support at 1, the orange up trendline and 2, the 200DMA.
Banks which were under most pressure recently added gains on notable weak volumes, hence we do not see this rally lasting long. For the day we are marking resistance at 5285-5305 and early market auction prices on our ASX stocks show that we may see another gap on the AUS200.i.
A surprising pull back was seen in the US500.i in the final hour of trading after climbing the most in four weeks. Optimism faded amid speculation the rally had gone too far ahead of Thursday’s vote in the UK and the testimony tomorrow by Janet Yellen. It is likely stocks will pause and take a breather for the day given the magnitude of the gains yesterday.
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