Today's Trade: ASX200 starts week with a dive on weak overseas leads
- Copper rose after two days of losses, giving the Australian dollar a lift
- Signs that Chinese growth is stabilizing helped the red metal
- The yen has strengthened against most of its major currency counterparts
- Spot gold has lifted on rising investor risk aversion
- Polls showed the outcome of the Brexit vote is too close to call
- Brexit worries have now spread to global equity and FX markets
By Saxo Capital Markets Australia
- The S&P/ASX200 took a nosedive as the ASX resumed trading following the Queen's Birthday public holiday. It was down by a hefty 1.42% to 5,237.40 at 1042 AEST (0042 GMT).
- US stocks and oil slumped, while havens such as gold and the yen climbed, as investors grew increasingly cautious ahead of central-bank meetings this week and Britain’s vote on European Union membership on June 23. Technology and financial companies contributed the most to losses in the S&P 500 Index, as the benchmark posted its worst three days since February. A six-day rally in a gauge that tracks equity volatility indicated investors are piling into protection.
- LinkedIn Corp. soared 47% after Microsoft Corp. said it’s buying the company. The yen strengthened versus all but one major peer and gold hit its highest price in a month. Oil fell to a one-week low, with the dollar little changed. The pound slipped after polls showed the outcome of the Brexit referendum was too close to call.
- Financial markets have struggled since last week as investors reassess lackluster economic growth and concerns about the potential fallout from a June 23 referendum that will determine Britain’s membership in the EU. Surveys released over the weekend indicated the pro-EU camp and those supporting an exit were neck and neck. Monetary policy reviews this week will be scrutinized for clues on the timing of U.S. interest-rate increases and potential expansion in the Bank of Japan’s record stimulus.
- The S&P 500 Index fell 0.8% to the lowest level in almost three weeks. The Dow Jones Industrial Average fell 132.86 points, or 0.7%, to 17732.48 and the Nasdaq Composite dropped 46.11 points, or 0.9%, to 4848.44. As evidence of increasing worry, the CBOE Volatility Index jumped 23% Monday to 20.97, surging 43% over two days, the biggest back-to-back surge since Aug. 24, the day before last summer’s swoon bottomed.
- Microsoft sank 2.6%. Other internet companies advanced after the Microsoft-LinkedIn deal was announced, with Twitter Inc. rising 3.8%.
- The Stoxx Europe 600 Index dropped 1.8%, led lower by banks. G4S Plc declined 5% after confirming that the man suspected of killing 50 people and wounding 53 others in a mass shooting Sunday in Florida was an employee since 2007.
- The MSCI Emerging Markets Indexslid 1.9%, the biggest one-day loss since Feb. 11. Shanghai Composite Index lost 3.2% as trading resumed following holidays and the Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 2.4%, down 4.5% over two days. Stocks fell even as Chinese data released Monday added to evidence that the world’s second- largest economy is stabilizing.
- The pound pared losses to 0.1% after falling as much as 1% to $1.4116. It slumped on Friday after an Orb/Independent newspaper poll showed 55% support for the “Leave” campaign, and 45% for “Remain.” Over the weekend, an online poll by Opinium for the Observer newspaper showed 44% support for Britain staying in the EU and 42% against.
- Hedge funds and other large speculators are betting on sterling futures weakness by the most since June 2013, a report from the Commodity Futures Trading Commission showed. While the odds of an exit are rising, the probability of staying inis still more than 65%, according to Number Cruncher Politics and Oddschecker.
- The yen strengthened versus all but one of 16 major counterparts, advancing 0.7% versus the greenback. The Bank of Japan should expand monetary stimulus as soon as this week by boosting bond purchases rather than pushing interest rates further into negative territory, Nobuyuki Nakahara, an influential adviser to Prime Minister Shinzo Abe, said in an interview on Friday.
- US Treasuries due in a decade advanced for a fifth day, pushing the yielddown three basis points to 1.61%. The yield on similar-maturity Japanese debt dropped as low as minus 0.165% on Monday, while the UK’s fell to 1.21%.
- German government bonds are in “bubble territory” and Allianz SE plans to raise its corporate debt holdings, Chief Investment Officer Andreas Gruber said in an interview. The yield on the 10-year securities dropped below 0.01% on June 10, the lowest on record, and was little changed on Monday.
- The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies rose to a nine-week high, climbing four basis points to 81 basis points. A measure of swaps on junk-rated corporate issuers surged 15 basis points to 346 basis points, the highest since March 10.
- Gold for immediate delivery jumped 0.8% to $1,284.19/ounce. A Brexit vote on June 23 could propel prices to $1,400/oz, analysts at Capital Economics Ltd. said in a report on Friday. West Texas Intermediate crude slid 0.4% to $48.88/barrel after Baker Hughes Inc. data on Friday showed that rigs targeting crude in the US rose by three to 328 rigs last week, capping the longest run of weekly gains since August.
- Source: Bloomberg, TradingFloor.com
- Bank of New York Australia ADR Index -0.5%. BHP Billiton ADR +0.5%. Rio Tinto ADR +0.5%
- Spot gold has lifted 0.8% to $1,284/oz for the fourth straight session and hit its highest since mid-May on Monday, driven by rising investor risk aversion before central bank meetings this week and Britain's June 23 vote on whether to leave the European Union. The pound fell to a two-month low against the dollar, pushing gold denominated in sterling to its highest in nearly three years at 909.83 pounds an ounce, up 1.9%. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Crude oil was flat with WTI down 0.1% to $48.54/barrel and Brent moving sideways to $50.02/b. US oil prices closed off session lows on Monday as the dollar rally lost momentum, though gloomy economic prospects in Europe and Asia weighed on crude futures. The softening comes a week after crude prices hit 2016 highs on the back of a quicker-than-expected rebalancing in physical oil markets.
- Opec in a monthly report said its production fell by 100,000 barrels per day (bpd) in May led by output declines in Nigeria. Opec's report points to a supply deficit of 160,000 bpd in the second half of 2016 if the cartel keeps pumping out oil at May's rate. Two straight weeks of rising rig counts in the US increased jitters in the industry about higher production, which could delay the ongoing global rebalancing in the crude market. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore rose 0.7% to $52.91/tonne. Indian steel companies can now import high-quality iron ore at about the same cost as lower-quality, domestic feedstock, thanks to lower global prices. The situation is hurting Indian miners, while boosting margins at the nation's steel mills. India had raised export duties on iron ore, motivated by concerns about the availability of the raw materials for its steelmakers. The export tax will be scrapped, according to India's latest federal budget. The country was a net importer of iron ore in 2015.
- Companies Impacted: India's iron-ore exports have declined since 2011, due mainly to a government ban on illegal mining. Steel producers including Tata Steel now need to import iron ore to meet output requirements. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Base metals were mixed with aluminium and copper were up 1.7% and 1% respectfully while nickel and zinc both lost 0.8% and 0.4%. Copper rose after two days of losses on evidence that Chinese growth is stabilizing and as concern over a build-up in metal stockpiles eased. Official industrial production in China, the biggest metal user, rose 6% from a year earlier in May, matching economists’ estimates, suggesting that policymakers have underpinned the near-term outlook with monetary stimulus and fiscal support. Copper stockpiles tracked by the London Metal Exchange fell by 1.4% to 207,625 tonnes, the second consecutive drop and the biggest drop in three weeks. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
- Australia May NAB business conditions/confidence survey due 1130 AEST (0130 GMT).
- RBA releases April Australia credit card purchase transaction value data due 1130 AEST (0130 GMT).
- Alumina (AWC): Earnings swing with Alumina prices and AWAC: BI
- APN News (APN), Fairfax (FXJ): New Zealand regulator to review impact of Fairfax-NZME merger.
- Oil Search (OSH): InterOil sets Oil Search transaction vote for July 28.
- Qube (QUB): Says Paul Digney will take up new role of COO.
- Rio Tinto (RIO): Turquoise Hill climbs on speculation Rio may take it private.
- South32 (S32): Nickel union says new salary offer may help avert Colombia strike.
- Suncorp (SUN): Said in midst of ‘material deal’ which might include life insurance unit: AFR.
- Transurban (TCL): Abu Dhabi Investment Authority may consider sale of its stake in co.: AFR.
- Virgin Australia (VAH): Moody’s says Air NZ’s stake sale credit positive.
- OZ Minerals (OZL): Raised to outperform vs sector perform at RBC
- XAUUSD: Gold looks poised for a breakout
The next resistance level is at $1.1356 and the volatilities are expected to increase in the next 48 hours as we look ahead the Federal Open Market Committee meeting on Thursday.
Copper boosts AUDUSD
The AUDUSD broke below the previous resistance level at 0.7380 but it retraced above the 0.74 handle when the copper (HG) made some rebounds from the recent weakness.
But current risk-off sentiment should continue to put the downward pressure on the AUDUSD.
The S&P/ASX200 (AUS200.i) has continued to slide down towards its next support level at 5,200 following the soft leads from both Asia and the US sessions yesterday. The price actions of the crude oil would remain as key leading indicators to determine the sentiments of the equity indices.
S&P500 looks bearish
The volatility index (VX) has risen more than 40% in the last two trading sessions and the last week’s weekly candlesticks of the US500 appear to have formed a bearish shooting star. The US500 has now failed to reach a weekly close above key resistance at 2,100 for two weeks in a row. An uptrend can be drawn from the February low at 1,806.75 connecting the May low 2,025.25, but this uptrend was broken as the US500 touched the 50% retracement between the June high 2,120.50 and the May low 2,025.25.
The Nikkei index also broke a key uptrend yesterday and the selling pressure is expected to remain across the major equity indices but Thursday morning’s FOMC meetings could change the current sentiments.
– 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. Watch our daily morning call on Periscope at 0945 AEST: #SaxoStratsAPAC
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters