Article / 07 July 2016 at 0:34 GMT

Today's Trade: Big four banks, resources give ASX200 a welcome boost

Trading Desk / Saxo Capital Markets
  • AUDUSD found support and then rebounded overnight
  • Gold hit a two-year high as investors sought a haven from financial turmoil
  • Oil extended its gains as oversupply concerns eased
  • Copper dropped to the lowest in a week as global economic concerns mounted

By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX200 has rebounded from yesterday's losses; it was up 0.61% to 5,229.40 at 1008 AEST (0032 GMT). 
  • US shares swung back to gains, while the dollar weakened after minutes of the Federal Reserve’s last meeting did little to alter perceptions over the timing of interest-rate hikes. Concern the Brexit vote will impact European growth boosted haven assets.

 Picking up ... Resources are back in fashion today, and Australia's top miners made substantial gains at the start of trade. Photo: iStock

  • The S&P500 Index maintained its advance Wednesday as strong data on the services industry countered evidence from the minutes that the weak jobs report in May fueled uncertainty among Fed officials about the economy. The dollar slipped, while Treasuries held their gains after resurgent anxiety over Britain’s decision to leave the European Union sent yields from Asia to Europe to record lows. The pound sank to a fresh 31-year low, while gold climbed to its highest price in more than two years. The greenback’s drop bolstered oil.
  • In their meeting held before the UK’s June 23 referendum, Federal Reserve policymakers kept rates on hold as uncertainty over the labour market and financial stability threatened to derail their economic outlook, the minutes showed. Officials said they were also awaiting the outcome of the British vote, which roiled global markets in its immediate aftermath and continues to dog riskier assets. While the services data signaled the US economy may have been gaining speed before Brexit, payrolls figures due Friday will be key to investors’ perceptions of where the Fed stands on its plan to potentially raise rates twice this year.
  • While speculation central banks will work to limit any fallout helped equities around the world recouped much of their losses from straight after the Brexit vote, declines have resumed as the first signs of stress emerge. At least five asset managers have frozen withdrawals from UK real-estate funds, and concern is mounting that Italian banking troubles could spread.
  • The S&P 500 climbed 0.5%, rising for the fifth time in six days. The benchmark bounced off its average price over the past 50 days, a key level watched by technical analysts.
  • The MSCI All-Country World Index dropped 0.4% Wednesday as the Stoxx Europe 600 Index slid 1.7%, falling for a third day. MSCI’s Emerging Market Index declined 1.5%, as shares in South Korea slid 1.9% and Taiwan’s benchmark dropped 1.6%. Equity indexes in South Africa and Poland both fell at least 1.1%.
  • Futures pointed to a mixed day ahead for Asia, with contracts on stocks in Australia and South Korea rising at least 0.5%, while those on Hong Kong’s Hang Seng and Hang Seng China Enterprises indexes declined more than 0.3%. Nikkei 225 Stock Average futures added 0.1% to 15,300 as of 3 a.m. in Osaka, while yen-denominated contracts on the Japanese index were down 0.5% to 15,370 in Chicago.
  • The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, fell 0.2%, declining for the sixth time in seven days as investors speculated the uncertainty created by the Brexit decision will stay the Fed’s hand when it comes to rate increases this year.
  • Odds for the Fed raising borrowing costs by December have slumped to just 12%, according to Fed funds futures tracked by Bloomberg. The probability of a move higher by the end of the year was 44% before the referendum.
  • Sterling briefly fell beyond $1.28 on Wednesday, four cents below its weakest point reached the day after the vote. The yen climbed against all but one of its major counterparts as investors sought out the relative safety of the Japanese currency, which touched 100.20 per dollar, its strongest level since the day the referendum results were announced. The euro rose 0.2% to $1.1100, following Tuesday’s 0.7% drop.
  • Yields on 10-year Treasury notes, the global benchmark for sovereign bonds, fell as much as six basis points to 1.318%, before closing down one basis point at 1.37%. In Australia, Japan, Germany, France and the U.K., rates on 10-year government debt sank to all-time lows. Securities in the Bloomberg Global Developed Sovereign Bond Index, which have an average life of about 10 years, yielded a record-low 0.40%.
  • Declining prospects of a Fed rate hike have spurred a torrent of demand for Treasuries, generating more than half a trillion dollars in gains for global investors. Economists predict American employers added 180,000 workers to payrolls in June, following an unexpectedly small increase of 38,000 in May, the least in almost six years.
  • Gold climbed 0.5% in the spot market to $1,363.78 an ounce, hitting its highest price since March 2014 amid haven- asset demand as UBS Group AG said bullion is probably at the beginning of its next bull run. Silver for immediate delivery resumed its surge, advancing 0.8% to $20.0920 an ounce, taking its rally this year to 45%.
  • Oil climbed as the dollar’s drop burnished investor appetite for commodities, and after crude futures failed to break beneath last month’s nadir. West Texas Intermediate oil for August delivery rose 1.8% to settle at $47.43 a barrel in New York, after earlier touching $45.92, its lowest point since June 27. Copper dropped to its lowest priced in a week amid the revival in concerns over the global economy. The metal for delivery in three months fell 1.4% in London to $4,713.50 a pound. Corn futures due in September sank to the lowest level ever for the contract after the crop entered a bear market on Tuesday.

Source: Bloomberg,

Local markets

  • Bank of New York Australia ADR Index +1.5% * BHP Billiton ADR +2.7% to A$18.99 equivalent, 1.5% premium to last Sydney close, Rio Tinto ADR +1.3% to A$41.05 equivalent, 12% premium to last Sydney close
  • Gold climbed to a two-year high as investors sought a haven from the tumult in financial markets, with UBS Group AG saying bullion is probably at the beginning of its next bull run. The metal for immediate delivery rose for a sixth day, reaching $1,375.28/oz, as stocks and the pound slid in the wake of the UK’s vote last month to leave the European Union. Gold for immediate delivery gained 0.8% to $1,367.40/oz in New York, after touching the highest since March 2014. Gold futures for August delivery climbed 0.6% to settle at $1,367.10.
  • Spot silver advanced 0.9% to $20.116/oz, taking its gain this year to 45%. Silver trading has surged on the Shanghai Futures Exchange as open interest declined, a sign that day traders are behind much of the rally, according to Saxo’s Head of Commodities, Ole Hansen. Volume was 1.6 million contracts on Wednesday after hitting 1.9mln on Tuesday, the highest since August.
  • Gold mining stocks rallied on Wednesday, with the FTSE/JSE Africa Gold Mining Index gaining as much as 7% to the highest since March 2012. Harmony Gold Mining Co. climbed 11% in Johannesburg. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Oil extended gains to trade near $48/barrel as US industry data showed crude stockpiles fell, mitigating concerns about oversupply. Futures rose much as 1% in New York. Inventories fell 6.7 million barrels last week, the American Petroleum Institute was said to report. Government data Thursday will probably show U.S. crude supplies declined 2.5 million barrels last week, according to a Bloomberg survey. Crude has risen more than 80% from a 12-year low in February amid supply disruptions and falling US output. The recovery has prompted U.S. producers to begin returning drilling rigs to service, leading to speculation that a decline in production will slow.
  • West Texas Intermediate crude for August delivery rose as much as $0.45 to $47.88/barrel on the New York Mercantile Exchange and traded at $47.75/b at 0706 Tokyo time. WTI rose $0.83 to settle at $47.43/b on Wednesday. Brent for September settlement increased $0.84, or 1.8%, to $48.80/bl on the London-based ICE Futures Europe exchange on Wednesday. The global benchmark crude closed at a $0.66 premium to WTI for the same month.  Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore held onto its price at $55.93/tonne. This year's 28% rally in iron ore prices, delays to several supply projects and a recovery in Chinese demand have led to higher valuation multiples for iron ore miners. The companies are trading at the highest since mid-2013, continuing to rise from the lowest levels in the past decade, based on data compiled by Bloomberg Intelligence. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Copper dropped to the lowest in a week as global economic concerns mounted and stockpiles at warehouses monitored by the London Metal Exchange increased to the highest since February. Copper inventories are up 18% in the past two days, bourse data show. Copper for delivery in three months prices fell 1.4% to settle at $4,750 a tonne ($2.15 a pound) in London, after touching $4,713.50, the lowest since June 28. Aluminum and zinc also declined in London, while tin, lead and nickel advanced. In New York, copper futures for delivery in September fell 1.4% to $2.1535 a pound on the Comex. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Commonwealth Bank of Australia (CBA): Sells $A2.275bn of 5-year notes in two-part transaction.
  • Henderson Group (HGG): Suspends £3.9bn UK property fund.
  • Kogan (KGN): Trading debut expected, according to Bloomberg data.
  • Nuplex (NPX): Holders vote on Allnex deal.

Broker upgrades, downgrades

  • Fantastic Holdings (FAN): Raised to overweight from neutral at JPMorgan
  • Beach Energy (BPT): New overweight at JPMorgan
  • Boral (BLD): Upgraded to buy from neutral at Citi

AUDUSD finds support, rebounds

The AUDUSD looked weak but it found the support level at 0.7408 which is the 38.2% retracement between the April high and the May low.  The recent high 0.7545 remains as an interim resistance level and we do not see any clear trade setup at this stage. 

The overnight rebound seems to indicate the upside momentum is still lurking.

AUDUSD trend


EURUSD under pressure

Yesterday, EURUSD was under selling pressure when the Cable (GBPUSD) briefly broke below 1.28 handle in the Asian session. However as the US dollar index (DX) found the resistance again at the 200 day moving average, EURUSD retraced back up to the 1.1108 which was the break out level of the flag formation. 

Today’s focus would be on the Bank of Japan speech at 1030 AEST (0030 GMT) and the ADP nonfarm employment change at 2215 AEST (1215 GMT).  The resistance levels should be 1.1108 and 1.1170, while the support levels would be 1.1070 and 1.1033. 

EURUSD trend2

S&P/ASX200 (AUS200.i) heads for key resistance

The downside momentum appeared to be strong but the AUS200 found the support above the 200 day moving average and yesterday’s low at 5,145 happened to be the 5,100 in the SPI futures.  In the SYCOM session, the AUS200 extended the rebounds following the overnight rally from the US markets. 

The interim resistance level would be the 5,233 which 50% retracement (May-June), but the key resistance level is 5,280. 

S&P/ASX200 (AUS200.i)  chart


Downside risk for S&P500

There was a gap in the cash S&P500 (US500.i) at 2,098 and it was filled on the back of the overnight rebounds from the US500, but the psychological level at 2,100 restricted any further rally. 

We see more downside risk than the upside at the current level; however 2,100 needs to hold. Price actions of the crude oil (CL) are expected to continue to influence sentiment.   

 S&P500 chart4

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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. Watch the recording of this Week’s Macro Monday Call.


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