Article / 29 June 2016 at 0:42 GMT

Today's Trade: Brexit gloom lifts as ASX rallies

Trading Desk / Saxo Capital Markets
  • The ASX200 rallied at the open, up 0.6%, led by the banks and miners
  • Gold fell from an almost two-year high, sliding 1% to $1,311.79/oz 
  • AUDUSD pushed hard overnight as commodities from copper to oil rallied

By Saxo Capital Markets (Australia)

Local markets rallied in early trade following the lead from overseas as some of the Brexit gloom was shaken off. At 1015 AEST (0015 GMT) the ASX200 was up 0.6% to 5134. Banks and miners are leading the charge.

 Shake it off ... some of the Brexit gloom lifted as local markets followed overseas trends
and rallied at the start. Photo: iStock


  • Equities, the pound and commodity prices all climbed for the first time since Britain’s shock vote to leave the European Union amid speculation policymakers will take steps to limit any economic fallout. A gauge of global shares extended gains late in the US day for the biggest rally in a week, while the S&P 500 Index had its best day since March amid a rebound in energy stocks. 
  • Oil and industrial metals drove the Bloomberg Commodity Index up the most in seven weeks, with the dollar snapping a two-day climb as futures indicate the next move in US interest rates is more likely to be a cut than an increase. 
  • The world’s safest government bonds retreated with gold as the angst over the implications of Brexit eased.
  • The S&P 500 jumped 1.8% to 2,036.09, rebounding from its lowest level since March. Citigroup and Bank of America advanced at least 4.3% as lenders recovered from their worst two days in almost five years. 
  • Facebook and Microsoft climbed more than 2% to boost the technology group as all but one energy stock in the S&P 500 climbed, with the sub-index leading gains. 
  • Strong economic data helped distract investors from the ongoing fallout over Brexit. A report Tuesday showed the US economy expanded more than previously projected in the first quarter, while consumer confidence increased in June for the first time in three months, according to a report from the New York-based Conference Board Tuesday.
  • The Stoxx Europe 600 Index jumped 2.6% in the wake of its biggest two-day slump since 2008, while the FTSE 100 gauge also advanced by that much, recovering some of its 5.6% slide over the previous two days. 
  • Italian banks including Mediobanca SpA were among the biggest gainers after the European Commission said it was in touch with Italian authorities over possible support measures following the recent selloff. 
  • Barclays rose after losing more than 30% in the past two sessions.
  • EU leaders gathered in Brussels Tuesday for a two-day European Council summit pressed the UK to spell out how it wants to move forward after the referendum. They warned that delaying the period before Britain formally activates the EU’s exit mechanism will prevent the start of negotiations over any future relationship.
  • Shares in Japan were buoyed by a Nikkei newspaper report saying a JPY 20 trillion ($196 billion) stimulus proposal had been submitted to Prime Minister Shinzo Abe by a senior official in his party. The Nikkei 225 Stock Average added 0.1%. 
  • Most futures on Asian indexes signalled gains for Wednesday, with contracts on Japanese, Australian and South Korean benchmarks rising at least 0.5%. Futures on Hong Kong equity gauges fell 0.3% in most recent trading.
  • The pound strengthened 0.9% to $1.3344, supported by technical indicators that suggested the record two-day loss since Thursday’s vote was excessive. The move comes even after the UK was stripped of its top credit grade by S&P Global Ratings. Fitch Ratings also lowered the country’s rank.
  • The yen weakened by 0.7% to 102.75 per dollar amid the pullback in haven assets. The Bloomberg Dollar SpotIndex, which tracks the greenback against 10 major peers, retreated 0.5%, following a two-day jump of 2.7%. The currencies of commodity-exporting nations rallied, with the Colombian peso, Brazilian real and Russian ruble advancing along with oil.
  • Bloomberg’s commodity gauge rose 1.9%, the most since May 10 as West Texas Intermediate crude oil rebounded 3.3% to $47.85 a barrel. Zinc and nickel jumped more than 4% in London, while copper advanced 2.3%.
  • Gold fell from an almost two-year high, sliding 1% to $1,311.79/oz on speculation the recent gains have been overextended. In the previous two days, prices jumped 5.4%, the most since 2009.
  • Treasuries snapped a two-day surge, with 10-year yields increasing three basis points, or 0.03% percentage point, to 1.47%. The rate was at 1.75% ahead of the UK referendum results. Two-year yields rose two basis points to 0.62%.
  • Yields on Germany’s 10-year bunds, Europe’s benchmark securities, were little changed at minus 0.11%, while 10-year U.K. gilt yields climbed three basis points to 0.96%.
  • Meanwhile, rates on bonds of so-called peripheral nations continued to climb. The yield on Spain’s 10-year bond tumbled 14 basis points to 1.31% as rates on similar-maturity Italian notes fell 11 basis points to 1.39%.
  • The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 20% in its largest one-day percentage loss since 2011 to trade below 19.

Source: Bloomberg,

Local markets and commodities

  • Bank of New York Australia ADR Index +4.3%, most in 11 weeks, BHP Billiton ADR +4.2% to $A18.50 equivalent, 2.6% premium to last Sydney close, Rio Tinto ADR +3.4% to $A39.22 equivalent, 11% discount to last Sydney close
  • Gold prices retreated Tuesday as investors took profits after several days of sharp gains. Gold for August delivery closed down 0.5% at $1,317.90 a troy ounce on the Comex division of the New York Mercantile Exchange. The appeal of safe-haven assets surged after polls showed a majority of British voters favoured a break with the European Union in a June 23 referendum. Prices for the precious metal rose above $1,362 a troy ounce in electronic trading in the hours after the vote. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Oil rose, paring the biggest two-day loss since February amid speculation policymakers will take steps to limit the economic fallout from Britain’s shock vote to leave the European Union. Futures climbed 3.3% in New York after slumping 7.5% over the previous two sessions as the UK’s referendum spurred volatility in global markets. 
  • US crude supplies probably fell by 2.5 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday. West Texas Intermediate for August delivery rose $1.52 to close at $47.85 a barrel on the New York Mercantile Exchange. Futures dropped Monday to the lowest close since June 16. Total volume traded Tuesday was 14% below the 100-day average at 0431. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • China’s steel futures dropped as weak seasonal demand limited the recent rally. Iron ore fell 21¢, or 0.4%, to $53.65 a ton, according to a price index compiled by Metal Bulletin. Producers said the recent rally would be temporary and the market would return to reality –that Chinese demand is cooling as its building boom pauses. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Copper advanced to the highest in seven weeks, erasing losses following the UK vote to leave the European Union, amid speculation that policymakers worldwide will take steps to quell market turmoil. Copper for delivery in three months climbed 1.9% to $4,799.50/tonne ($2.18 a pound) on the London Metal Exchange, heading for a seventh gain in eight sessions. The metal touched $4,830, the highest since May 5. Copper futures on Comex for September delivery rose 2% to $2.1675 a pound. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Alumina (AWC): Alcoa investors looking for more answers to $13bln question
  • Insurance Australia Group (IAG), QBE (QBE), Suncorp (SUN): NSW to make announcement on compulsory car insurance today
  • Mayne Pharma (MYX), National Storage REIT (NSR): Both in trading halts ahead of capital raising completions
  • National Australia Bank (NAB): Will redeem $A600mln of perpetual capital notes issued in 2009
  • Oilfield Workforce (OFW): To buy Jack-In Holdings
  • Perpetual (PPT): Raised to buy vs hold at Morningstar
  • Qube (QUB): Raised to buy vs hold at Morningstar
  • Rio Tinto (RIO): Tax payments fell 32% in 2015 amid lower earnings
  • Vocus Communications (VOC): Said to raise $A650mln to buy NextGen: AFR
  • Coal of Africa (CZA): Gets acceptances for 94.5% of Universal Coal
  • Webjet (WEB): Completes $A72mln entitlement offer
  • Companies trading ex-div: APA Group (APA), Ardent Leisure (AAD), Aveo Group (AOG), Charter Hall Group (CHC), Charter Hall Retail REIT (CQR), Cromwell Property (CMW), Duet Group (DUE), Dexus (DXS), GPT (GPT), Goodman Group (GMG), Investa Office Fund (IOF), Mirvac (MGR), Shopping Centres Australasia (SCP), Stockland (SGP), Sydney Airport (SYD), Transurban (TCL), Vicinty Centres (VCX)

Broker upgrades and downgrades

  • TFS (TFC): Raised to B2 from B3 by Moody’s; outlook stable
  • Sigma Pharma (SIP): Cut to sell vs neutral at Goldman Sachs
  • APN News & Media (APN): Cut to neutral vs buy at UBS
  • Australian Pharma (API): Raised to neutral vs sell at Goldman
  • Caltex (CTX): Raised to overweight vs neutral at JPMorgan
  • Collins Foods (CKF): Cut to neutral vs buy at UBS
  • Evolution (EVN): Cut to underperform vs neutral at Credit Suisse

Open positions
Original trade view


AUDUSD pushed hard overnight as commodities from copper to oil rallied. The Aussie’s rise started at the beginning of the Asia session and continued to be well bid all night. 

The momentum appears to be strong in copper, which advanced to the highest in seven weeks so AUDUSD is on track to reclaim a settlement above the 74 handle today, which opens up for the coming days, the 7486 – 7503 zone where it is expected to receive potential overhead resistance.
Source: Saxo Bank 

GBPUSD rose for the first time since the UK’s vote to leave the European Union, as a recovery in investor appetite for higher-yielding assets flowed through currency markets and sapped demand for the dollar and the yen as havens.

GBPUSD pared gains after rising as much as 1.5% against the dollar. The euro also enjoyed decent gains with resistance being met at the 200DMA so we are marking this level (1.1096) as the level to clear before being confident of a higher move north. 

Above the 200DMA, we are eyeing 1.1168 (50% retracement between Friday’s high to low). However, the big test will be upon how the euro trades at the 61.8% retracement, which coincides with the lower uptrend line that the euro has been swimming above since December 2015. 

European Union leaders meet today and tomorrow to discuss the UK's EU exit, so expect market-moving headlines.

Source: Saxo Bank 
AUS200.i and US500.i

The US500.i found strong support at the level that was highlighted in this week’s Macro Monday Call and is now poised to retrace to test the 2050-2059 zone, which we see as the first hurdle to clear for an added move higher. 2059 is a direct 50% retracement from Friday’s top to yesterday’s low and given the momentum in the rally we have seen in the last 24 hours and the repeat in the drop in the VIX overnight (down 20% below 19) these levels higher should not be ruled out.
US500 monthly chart
Source: Saxo Bank
The AUS200.i started yesterday’s session lower on the back of the selloff in global equities the previous night. However, it commenced a strong rally (after a false break below the 50% retracement between the February low to the May high) as the Nikkei lifted off its lows along with the S&P futures which continued to trickle higher. 

The AUS200.i settlement above the 200DMA should be an encouraging signal to the ASX bears and we are now targeting a further uplift to 5219 for tomorrow, which is the final trading day of the financial year. Futures are signalling a gain of over 1.5% and early market indications in the pre-market auction across banks to commodity names are consistent with these expectations so the ASX should be well bid throughout the day.
AUS200 monthly chart
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

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets


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