The uncertainty over who will lead the country is likely to dent the local market today as the Australian election failed to deliver a clear winner. At the start, the ASX200 and All Ords were both down by 0.2% with the major banks leading the drag.
- US stocks rose for a fourth day on Friday, with the S&P 500 Index posting its best week since November, amid optimism on American growth and as central banks continued to signal support in staving off fallout from Britain’s decision to leave the European Union.
- Equities added to a raucous rebound, nearly wiping out a Brexit selloff that resulted in the worst two-day losses in 10 months. The longest winning streak for stocks since March was no foregone conclusion as the Dow Jones Industrial Average briefly erased a 72-point climb. Industrial, energy and financial shares led the comeback since Monday, with General Electric and JPMorgan Chase & Co rallying more than 6.3% in four days. Exxon Mobil Corp. extended an 18-month high.
- The S&P 500 advanced 0.2% to 2,102.95 at 1600 in New York, bringing its four-day surge to 5.1% while trimming its decline since the UK vote on June 23 to 0.5%. The Dow Jones Industrial Average gained 19.38 points, or 0.1%, to 17,949.37. The Nasdaq Composite Index added 0.4%. About 6.8 billion shares traded hands on US exchanges, 6% below the three-month average. US equities markets will be closed Monday in observance of Independence Day.
- The benchmark index added 3.2% this week as the European Central Bank and the Bank of England indicated they are prepared to loosen policy to deal with the fallout of the Brexit vote. Data Friday showed US factory activity expanded in June at the fastest clip in more than a year, underlining recent signs of strength in the world’s largest economy.
- The S&P 500 climbed within 1% of its record high before the UK referendum amid signs global growth had stabilised and central banks would remain supportive. Energy producers led the advance in the second quarter as crude had its best period since 2009.
- The Brexit-induced turmoil had already prompted traders to push back bets the Federal Reserve will raise borrowing costs any time soon. They now indicate a rate boost is unlikely before 2018.
- Anxiety continued to ebb as reflected by the CBOE Volatility index, which sank 5.5% to 14.77, holding at a three-week low. The measure of market turbulence known as the VIX is poised for its biggest weekly tumble ever, down 43% after a 33% jump last week. Seven of the S&P 500’s 10 main industries advanced Friday, led by a 0.9% gain for consumer-discretionary stocks. Healthcare and industrial shares added at least 0.3%.
- Utilities fell for the first time in seven days, slipping from a record high, and banks halted a three-day winning streak to weigh on the broader financials group. Consumer shares rose for a fourth-straight day, for a total rally of 5.3%. Harley-Davidson soared 20%, the most in seven years, as recreational vehicle stocks climbed amid multiple unconfirmed mentions on Twitter of takeover speculation. Polaris Industries increased 5.6%.
- Netflix jumped 5.7%, the most in four months, after an analyst at Canaccord Genuity initiated a buy recommendation on the stock, noting that the company’s international subscriber growth has been delayed but not derailed.
- Healthcare stocks had their best week in three months, boosted by a four-day surge in biotechnology shares. Amgen and Gilead Sciences added more than 1.4% Friday. The Nasdaq Biotechnology Index marked its strongest week in almost a year, up 5.5%.
- A group of automakers and parts suppliers jumped 2.2%, boosted by the gains in Harley-Davidson. June sales figures showed mixed results for General Motors, Ford Motor and Fiat Chrysler Automobiles. AutoNation gained 1.8%, one of the biggest today among retailers.
- Banks sank, trimming their climb for the week with US Treasury yields at or near record lows, as investors worried persistently low rates would continue to weigh on lenders’ earnings. Bank of America Corp. lost 1.3%, while Regions Financial fell 1.8%.
- European stocks also strengthened a rally that has recouped more than half the losses from the aftermath of the Brexit vote. The Stoxx Europe 600 Index added 0.7% at the close, capping its biggest weekly gain in a month. The UK’s FTSE 100 Index also advanced, completing its best four-day jump since 2008 amid a weakening pound and rising commodities.
- After a two-day selloff sparked by Britain’s shock vote to quit the European Union, the Stoxx 600 has recovered 7.6%, the biggest surge since February, as central banks stepped up to reassure investors they were ready to act. Lenders reversed a drop today after the Bank of England was said to be planning a cut in capital requirements as early as next week. Standard Chartered and UBS Group rose more than 2%.
- Equities extended gains after UK Justice Secretary Michael Gove, in the fray to become the next Prime Minister, said he doesn’t expect the formal mechanism for leaving the European Union to be triggered this year. Theresa May, the bookmakers’ favourite for the position, has said the same.
- The BoE could loosen policy within months, Governor Mark Carney said, while the European Central Bank was said to consider loosening the rules for its bond purchases. The Stoxx 600 trimmed its first monthly loss in four and is up 3.2% for the week.
- Stocks were volatile in the run-up to and the aftermath of the Brexit vote, with trading volume reaching records. A gauge of euro-area equity swings surged to a 10-month high before the referendum, before subsiding to a three-week low. The VStoxx Index fell for a fifth session today.
- Euro-area manufacturing grew faster than initially estimated in June, a report with results collected prior to the referendum showed today, while another release showed unemployment in the region fell to an almost five-year low. All 19 industry groups on the Stoxx 600 advanced, with Volkswagen AG and PSA Peugeot Citroen leading carmakers to the best performance.
- Among shares active on corporate news, Temenos Group climbed 3.1% after the Swiss software maker said Standard Chartered will use its wealth-management program in more than 30 markets. Telefonica Deutschland Holding slid 2.5% after Credit Suisse Group downgraded the shares to neutral, citing increased competition in Germany.
Source: Bloomberg, TradingFloor.com
Local markets and commodities
- S&P/ASX 200 Index futures up 0.6% however, the markets may open with mild losses on the back of the uncertainty surrounding the election over the weekend
- Bank of New York Australia ADR Index little changed, BHP Billiton ADR +0.2% to $A19.19 equivalent, 0.5% premium to last Sydney close, Rio Tinto ADR +0.9% to $A42.34 equivalent, 8.1% discount to last Sydney close
- Gold posted the longest run of weekly gains in almost two years and silver surged to the highest since 2014 as Britain’s vote to quit the European Union fuelled speculation that central banks will boost economic stimulus.
- Gold and silver had the biggest first-half gains in about four decades amid mounting speculation that interest rates in the US will remain low, which is a boon to precious metals because they don’t offer interest. Expectations for US rate increases have been wound back since the Brexit vote, while investors continue to pile into exchange-traded funds backed by gold.
- Gold futures for August delivery advanced 1.4% to settle at $1,339/oz on Comex, capping a fifth straight weekly rise. Prices rallied 25% in the first half, the biggest such gain since 1979. For spot gold, the rally in the first half was the largest since 1974. Silver futures for September delivery climbed 5.2% to $19.588/oz. In electronic trading after the market closed, the metal touched $19.745, the highest since August 2014. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Oil rose, following the biggest quarterly gain since 2009, amid speculation policymakers will act to limit the fallout from the UK’s vote to leave the European Union. Futures climbed 1.4% in New York Friday after surging 26% during the three months ended June 30. Global markets have been in turmoil since the British referendum on June 23.
- US crude supplies shrank a sixth week and production slipped to the lowest since September 2014, Energy Information Administration data showed Wednesday. West Texas Intermediate for August delivery rose 66 cents to settle at $48.99/barrel on the New York Mercantile Exchange. Futures climbed 2.8% this week, even after the contract fell 3.1% to settle at $48.33 on Thursday.
- Brent for September settlement advanced 64 cents, or 1.3%, to $50.35/barrel on the London-based ICE Futures Europe exchange. The August contract fell 1.8% to $49.68/barrel before expiring Thursday. The global benchmark crude was at a 70-cent premium to WTI for September delivery.
- The total volume of WTI futures traded was 29% below the 100-day average at 1454 GMT. There was less activity before the three-day weekend marking the Independence Day holiday on July 4 in the US. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Goldman Sachs Group is forecasting that steel consumption in China will shrink again from next year after a brief respite in 2016, and the nation’s iron ore imports will eventually start to decline too as policymakers shift the economy away from investment. Steel demand will contract 2% in 2017 and a further 2% in 2018 following a 1% expansion this year, Goldman said in a report received on Friday that summarised results of new modeling. China’s steel consumption may end up dropping as much as 20%, according the bank.
- Ore with 62% content delivered to Qingdao was at $54.33 a dry ton on Friday, according to Metal Bulletin. Prices have gained 25% in 2016 after dropping for three years. Goldman Sachs left its long-run forecast unchanged at $35/ton. China imported a record 953 million tons of iron ore in 2015, up from 933 million tons in 2014 and 619 million tons in 2010, according to customs figures.
- In a separate June 15 note, Goldman forecast China would import 971 million tons this year, then see shipments little changed at 975 million tons in 2017, before dropping through 2020, when they would total 904 million tons. Australia’s government has signalled it expects China’s iron ore imports will plateau from next year as steel output declines, while the country’s top miners have said they see steel production still rising.
- Overseas iron ore purchases may climb to 1.03 billion tons in 2017 and hold at about that level over the next five years, according to the Department of Industry, Innovation & Science. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Zinc climbed to a one-year high as industrial metals gained amid speculation that policymakers will do more to bolster growth in China, the world’s biggest user. The official manufacturing purchasing managers index in the Asian nation slipped in June, fuelling optimism that there will be more economic stimulus.
- Zinc for delivery in three months climbed 2.4% to settle at $2,155/tonne at 1750 GMT on the London Metal Exchange, after reaching $2,170, the highest since June last year. Lead, nickel and tin gained more than 2%. Copper added 1.4% to finish at $4911/tonne. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
- Rio Tinto (RIO AU): New CEO skirts M&A for focus on own mines
- Centrepoint Alliance (CAF): Completes bank refinance
- Vocus Communications (VOC): Entitlement, retail rights trading starts
Broker upgrades and downgrades
- Gold Road Resources (GOR): Cut to hold from speculative buy at Bell Potter
- Suncorp Group (SUN AU): Upgraded to buy from neutral at UBS; PT $A13
AUDUSD and EURUSD
found the support levels above the 200 DMA during June, it is maintaining resilience as copper continues to rise and volatilities have been dropping. There are some AU data release today: MI inflation gauge at 1100 AEST and building approvals at 1130, but we do not see any significant influence from these. The major focus would be the developments of the election release as the outcome is still yet to be decided. The interim resistance level is at the 0.75 handle.
The dollar index (DX) appears to have formed a clear bullish flag, since it found the resistance level at the 200 DMA. This means that EURUSD
is forming a bearish flag as it is inversely correlated. The last week's high 1.1168 should now be the resistance level, which is the 50% retracement of the Brexit selloff.
The logical trade setup would be to sell stop below the lower uptrend of the flag at 1.1070 and if this flag proves to be true, then we expect EURUSD to eventually touch 1.07 handle.
AUDUSD monthly chart
Source: Saxo Bank
EURUSD monthly chart
Source: Saxo Bank
AUS200.i and US500.i
The global equity sentiments seemed to have improved dramatically last week and the AUS200
is following this positive lead, although it failed to break above the interim resistance level 5,280 where the downtrend (from May) crosses the 61.8% retracement between the May high and the June low.
If this level holds, then we expect some profit-taking as the recent rally has been aggressive. We see growing uncertainties in our market as the AU elections failed to confirm the majority government over the weekend and a hung government could potentially create negative reactions in the AUS200.
It was interesting to note that the equity markets and gold (XAUUSD
) have been rallying together last Friday. Silver (XAGUSD
) continues to outperform gold, but gold looks strong as it is now approaching the Brexit high 1,359. The US500
closed above the psychological level 2,100 and it is now looking to test the previous uptrend (from February), which should be the next resistance level.
The current upside momentum seems strong but it is doubtful how long this rally would be sustainable. Due to the public holiday in the US, we expect quiet price actions with thin volume. The support levels are 2,075 and 2,059.
Source: Saxo Bank
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more
Today's data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters