Article / 30 June 2016 at 0:27 GMT

Today's Trade: Huge overnight Wall St rally sends S&P/ASX200 soaring

Trading Desk / Saxo Capital Markets
  • Crude oil erased the two-day plunge that followed Britain’s exit vote
  • The S&P500 saw a huge rally last night
  • The US benchmark index has recovered more than 50% of its post-Brexit plunge
  • There is a bearish bias in the EURUSD but further recovery seems likely today

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 soared at the open, inspired by a rebound on Wall St. It was up by a massive 1.4% to 5,214.40 at 1026 AEST (0026 GMT) 
  • Global stocks rallied for a second day and the dollar weakened amid speculation policy makers will move to prevent Britain's EU secession from hampering global growth. Crude oil gained as American stockpiles fell. The MSCI All-Country World Index had its biggest two-day gain since August as central banks around the world signalled a readiness to act. The S&P 500 Index erased a loss for the year, with a Goldman Sachs Group Inc. index of the most-shorted shares surging the most since 2009. Britain’s FTSE 100 Index erased its post-Brexit losses with a 6.3% surge over two days.
  • Emerging-market shares climbed as the dollar fell on odds that the Federal Reserve won’t raise rates this year. Oil topped $49 a barrel.

 Crude oil has erased the plunge that followed Britain’s EU exit vote, helped by falling US inventories. Photo: iStock

  • The MSCI All-Country World Index rose 2.2% at 4 p.m. in New York, pushing its two-day gain to 3.9%. The S&P 500 climbed 1.7%, for a two-day rally of 3.5%, the most since February. The US equity benchmark now stands 0.5% higher in the second quarter and 1.3% higher for the year.
  • Energy shares had the best two days since March as crude gained, with Chevron Corp. climbing 1.7%. Goldman’s basket of the most shorted shares in the Russell 3000 Index rose the most since 2009, while the Dow Jones Industrial Average stretched its rebound to 553 points since Monday’s close.
  • The Stoxx Europe 600 Index climbed 3.1%. The gauge has recovered 4.7% after tumbling 11% over two days. It is still heading for a second consecutive quarterly decline. The MSCI Asia Pacific Index climbed 1.9% as benchmarks advanced across the region. The MSCI Emerging Markets Index climbed 2.2%, extending Tuesday’s advance. It is still heading for a quarterly losses, for the first decline since the period ended in September.
  • The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slid 0.5% following a loss of the same amount in the last session, amid speculation about the path of Fed interest rates. The pound extended its advance from a three-decade low as traders took advantage of the global market rout to go on a buying spree. Sterling jumped 1.2% to $1.3508, a day after gaining 0.9%. Britain’s currency tumbled 8.1% on Friday, the biggest decline on record, and on Monday sank further to $1.3121, the lowest since 1985.
  • The Bloomberg Commodity Index, which measures returns on raw materials, extended Tuesday’s 1.9% rally with a 1.1% advance. Oil erased the two-day plunge that followed Britain’s vote to leave the EU after US crude inventories dropped for a sixth week while the dollar retreated against its peers. West Texas Intermediate crude climbed 4.2% to settle at $49.88 a barrel, building on last session’s 3.3% jump. Crude supplies declined 4.05 million barrels last week, the Energy Information Administration said. Analysts surveyed by Bloomberg had forecast the EIA would report a 2.5 million barrel decline. Gold recovered most of the previous session’s losses, adding 0.6% to $1,326.20/oz on speculation central banks will have to continue supporting the global economy. Futures for August delivery gained 0.7% to settle at $1,326.90/oz, gaining for the third time in four sessions and on pace for a second quarter of gains.
  • The yield on 10-year Treasuries rose four basis points to 1.51% after falling Monday to the lowest in almost four years. The yield on 30-year Treasuries touched the lowest since February 2015 as data showed a measure of inflation preferred by the Federal Reserve fell short of forecasts. The yield difference between 30-year bonds and debt due in two years is the lowest since 2008, and the spread with five-year notes is approaching the narrowest this year.
  • Spain’s 10-year bond yield fell six basis points to 1.25%, after sliding to as low as 1.23%, the least since April 13, 2015. The yield on Portuguese debt dropped six basis points, while for Italy it was down five.
  • Europe’s corporate-bond market reopened following a six-day shutdown caused by the Brexit referendum. Molson Coors Brewing Co. sold 800 million euros ($890 mln) of eight-year bonds, according to data compiled by Bloomberg. The beermaker raised $5.3 billion in a US sale on Tuesday.
  • Sources: Bloomberg,
Local markets
  • Bank of New York Australia ADR Index +1.7%, BHP Billiton ADR +1.6% to $A18.64 equivalent, 2% premium to last Sydney close, Rio Tinto ADR +3.4% to $A40.22 equivalent, 10% discount to last Sydney close.
  • Gold advanced as investors speculate central banks will have to continue supporting the global economy in the wake of Britain’s vote to quit the EU. Gold futures for August delivery gained 0.7% to settle at $1,326.90/oz 1352 hours on the Comex (1252 GMT), gaining for the third time in four sessions and on pace for a second quarter of gains.
  • Gold’s investment case has been strengthened by the Brexit vote last week as the fallout may spur the world’s central banks to step up easing, hurting currencies and favoring bullion, Marc Faber, publisher of the Gloom, Boom & Doom Report, said Wednesday. The gold sector in Toronto rose 1.35%. Holdings in exchange-traded funds backed by gold rose 5.62 tonnes to 1,940.3 tonnes as of Tuesday, the highest level since September 2013, data compiled by Bloomberg show. Investors have added 35.7 tonnes to ETFs in the past three days. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR .
  • Crude oil erased the two-day plunge that followed Britain’s vote to leave the European Union after US crude inventories dropped for a sixth week while the dollar retreated against its peers. Futures advanced 4.2% in New York, extending Tuesday’s 3.3% increase. Crude supplies declined 4.05 million barrels last week, the Energy Information Administration said. West Texas Intermediate for August delivery climbed $2.03 to close at $49.88/barrel on the New York Mercantile Exchange. It’s the biggest gain since April 12. Total volume traded was about 5% below the 100-day average. Brent for August settlement rose $2.03, or 4.2%, to $50.61/b on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $0.73 premium to WTI. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Seaborne iron ore prices were relatively steady on Wednesday June 29, even though trading activity appears to have slowed down. Iron ore rose $0.24, or 0.5%, to $53.89 a tonne, according to a price index compiled by Metal Bulletin. The flat futures market has led to mills holding back on purchases during the day, according to several trading sources. But the same sources expected the pause to be temporary as mills will still need to ensure sufficient levels of raw materials for them to maintain their normal production rates. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Copper touched an eight-week high amid bets that central banks will move further to shore up economies following the UK referendum, boosting the outlook for demand. Copper futures for September delivery gained 0.5% to settle at $2.186 a pound on Comex in New York. The metal touched $2.1915, the highest since May 4. On the London Metal Exchange, copper, zinc, aluminium, lead, nickel and tin advanced. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • Alumina (AWC): Alcoa plans to shift some debt to new co. after split.
  • ANZ Bank (ANZ): Preferred option said to be complete sale of wealth, life insurance ops, which may be worth A$5b-A$6b: AFR.
  • BHP Billiton (BHP): Escondida head preparing for lower-for- longer copper: DF.
  • Crown Resorts (CWN): Crown Group Finance gets $A500mln revolver from seven banks.
  • Fonterra (FSF): Australia forecasts 2016-17 milk price at $A4.75/kg.
  • Graincorp (GNC): Trades ex-dividend.
  • Macquarie Group (MQG): U.K. said to delay $5.4bn Green Bank deadline for bids.
  • Metcash (MTS), Woolworths (WOW): Australian regulator scheduled to make ruling on Metcash unit’s bid to buy some.
  • NextDC (NXT): Might be a potential target for US data center co. Equinix: AFR.
  • Rio (RIO): Co., Savannah extend long stop for Mutamba/Jangamo JV to September 30.
  • Transurban Group (TCL): Raised to outperform at RBC Capital.
  • Z Energy (ZEL): Remains confident of $NZ25mln-$NZ30mln merger synergies.

Broker upgrades, downgrades
  • Seven Group (SVW): Raised to buy vs neutral at Goldman Sachs.
  • Spark Infrastructure (SKI): Cut to sector perform vs outperform at RBC.
  • Mayne Pharma (MYX): Raised to buy vs neutral at UBS.
Open positions
Original Trade set up:
Commodity currences make gains

Crude oil (CL) rallied on the back of the weak crude oil inventories figures (-4.1 mln) while copper (HG) also extended its gains. So the commodity currencies such as AUD and CAD continued to push higher. AUDUSD is likely to test the next resistance level at 0.7490, which is the 50% retracement between the April high 0.7834 and the May low 0.7145.

The dollar index (DX) fell below the May top 95.96 while EURUSD rose above the 1.11 handle where the 200 day moving average intersects. The next resistance level is 1.12 handle which coincides with the previous uptrend (from December). Another resistance level is at 1.1170, which is the 50% retracement of the Brexit selloff. We have a bearish bias in coming weeks but further recovery seems likely today.
AUDUSD trend

 Bearish bias ahead for EURUSD

Cause for S&P/ASX200 optimism

The majority of the gains in the S&P/ASX200 (AUS200.i) were made from the SYCOM session as the VIX plunged to the previous resistance level 16.64 and the positive sentiment seemed to be returning.

If we see a daily close above the psychological level at 5,200, then the AUS200 has the potential to grind higher towards the next resistance level 5,219 where we would look to sell.

S&P/ASX200 chart4

S&P500 rallies

The S&P500 (US500) made a huge rally last night and now it has recovered more than 50% of the Brexit plunge. The support level would be 2,059 and the next resistance levels would be 2,095-2,100.

We currently do not see any clear sell signal, so we would reassess until there is any reversal in price actions.
 S&P500 chart
Chart: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more.  

– Edited by Robert Ryan

Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

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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