Today's Trade: ASX on hold, pondering RBA move
- ASX on tenterhooks awaiting RBA interest rate decision at 0530 GMT
- Overseas stocks rally seems to have run out of steam
- ECB and Bank of England pledge to help make liquidity available
By Saxo Capital Markets
Overnight and early trading
ASX shares began trade weaker as predicted, as investors hesitate ahead of the RBA meeting this afternoon.
The S&P/ASX 200 was down 0.4% at 5258, while the All Ordinaries is down 0.4% to 5343.6 in early trading.
The rally that lifted Europe’s stocks by the most since February lost steam overnight as declines in Italian banks outweighed a jump in commodity producers.
The Stoxx Europe 600 Index lost 0.7% at the close of trading in London, with the volume of shares changing hands about 30% lower than the 30 day average as the US market was closed for the Independence Day holiday.
Banca Monte dei Paschi di Siena sank 14%, leading the industry lower, while miners of precious metals Fresnillo and Randgold Resources climbed at least 4.3% with silver and gold set for their highest prices since 2014.
Equities halted a rebound after jumping 7.6% in four days, recovering more than half their losses from the aftermath of the British vote to leave the European Union. After the referendum, both the European Central Bank and Bank of England have pledged to help make liquidity available, and traders pushed back bets for further Federal Reserve rate increases.
UK Chancellor of the Exchequer George Osborne set a goal of lowering the corporate tax rate to 15% in an effort to keep businesses investing in the UK.
Italy’s FTSE MIB Index was the biggest decliner in western-European markets, sliding 1.7%, as its lenders dropped after the European Central Bank requested Monte Paschi to draw up a plan for tackling its bad-loan burden, reducing its load of soured debt.
Automakers and real estate companies were the biggest decliners among industry groups. S&P 500 Index futures expiring in September added less than 0.1%.
The Stoxx 600’s 50-day moving average was close to crossing below its 100-day mean. The UK’s FTSE 100 Index slipped 0.8% after coming close to entering a bull market.
It surged 10% in four days, the most since November 2008, amid a weakening of the pound. The nation’s homebuilders slid on Monday as a report showed construction shrank at its fastest pace since 2009 in June.
Among companies moving on corporate news, Deutsche Lufthansa rose 1.2% after sticking to its forecast for higher earnings this year. RWE climbed 3.5% as Raymond James said the spinoff of its new renewable energy, grid and retail business could drive a re-rating.
Rightmove fell 6.4% after Barclays cut the shares to the equivalent of a sell, saying they’re expensive after the Brexit vote.
Moneysupermarket.com Group tumbled 11%, the most in the Stoxx 600 after Monte Paschi, after the brokerage lowered its recommendation to neutral rating.
Canadian stocks rose for a fourth day, aided by commodity producers. The S&P/TSX Composite Index advanced 1.4%, with Kinross Gold, Eldorado Gold and Yamana Gold all rising more than 6%.
The Australian, Canadian and New Zealand dollars appreciated at least 0.5%, buoyed by the pickup in commodity prices.
The GBP rose 0.2% versus the dollar, after Osborne floated the possibility of a lower corporate tax rate and before Bank of England governor Mark Carney outlines the available macro-prudential tools on Tuesday.
The currency tumbled 8.1% in June, the most since 2008, as the UK’s decision to leave the EU shocked investors and triggered political upheaval in the country.
Japan’s yen was little changed at 102.53 per dollar. It declined 0.3% last week as Bank of Japan governor Haruhiko Kuroda said more funds could be injected into the market should they be needed.
The haven currency touched 99.02 in the wake of the vote for Brexit, its strongest level since 2014
Information sources: Bloomberg, TradingFloor.com
Local markets and commodities
- S&P/ASX 200 Index futures down 0.3%; futures relative to estimated fair value suggest an early gain of 0.1%.
- BHP ADR on LSE gained 1.3% & RIO ADR on the LSE added 0.47%.
- Silver vaulted above $21 for the first time in two years and gold advanced for a fourth day on speculation of more central bank stimulus in the wake of the UK’s vote to leave the European Union. Spot silver jumped as much as 7% to $21.1377/oz and settled at $20.3246/oz in New York on Monday.
- Spot gold rose as much as 1.2% to $1,357.63/oz, near a two-year high, and settled at $1,350.79. Bullion has benefited as turbulence in financial markets after the Brexit vote added to speculation that central banks will step up stimulus, with interest rates in the US set to remain low.
- Holdings in silver-backed exchange traded funds expanded to a record last month, and assets in gold ETFs are now at the highest since August 2013. Fresnillo, the world’s biggest primary silver producer, rose 7.7% in London. It’s up 168% this year, the best performer in the UK’s benchmark FTSE 100 Index. Randgold Resources gained 4.4% to close at a record. In Toronto, Kinross Gold, Eldorado Gold and Yamana Gold all rose more than 6%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Brent crude closed near $50/barrel as Nigerian output rose last month following repairs to some infrastructure that had been damaged by militants' attacks. Brent fell 0.5%, paring earlier gains. The African country pumped an average 1.53 million barrels a day last month, an increase of about 90,000 a day from May, according to a Bloomberg survey.
- The global benchmark rose earlier as the Niger Delta Avengers said they attacked five crude-pumping facilities overnight Sunday. Nigerian oil workers plan to begin a strike July 7 to protest job losses and delays in passing a new oil law.
- Brent for September settlement lost 25 cents to $50.10/b on the London-based ICE Futures Europe exchange. The contract had advanced 64 cents to $50.35/b on Friday. West Texas Intermediate for August delivery fell 23 cents, or 0.5%, to $48.76 a barrel on the New York Mercantile Exchange. Total volume of WTI futures traded Monday (Independence Day in the US) was about 80% below the 100-day average. There was no settlement because of the holiday. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore advanced as steel prices climbed in China on speculation that the government will restrict output in the top producer at a time when inventories of a benchmark construction product have fallen to the lowest level in six months. Ore with 62% content delivered to Qingdao rallied 3.5% to $56.22/tonne on Monday, extending last week’s 7.4% gain, according to Metal Bulletin. That’s the highest since May 18. Prices of reinforcement bar in Shanghai gained 18% last month and have extended their rally at the start of July.
- Iron ore has posted a back-to-back quarterly increase for the first time since 2013 as policy makers said they’d support growth, boosting demand. While mills have increased supply in response to the spurt in steel prices, stockpiles of rebar have still shrunk in the past four months. China’s top steel-making city of Tangshan plans to curb output in July to ensure clear skies for a memorial event, people with knowledge of the matter said last week. There’s speculation about “potential steel-output reductions in Tangshan,” Di Wang, an analyst at CRU Group in Beijing, said before the price data. Steel stockpiles are “still low, having recorded another week of decreases. Given these factors, demand for raw materials is actually not bad.”
- Speculative interest behind the latest rally in futures was supported by low steel inventory, Goldman Sachs Group said last week. Stockpiles of rebar have declined to the lowest since January, according to Shanghai Steelhome Information Technology Co. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Nickel rose to the highest in eight months after the Philippines, the world’s largest producer of the ore, threatened to close mines that fail to meet environmental standards. President Rodrigo Duterte has told mining companies who breach regulations to improve operations or face closure, while the environment secretary said Friday that less than a third of miners meet international standards. “They’re discussing reviewing all mines for environmental reasons, making markets a bit nervous over where China’s nickel ore supply is going to come from,” said Xiao Fu, a London-based analyst at Bank of China International.
- Nickel rose as much as 4.4% to $10,410/ tonne before trading at $10,110/t by 1700 GMT on the London Metal Exchange. Prices surged 5.6% on Friday, the biggest advance since February. GMK Norilsk Nickel PJSC, which rivals Rio de Janeiro-based Vale SA as the world’s top nickel producer, climbed 4.3% on Monday.
- Other industrial metals were mixed in London, with a 3% jump in tin. Copper fell 0.4% to $4,891 an ounce, after last week’s 4.5% gain, the best such performance since April. The FTSE 350 Mining Index rose 2.1%. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stocks: AWC.
- In other news: ANZ (ANZ), Commonwealth Bank (CBA), NAB (NAB), Westpac (WBC): Australia may face downgrade of sovereign credit rating after inconclusive election; Animoca Brands (AB1): To buy European mobile gaming developer; Rio Tinto (RIO): Commits to London HQ; SmartGroup (SIQ): To buy Autopia for A$36m; Transurban (TCL): Perpetual says investors are discounting regulatory risk, according to AFR
Broker upgrades and downgrades
- Austal (ASB): Raised to buy from hold at Argonaut Securities
- BHP (BHP): Upgraded to hold from sell at Independent Research
- Mantra Group (MTR): Cut to neutral from outperform at Credit Suisse
- Rio Tinto (RIO): Raised to buy from hold at SBG Securities
- SAI Global (SAI): Downgraded to neutral from outperform at Credit Suisse
AUDUSD and EURUSD
The AUDUSD is showing plenty of upside momentum as it rallied to break the 0.75 handle but it is possible to see a reversal today depending on the RBA’s rate decision at 1430 AEDT (0530 GMT).
The current probability of the rate cut is only 10% therefore the focus would be on the tone of the forward guidance. The AU retail sales and the trade balance are also released at 1130 AEDT (0230 GMT) but we do not expect any significant reactions from the AUDUSD. The next resistance levels are 0.7570 and 0.76, while the support level is now 0.75 handle.
AUDUSD monthly chart
The bearish flag on EURUSD still looks genuine and we are looking at targeting a sell at 1.1230 which is the 61.8% fibonacci retracement between the Brexit high to low and a retest of the lower trendline of the channel it broke previously.
Notice last week’s rejection was seen at the 50% retracement so this retracement seems valid. The Cable (GBPUSD) still remains under further selling pressure and tonight’s speech by Mark Carney could be interesting.
EURUSD monthly chart
AUS200.i and US500.i
The AUS200 maintained strength despite the weakness from the big four banks. The material stocks are supporting the AUS200, therefore we believe that the AUS200 is in danger of a potential pull back if we see any reversal from the recent rally in the commodity prices.
The downtrend (from the May high) seems still intact but the daily close above this would indicate further rise towards the next resistance level 5,333.
AUS 200 monthly chart
The price actions of the US500 were subdued due to the public holiday in the US and we feel that the current level looks fragile given the recent rally has been very sharp without any retracements.
We are expecting some profit taking soon although the current upward momentum appears to be resilient. We would look to sell at the previous uptrend line (from the February low) or sell the break below the psychological level 2,100.
US 500 monthly chart
Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
-- Edited By Adam Courtenay
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call