Today's Trade: S&P/ASX swings wildly as global volatility rolls on
- The shock from the UK vote to leave the EU has swept across global markets
- The vote punishing stocks, the British pound and emerging-market currencies
- The S&P/ASX200 is not directly exposed to the Brexit shock
- But sentiments should continue to be negative for the index
- High levels of uncertainty will weigh on the S&P/ASX20 this week
- Gold surged the most since the 2008 global financial crisis after the UK vote
Overnight and early trading
- There have already been wild swings in early trading on the ASX today. The S&P/ASX200 was up by a slim 0.03% to 5,114.60 at 1055 AEST (0055 GMT)The shock from the U.K.’s surprise vote to leave the European Union swept across global markets, punishing stocks, the British pound and emerging-market currencies.
- The Dow Jones Industrial Average dropped 610.32 points, or 3.4%, to 17400.75, while the S&P 500 index fell 75.91 points, or 3.6%, to 2037.41, dragged lower by bank stocks. The declines on Friday were the largest since August for the indexes, both of which are now slightly in the red for 2016. The S&P 500 Index extended losses after falling below the 2,050 level, an area where other pullbacks during the prior two months found a floor
- The Stoxx Europe 600 index fell 7%, its steepest drop since 2008, while Japan’s Nikkei Stock Average declined 7.9%, The FTSE 100 Index fell 3.2%, trimming a slump of as much as 8.7% as exporters gained amid a plunge in the pound. The Dax was pummelled, down 6.82% & the CAC dropped 8.04%.
- Banks on both sides of the Atlantic were pummeled by the UK decision to exit the EU, hit by concern about the potential for big trading losses, slowing economic growth and the prospect of even lower interest rates for longer. In the UK, shares in Barclays PLC fell around 30% at one point Friday, although they later recovered somewhat. It and Royal Bank of Scotland Group closed the day down around 18%.
- Among continental European bank stocks: Deutsche Bank AG fell around 14%, France’s BNP Paribas SA tumbled more than 17%, Spain’s Banco Santander SA dropped nearly 20% and Italy’s UniCredit plunged 23%. In the US Citigroup Inc. was down 9.4%, its steepest in four years. JPMorgan Chase & Co. and Goldman Sachs Group Inc. lost more than 6.9%, the most since at least 2012. Morgan Stanley, the smallest of the big US banks by assets, fell about 10%; Citigroup Inc., seen as the most global of the US banks, dropped around 9%.
- Caterpillar Inc. and Boeing Co. sank more than 5.2% after pacing the Dow’s biggest gain in three months Thursday. Energy shares fell 3.5% as crude decreased 4.9%
- Ford Motor Co. lost 6.6%, the most since September 2014, after saying the Brexit will have an “adverse impact” on its operations. Parts makers Delphi Automotive Plc and BorgWarner Inc. slumped more than 9.5%. General Motors Co. slid 4.9% toward a four-month low.
- Source: Bloomberg, TradingFloor.com
- Bank of New York Australia ADR Index -6.3%, most since Aug. 24, BHP Billiton ADR -7.4%, most since Mar. 8, to A$18.33 equivalent, 4.5% premium to last Sydney close, Rio Tinto ADR -7.5%, most since May 9, to A$38.71 equivalent, 9.6% discount to last Sydney close.
- Gold surged the most since the height of the 2008 global financial crisis after the U.K. voted to exit the European Union, causing turmoil across markets and boosting haven demand. Bullion jumped as much as 8.1% and futures trading volume was double the average for this time of day. Gold for immediate delivery climbed 4.9% to $1,317.94 an ounce, after touching $1,358.54/oz, the highest since March 2014.
- As the pound tumbled against the dollar, gold priced in sterling rose 14% after rallying as much as 19%. The gold sector on the Toronto Stock Exchange soared 7.31%. Barrick, the world’s largest gold producer, rose as much as 12% in Toronto, the most since November 2008, before paring gains to 7.9%. Newmont climbed as much as 9.3% in New York and was the best performer on the S&P 500 Index.
- Oil tumbled with most commodities amid a global flight from risky assets after the U.K. voted to leave the EU. Futures dropped 4.9% in New York and London, the biggest decline in four months. West Texas Intermediate for August delivery dropped $2.47 to $47.64/barrel on the New York Mercantile Exchange. It’s the biggest decline since February 9. Total volume traded was 7.1% above the 100-day average at 1511 hours in New York (1911 GMT). Brent for August settlement fell $2.50/b to $48.41/b on the London-based ICE Futures Europe exchange. It’s also the biggest drop since Feb. 9. The global benchmark oil closed at a $0.77 premium to WTI. Crude in New York has advanced more than 80% from the lowest level in 12 years in February as disruptions from Nigeria to Canada and falling output in the US eased a global surplus. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- The seaborne iron ore market remained quiet on the last working day of this week, with prices still range-bound. The Metal Bulletin 62% Fe Iron Ore Index now stands at $50.61 per tonne, a loss of $1.28. The Metal Bulletin 58% Fe Iron Ore Premium Index now stands at $43.33 per tonne, a loss of $0.22. There were very few bids from mill buyers during the day, according to trading sources. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Copper declined along with a drop in shares of companies that mine the metal after the shock UK vote saw investors exit assets tied to economic growth. Copper fell sharply, while prices of the other five main metals traded on the London Metal Exchange dropped after the “Leave” camp sealed its victory, roiling markets and causing panic on trading floors around the world. Copper fell 1.7% to settle at $4,698 a tonne ($2.13 a pound) at 1750 hours on the LME (1650 GMT). Even so, the metal posted its best weekly gain in two months after rallying amid expectations the UK would remain in the EU.
- The Bloomberg World Mining Index tumbled 3.6%, headed for the biggest drop in six weeks, with goldminers gaining and industrial metals companies sliding. Glencore Plc, Freeport-McMoRan Inc. and BHP Billiton Ltd. all dropped more than 7%, while Randgold Resources Ltd., up 14%, was the biggest gainer. A gauge of 18 industrial metal producers tracked by Bloomberg Intelligence fell as much as 8.7%. Copper futures for September delivery slid 2.3% to $2.116 a pound on the Comex in New York. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
- BT Investment (BTT), Henderson (HGG), CYBG are among companies which may face further pressure amid Brexit fallout (See technical analysis: Saxo on Brexit: Aussie financials dip in anticipation).
- Anchor Resources (AHR): To buy GGT Manufacturing.
- BHP Billiton (BHP): Battling PE firm AMCI for Anglo American assets in Queensland.
- Commonwealth Bank (CBA): Bankwest unit suspended GBP, EUR money transfers for weekend.
- MG Unit Trust (MGC), Bega Cheese (BGA): Murray Goulburn expected to unveil milk prices this week: AFR.
- National Australia Bank (NAB): May reshuffle executive ranks after review: AFR
- South32 (S32): Commodities reel in market tumult as U.K. votes for Brexit.
- Spotless (SPO): PE buyers line up for unit: Australian.
- Telstra (TLS): Ping An completes acquisition of Autohome stake From Telstra; Unlikely to meet customer loyalty measure target for FY16: Australian.
- XAUUSD: Gold looks poised for a breakout
Brexit vote impact on the EURUSD
Now any close above this trendline or 1.1230 could threaten a higher move north, and could see the pair retrace as high as 1.1305 (which is the 76.4% retracement)
Furthermore last Friday's intraday low also happened to be a 61.8% retracement between the December low to the May's high so first support down would be Friday's low again, anywhere between 1.0941 to 1.0911 but a test of the 1.09 handle is highly possible which could open up another 120 points down to 1.0780 which is the 76.4% retracement
AUDUSD battered by UK vote
Resistance is expected at the 50% retracement level (0.7486) where it has received a rejection in the past.
Selling pressure with the extreme volatilities should remain this week and the price actions of the GBPUSD would need to be monitored.
Brexit a negative for S&P/ASX200
The major support level would be 5,000 while the resistance level is at 5,200.
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. xxx