Today's Trade: S&P/ASX200 loses ground on overseas market jitters
- The benchmark S&P500 has given up some of its recent gains
- Australia's big four banks dragged the S&P/ASX200 lower on Tuesday
- The Australian dollar has lost ground against the greenback
- The AUD resistance level would now be 0.75, with support at 0.74 and 0.7380
- Iron ore price have fallen by 0.5%, to $55.93 a tonne
By Saxo Capital Markets Australia
Overnight and early trading
- The S&P/ASX200 headed lower at the open. It was down 0.66% to 5,193.50 at 1025 AEST (0025 GMT).
- Stocks slid with the pound as signs of slowing growth in Europe and comments from Bank of England Governor Mark Carney rekindled worries over the outlook of the global economy. Bond yields tumbled to all-time lows and crude sank. Energy producers and banks were among the biggest drags on the S&P 500 Index, as 10- and 30-year Treasury yields dropped to unprecedented levels. The pound fell to its weakest since 2013 against the euro after Carney warned of “the prospect of a material slowing of the economy.” Oil dropped below $47/barrel after the world’s top oil trader said prices won’t rise much further.
- The MSCI All-Country World Index dropped 1.1% at 4 p.m. in New York, its first slide in more than a week. The S&P500 slid 0.7%, paring losses that reached 1.1%, as the U.S. market reopened after the Independence Day holiday. The US benchmark jumped 3.2% last week, the biggest weekly increase since Nov. 20. Tesla Motors Inc. declined 1.2% after missing its deliveries forecast because of what it called an “extreme production ramp.” Investors sought refuge in groups considered defensive in nature, as consumer-staple companies and utilities were the only groups to increase.
- An economic report indicated factory orders in May fell 1% versus a 0.8% estimate, while a final reading on durable goods orders showed a 2.3% drop. Stocks briefly pared losses after the FBI said it’s recommending that no charges be filed against presidential hopeful Hillary Clinton or her aides over her use of private email while she was secretary of state.
- The Stoxx 600 lost 1.7%, extending its decline into a second day. All industry groups fell, and 527 companies in the benchmark declined. Standard Life Plc and Aviva Plc fell at least 3.9% after their investment units suspended trading in their real- estate funds, as investors demanded their money back in the wake of Britain’s vote to leave the EU. Banca Monte dei Paschi di Siena SpA sank another 19% to a fresh record low as a person familiar with the matter said Italy is considering injecting fresh capital into the lender. The MSCI Emerging Markets Index fell 1.5%, after climbing 6.2% in the past five days in the biggest rally since the period ended March 7.
- The yield on Treasury 10-year notes slid seven basis points to an unprecedented 1.375%. The securities are rallying as futures indicate that the chance of the Fed raising interest rates this year has dwindled to 12%, down from 50% prior to the UK vote on EU membership. Thirty-year bond yields dropped to as low as 2.1395%, also a record. Germany’s 10-year bond yield was at minus 0.186%, an all-time low. The yield on the UK’s 10-year gilt yield slid six basis points to 0.77%. Australia’s 10-year yield dropped to a record 1.92% after the Bank of Australia left its benchmark rate at a record 1.75%. Taiwan’s declined four basis points to an unprecedented 0.70% after the island’s central bank was said to have reduced an overnight interest rate. Japan sold 10-year debt at a yield of minus 0.24%, the lowest-ever rate, and the yield on its 20-year notes touched a record low of 0.03%.
- The pound fell to its lowest in more than three decades against the dollar, surpassing levels immediately after the referendum. An index published by YouGov Plc and the Centre for Economics and Business Research indicated pessimism about the economic outlook almost doubled in the week following the June 23 vote. Sterling slid 1.9% to $1.3034 and was 1.2% weaker at 84.94 pence per euro. The yen climbed 0.8% to 101.71 per dollar. The currencyhas gained about 4% since the U.K. referendum amid demand for haven assets. The Bloomberg Dollar Spot Index rose 0.8%. Australia’s dollar fell 1.1%, after climbing 1.2% over the last two sessions. A national election over the weekend failed to produce a clear winner with officials continuing to tally votes on Tuesday. The MSCI Emerging Markets Currency Index retreated 0.7%. It was little changed on Monday after jumping 2% in the four days through Friday. The yuan declined 0.18% to 6.6869 a dollar in Hong Kong’s offshore market, within 0.2% of the weakest closing on Jan. 6, which was a five-year low. The People’s Bank of China lowered the yuan’s daily reference rate by 0.18% on Tuesday, extending the past month’s cuts to 1.2%.
- Precious metals declined as the dollar snapped five days of losses. Silver tumbled 1.8% to $19.97/oz, after its biggest two-day advance since 2011. Gold added 0.4% to $1,356.1 an ounce. Industrial metals also declined, with copper losing 1.6%.
- Oil extended declines, with West Texas Intermediate dropping to $46.60/barrel. Prices won’t rise much further over the next year and a half as demand slows, according to Vitol Group of Companies, the world’s largest independent oil-trading house. Brent crude will end 2016 at about $50/barrel and rise to about $60/b by the end of 2017, Vitol Chief Executive Officer Ian Taylor said in an interview with Bloomberg TV. Energy producers account for about 20% of the S&P/TSX by market capitalization.
Sources: Bloomberg, TradingFloor.com
- Bank of New York Australia ADR Index -3.3%, BHP Billiton ADR -2.8% to $A18.63 equivalent, a 4.2% discount to last Sydney close, Rio Tinto ADR -1.1% to $A40.87 equivalent, 14% discount to its last Sydney close.
- Bullion for immediate delivery gained 0.4% to $1,355.92/oz on the Comex, after declining as much as 0.9% earlier. Gold futures for August delivery gained 1.5% to settle at $1,358.70/oz on the Comex. Silver for immediate delivery slipped 2.1% to $19.8932. Prices climbed 8.6% in the two days through Monday, the most since May 2011 (Futures trading was shut on Monday fior the US Independence Day holiday). Gold holdings rose to the most in more than five years as investors pile into the metal amid turmoil in financial markets and concern over global economic growth. Open interest, a tally of outstanding contracts in gold futures on the Comex in New York, climbed to the highest on Friday since November 2010.
- In the week ended June 28, money managers boosted their net-long positions on the precious metal to the highest since data begins in 2006, US Commodity Futures Trading Commission data show. Gold has rallied 28% this year on growing speculation that borrowing costs in the US will remain low for longer, a boon to precious metals, which don’t pay interest. The UK’s vote to exit the EU added to global growth concern, spurring volatility in financial markets and boosting demand for haven assets. Spot gold swung between gains and losses Tuesday after four straight increases. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Crude tumbled to a one-week low as the outlook for the world economy darkened while oil stockpiles remain ample. Futures fell 4.9% in New York as the dollar climbed and equities slipped. Opec output rose in June, lead by Nigeria, a Bloomberg survey showed. Gasoline dropped to a three-month low after supplies on the US East Coast reached a record, limiting available storage around New York Harbour, the delivery point for the futures contract.
- West Texas Intermediate for August delivery slipped $2.39 to close at $46.60/barrel on the New York Mercantile Exchange. Contracts for delivery further out fell less than August futures, shrinking contango, the structure where prices for delivery today are lower than those in future months. There was no settlement on the Nymex Monday because of the July 4 holiday. Trades were booked Tuesday for settlement purposes. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore fell $0.29, or 0.5%, to $55.93 a tonne, according to a price index compiled by Metal Bulletin. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Nickel fell the most in eight weeks on speculation that the government may take longer than expected to close mines that don’t meet environmental rules in the Philippines, the biggest supplier of ore to China. The metal used in stainless steel advanced 12% last month on concern that shipments from the Philippines to China will be disrupted as a new government enforces standards. While Environment Secretary Gina Lopez said an audit of mining operations will be completed in three to four weeks, speculation mounted on the timing of any closures. Nickel for delivery in three months slipped 4.8% to settle at $9,705 a tonne on the London Metal Exchange, the biggest loss since May 9. Copper for delivery in three months slipped 1.6% in London. Zinc, lead and tin also declined on the LME, while aluminum rose. A gauge of 18 global base metal producers tracked by Bloomberg Intelligence declined 3.9%, the first loss in more than a week. Phoenix-based Freeport-McMoRan Inc. led declines, slipping 8%. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Citadel Group (CGL): Completes Kapish purchase.
- GPT (GPT): Sees no breach under Centuria facilitation deed.
- Rio Tinto (RIO): Guinea says Rio is bound to Simandou development commitments.
Broker upgrades, downgrades
- Woodside Petroleum (WPL): Added to conviction list at Goldman
- Zel Energy (ZEL): Reinstated at neutral at Goldman
- APA Group (APA): Added to conviction list at Goldman Sachs, which maintains buy rating
- Beach Energy (BPT): Raised to neutral vs sell at Goldman
While cable (GBPUSD) broke below the 1.30 handle this morning, the EURUSD sold off to break the lower trendline of the bearish flag pattern ahead of the two big meetings today - Mario Draghi's speech in Frankfurt at 1800 AEST (0800 GMT) and the release of the latest Federal Open Market Committee meeting minutes at 0400 AEST on Thursday (1800 GMT today).
The dollar index (DX) has also broken through the flag and once it clears the 200 day moving average, it is expected to strengthen further. The key support level is 1.1070 which is 50% retracement between Dec 15 low and May 16 high, but if this level becomes resistance level, then EURUSD should retest the Brexit low 1.0911 in the near term.
AUDUSD loses ground
AUDUSD showed little reaction to the trade balance figures and the RBA’s decision to jkeep the cash rate on hold yesterday, but it eventually fell as the US dollar strengthened and the commodity prices (for both copper and crude oil) declined.
The resistance level would now be 0.75 handle and the support levels are 0.74 and 0.7380.
Banks drag S&P/ASX200 (AUS200.i) lower
Despite the resilience from the material sectors, the big banks dragged the S&P/ASX200 (US200) lower yesterday although it found the support level at 5,190 where the uptrend (from February) coincides with the 38.2% retracement of the May high and the June low.
The downtrend (from May) now seems valid and the 5,300 proved to be a strong resistance level. Today the selling pressure is likely to remain as the energy and resource stocks would weigh down on the AUS200.
S&P/ASX200 (AUS200.i) trend
S&P500 gives up some gains
Sellers seem to have returned after the long weekend as the S&P500 (US500) erased some of the sharp gains from last week.
We are expecting further downside momentum and consider selling any rallies towards 2,100, which should be the resistance level, while the support levels are 2,080 and 2,065.
S&P500 (US500) trend
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Robert Ryan
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call.