The Overnight Report: Poll Dancing

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By Greg Peel

The Dow closed up 129 points or 0.7% while the S&P gained 0.6% to 2083 and the Nasdaq rose 0.8%.

What Goes Down

The scene was set for a positive session on the local market yesterday morning following the weekend’s Brexit polls, and perhaps more tellingly a clearer shift in the bookie odds towards a “stay” outcome. In particular, the 4% rebound in the oil price was set to have an impact.

The energy sector duly closed the day up 5.4%. The index had shot up from the open and wavered only slightly through lunch before finishing with positive momentum, up 1.8%. Not all sectors, however, participated.

But then we recall that not all sectors participated on the downside a week ago when it looked like the “go” vote was in the lead. Selling up to now has been concentrated in the big caps, the biggest of which are the banks, which are also supposedly the most vulnerable to a Brexit. Then there’s the big miners and oil names, supermarkets and the telco.

Energy may have jumped 5% but a 2.3% rebound for the banks was most influential. Materials rose 2.3% and the supermarkets rose 1.4% despite a significant drag from a 12% drop in Metcash ((MTS)), which posted its earnings result yesterday. Telcos rose 1%.

Thereafter the sector moves were less impressive. The mixed bag that is industrials rose only 0.5% and healthcare actually closed down 0.4%.

It was an “as you were” session, returning the ASX200 to the middle ground of the recent range at 5250. This could be a pivot point from which to move once the Brexit result is actually known, but for the fact we still have at least three more sessions to go and possibly more if the result is not immediately clear on Friday morning.

To that end, commodity prices were all stronger overnight, with oil up another 2%. Gold is off, but not by a lot. European stock markets surged and Wall Street closed higher. The SPI Overnight is up 24 points.

It all points to more of the same today, depending on to what extent the market sees yesterday’s session as pricing in last night’s offshore moves in anticipation. Australia’s was one of the first markets to respond to the Brexit polls yesterday. Do we go again today or will that suggest double-counting?

There are something like five more polls to be published between now and Thursday night. Presumably the global rebound can continue if those polls continue to suggest a win for the “stay” vote.

Calm Down

Wall Street is not yet ready to count its chickens.

The London stock market surged 3.0% last night, France rose 3.5% and Germany 3.4%. While the European markets have always been volatility-prone, it’s rare to see a move of such magnitude in the FTSE. The pound also surged further ahead, having risen to 1.47 against the US dollar from 1.40 late last week. Again – something you don’t see very often.

The US dollar index tumbled as a result, but that didn’t stop the safe haven of gold crashing to under US$1280 in the London session. The Dow opened up over 250 points from the bell. The S&P500 hit 2100.

But then calmer heads prevailed.

The 2100 level is significant resistance for the S&P. From that point the US indices began to drift back. Gold began to recover. By the close, US indices had given back half their initial gains. Gold is back at US$1290/oz, down US$8.10 from Saturday morning.

Wall Street isn’t quite ready to assume Britain stays in the EU when there’s a week of trading yet to go. Last night saw a shift towards a “stay” outcome, but not definitively so.

There’s also the small matter of Janet Yellen’s testimony to the Senate Banking Committee tonight. The way the Fed has been flip-flopping of late, heaven knows what might come out of the Fed chair’s mouth.

Commodities

Having surged on Friday night, last night the oils kicked on with another 2% gain. West Texas crude is up US94c at US$49.20/bbl. Brent is back over 50.

Commodity prices are mostly being supported via the currency, with the US dollar index down 0.5% at 93.64. Base metals were all 1-2% stronger on the LME.

Iron ore fell US10c to US$50.60/t. China is a world away from Britain.

Today

The SPI Overnight closed up 24 points or 0.5%.

The strong close on the ASX yesterday smacked of some late FOMO – fear of missing out. If the index opens up strongly again this morning there may be a few more initially hesitant investors coming out of the woodwork. Or we may take the lead from Wall Street in not yet getting too carried away.

The minutes of the June RBA meeting are out today. The question is one of whether “one and done” is the case, meaning the May rate cut will be it for the time being.

Yellen will speak tonight, but for the rest of the week global markets will be held captive by Brexit.

As I said yesterday, it’s going to be a long week.

Rudi will Skype-link with Sky Business at around 11.15am to discuss broker calls.
 

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