Tag Archives: Currencies

article 3 months old

The Overnight Report: Turnaround

By Greg Peel

The Dow closed up 78 points or 0.4% while the S&P rose 0.5% to 2099 and the Nasdaq gained 0.8%.

Finding Support

The local market traded down from the opening bell yesterday in line with offshore markets. Banks are in the frame once more – both globally as a result of Italian bank fears and domestically through ongoing talk of a Royal Commission – while dips in commodity prices saw pullbacks for both the materials and energies sector.

At midday the ASX200 was down 80 points and it looked like we may be in for another nasty capitulation session but at the support level on the charts of 5150, the buyers decided to move in.

Large caps were in favour as falls in the banks and resource sectors were pared, leaving financials down 0.8% on the day, materials down 1.1% and energy down 1.8%. But it was otherwise clear what investors were looking for.

In a world of record low interest rates, including negative ten-year bond rates in Japan and Germany, a new record low ten-year yield in the US, and in Switzerland, a fifty-year bond rate that has dipped into negative, the search for yield has become ever more inspired.

Yesterday saw only three sectors finish in the green on the local bourse – utilities, telcos and consumer staples.

There was also a growing indication, as the afternoon wore on yesterday, that the coalition is clearly leading the count to determine the undecided seats and there is a slim chance it may even get over the line for an actual majority. If it doesn’t quite make it, there may only be the need to bring a couple of cross-benchers onside and thus avoid having to deal with the left-leaning members. The Kat in the Hat is one candidate, and Mr X is a reasonable man. The chance of an unworkable government and ongoing uncertainty has reduced.

And that’s a relief for the stock market, even if it were Labor in the same position.

The buyers were confident to take the index back to the 5200 level yesterday, and with Wall Street turning around for a positive close last night, the futures are pointing up 35 points this morning.

Don’t Panic

The bank story and Brexit flow-on story was not getting any less alarming last night as the London stock market fell 1.2%, Germany 1.7% and France 1.9%. As is typically the case, such selling carried over the Pond.

The Dow was duly down 127 points around 11am. But at that point a Dutch EU official suggested that there should not be any problem in Italy citing exemption rules in order for the Italian government/central bank to bail out troubled Italian banks with liquidity injections. Interestingly, the Netherlands is one EU member that has already seen the prosecution of new “bail-in” rules with regard Dutch entities.

We recall from yesterday that Germany had suggested Italy cannot call an exemption and Italian banks would be forced into “bail-in” measures to avoid going under, which would have left mum & dad investors with haircuts on the bond holdings and fire up more EU unrest. Brexit, Germany believes, is not a “systemic event”. It seems not all agree.

At the point at which the Dow was down 127 points the US ten-year yield hit another new record low, down 5 more basis points at 1.32%. But the Italy news turned the US stock market around in a flash – driven by the banks – and at the same time the ten-year yield rebounded to close up 2bps on the session at 1.38%.

Not long ago it was oil, now it’s bond yields.

Oil actually did have a solid session nonetheless, recovering 2% on weekly data showing a bigger inventory drawdown than forecast, and on a slightly weaker greenback. The greenback also reversed on the Italy news and as such is down 0.2% over 24 hours at 96.00.

The other news of the day was the release of the minutes of the June Fed meeting. They revealed a split committee, but at the end of day the doves won over the hawks by suggesting it was not the time to raise US rates when rates across the rest of the world were heading the other way. And we recall that the June meeting was held pre-Brexit vote, when the US ten-year traded as high as 1.75%.

So if low global rates were a reason not to move higher in June, lower global rates surely prevent any hike late this month or perhaps in 2016 altogether. But tomorrow night sees non-farm payrolls, which could well throw the cat amongst the pigeons once more with regard the strength or lack thereof of the US economy.

On that note, Wall Street was heartened by the June services PMI number, which showed a much bigger than expected jump to 56.5, reversing apparent weakness in May.

We note the S&P500 is back at its favourite pivot level of 2100.

Commodities

West Texas crude is up US$1.05 or 2.2% at US$47.91/bbl.

The nickel price has been flying all over the shop of late, with volatility centred on whether the new Philippines government will force the closure of some smelters. Last night saw nickel jump 3% in an otherwise mildly weaker session for base metals.

Iron ore is unchanged at US$55.80/t.

The pressure may have eased on Italian banks but the incremental climb in the gold price continues. It’s up US$7.00 at US$1363.20/oz.

The Australian stock market bounced off its lows yesterday and the Aussie also began a rebound from the previous session’s falls which carried on offshore. It’s up 0.8% over 24 hours at US$0.7518.

Today

The SPI Overnight closed up 35 points or 0.7%.

The local construction sector PMI is out today and in the US, the ADP private sector jobs report for June will provide a precursor for Friday night’s non-farm payrolls.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Overnight Report: Italeave?

By Greg Peel

Hitting Home

The concluding paragraph of the RBA’s monetary policy statement last month read:

“Taking account of the available information, and having eased monetary policy at its May meeting, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.”

Yesterday’s new statement made the following statement with regard Brexit…

“Any effects of the referendum outcome on global economic activity remain to be seen and, outside the effects on the UK economy itself, may be hard to discern.”

…and then concluded as such:

“Taking account of the available information, the Board judged that holding monetary policy steady would be prudent at this meeting. Over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.”

This conclusion points more to the possibility of an August rate cut than the June statement did. Glenn Stevens, like everyone else, has no idea how Brexit will play out but the central bank is ready to respond. The RBA statement did not, however, offer any joy to the local market yesterday.

On Monday the local market appeared to shrug off the possibility of a hung parliament and focus more on stronger commodity prices. Yesterday saw a sharp reversal however, which may reflect the possibility of fiscal stalemate hitting home in a delayed reaction, but I’d hazard a guess and suggest what we saw was foreign selling following the US long weekend.

Selling was relatively even across sectors, with the banks understandably among the leaders with a 1.3% fall while 0.5% for materials reflected an offset from stronger iron ore and gold prices. Utilities was the only sector not to fall, given its attraction as a bond proxy, while the leading 1.9% fall for consumer discretionary had an additional local feel to it.

The ASX200 fell steadily in the morning and had basically reached its closing level by midday, with no late cavalry appearing. No RBA rate cut had been expected, so there was no response to the statement release in the afternoon. The Aussie saw a choppy session before offshore movements took over last night.

There is little doubt the Australian economy is facing a new source of uncertainty in the form of a non-government, but that’s nothing compared to ongoing uncertainty in Europe.

Banking Crisis

The Bank of England last night relaxed regulatory requirements on the UK banking sector and thus effectively released 150bn pounds of new lending to businesses and households. But this did nothing to stem the ongoing fall in UK bank shares. The FTSE 100 actually closed 0.4% higher last night but as is now oft noted, the 100 contains big multinationals such as mining & energy and pharma stocks, as well as banks, and these benefit from the lower pound.

Bank shares fell again on news overwhelming cash outflows from UK commercial property REITs had forced the suspension of redemptions from some funds. But the focus was not just on the UK, but on Italy.

Big falls in EU banks stocks post Brexit have brought into focus the parlous state of the Italian banking system, where non-performing loans are running at some 17% -- ten times more than in the US. The world’s oldest bank, Monte dei Paschi, has stuck its hand up for a bail-out but there is a problem.

As of this year, new “bail-in” rules have been in place in the EU. These prevent any direct EU injection of bail-out funds ahead of bank bondholders taking a haircut on the value of their holdings, thus reducing the bank’s interest cost as an inside form of bail-out, or “bail-in”. But the issue here is that most of the bondholders of the likes of Monte dei Paschi are mum & dad investors, not global hedge funds or sovereign wealth funds.

Italy is thus calling for exemption rules to be triggered with regard bail-in, as is allowed in the case of a “systemic event”. Is the Brexit vote a “systemic event? Germany says no. Forget about the Netherlands being the next in line. Talk is now of “Italeave”. No doubt freelance exit consultant Nigel Farage will stick his hand up as an advisor.

The Italian bank sector is down 50% post-Brexit. Last night the French stock market fell 1.7% and Germany 1.8%.

European selling flowed into Wall Street as US traders also dealt with a 4% drop in the oil price. If Brexit jitters are not alone sufficient to spook the oil market, ongoing falls in the pound and euro had the US dollar index up last night by 0.8% to 96.22, and there is renewed concern of US supply ramping up again now WTI has seen US50/bbl once more.

Wall Street has seen a complete Brexit rebound, so last night traders were suggesting a hundred point drop for the Dow is hardly surprising given uncertainty still reigns and is there is little reason to suggest this won’t impact on the US, albeit the US looks ever more like a safer place to invest.

On that note, last night the US ten-year bond yield fell 9 basis points last night to a new record low of 1.37%.

Commodities

West Texas crude is down US$1.87 or 3.8% at US$46.86/bbl.

Uncertainty and the stronger greenback hit base metal prices, with copper and lead down 1% and nickel plunging 5%.

Iron ore fell US10c to US$55.80/t.

Gold is up US$5.60 at US$1356.20/oz. While few disagree gold is the safe haven du jour, in US dollar terms it is fighting a very strong headwind.

The good news is the Aussie is down 1% at US$0.7462.

Today

The SPI Overnight closed down 19 points or 0.4%. There is likely some consideration here that yesterday’s trade on Bridge Street was ahead of last night’s trade offshore.

The minutes of the June Fed meeting are out tonight, which will include a nod to Brexit risk being a reason not to raise. But as the meeting was held pre-Brexit, relevance will be limited.

Rudi will be presenting in Melbourne today, plus participating in the first Evening With Rudi with local FNArena subscribers.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Overnight Report: Uncertainty Home And Abroad

By Greg Peel

Groan

On Saturday morning futures traders had pushed the SPI Overnight up 32 points by the close, one hour before the first polling booths opened. Sure enough, the ASX200 closed up 35 points yesterday.

But it wasn’t cut and dried. The rise in the futures would largely have been driven by big gains on Friday night for metals prices and ongoing strength in gold. There was something new for the market to consider on the weekend nevertheless, when the election provided a no-result and a big win collectively for minor parties. The risk of either a Labor government being formed or a Coalition government being forced to bow to cross-bench wishes lifted the risk of an oft called for Royal Commission into the Australian banks.

So down went the banks from the opening bell yesterday, and down went the index, by 28 points. The selling did not last long, however, and fortunately for the banks APRA made a timely announcement in declaring it was satisfied Australia’s Big Four were carrying capital ratios that put them in the top 25% globally.

By day’s end the financials sector only lost 0.1% while the materials sector led the gain to the close with a 2.6% rally, backed up by energy on 1.4%.

While APRA’s announcement may take the pressure off the banks in the short term, vis a vis feared capital raisings, the banks are still awaiting the finalisation of international capital rules for banks deemed “too big to fail” domestically and APRA has yet to quantify its “unquestionably strong” requirement. The banks are not out of the woods just yet.

The Aussie dollar also took a tumble in early trade yesterday thanks to the election, given the ratings agencies wasted no time in warning Australia’s AAA rating will be under threat if the job of budget repair is undermined by whatever new multi-headed beast emerges as the country’s parliament. But the Aussie, too, turned around. Having traded as low as 74.6 the currency is currently up 0.5% over 24 hours at 75.3.

Helping the Aussie rebound, aside from commodity price strength, was the Melbourne Institute’s inflation gauge for June, which showed a larger than expected 0.6% gain following a 0.2% decline in May. Would this threaten an RBA rate cut in August?

Not likely. The annual headline pace on the MI’s measure is 1.5% and the core rate of inflation, which excludes a recent rise in petrol prices, rose only 0.2% to be up 1.2% annually, well below the RBA’s 2-3% target band.

More of an issue, therefore, is the local labour market.

ANZ reported a 0.5% rise in job ads in June for an annualised rate of 8.0%. June’s gain was down on May’s 2.2% surge but ANZ’s chief economist suggested: “The strength in labour demand over the past two months is consistent with robust business conditions and solid momentum in the domestic economy. This should support a healthy pace of employment growth in the near term”.

So inflation is still weak but jobs growth looks solid. How’s the housing market faring?

Building approvals fell 5.2% in May when 3.5% was expected, to be 9.1% lower than a year ago. This looks ominous, but the approvals are falling from quite a peak and we do have this big dichotomy in place between the states. The May RBA rate cut is yet to influence the numbers, thus economists are not sounding the warning bells just yet.

So how will the election turn out? Why do I get the feeling we’ve just been through all this? The bookies had the “stay” vote in Britain comfortably ahead and the bookies had decided the Coalition would cross the line locally. Let’s hope the bookies don’t have Clinton in front, or we’re all in trouble.

Stock markets do not like such uncertainty but ultimately just get on with it. When 2011 produced the hung parliament and eventual Gillard minority government the local index fell over 2% initially before rallying back fairly soon after. Yesterday we saw a dip and rebound all in one day.

Frustration is the more likely response to the mess rather than fear.

Commodities

After their big surges on Friday night, base metal prices pulled back a bit last night despite a 0.2% dip in the US dollar index to 95.48. Zinc fell 2% and copper 1%.

However, iron ore jumped US$1.90 to US$55.90/t. Helping iron ore was the announcement from BHP Billiton ((BHP)) it would shelve its African project that threatened to add to global oversupply, and concentrate on squeezing the most out of the Pilbara instead.

For an oil market missing US traders, we had Saudi Arabia on the one hand reiterating its forecast that the global market will return to demand-supply balance by year’s end, and Morgan Stanley on the other warning oil prices are set to take another dip.

In the end, West Texas crude has fallen US57c to US$48.73/bbl.

As uncertainty continues to reign across the globe – and we can throw in a major Italian bank that is in trouble – gold continues to find favour. It’s up another US$8.60 to US$1350.50/oz.

The Aussie is up 0.5% at US$0.7534.

Today

The SPI Overnight closed down 13 points.

Locally we’ll see retail sales numbers and the services PMI today before the RBA meets and decides to leave its rate on hold.

Caixin will publish its take on China’s services PMI as other countries around the globe follow suit.

Counting will recommence locally, but it’s going to be a long wait.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Monday Report

By Greg Peel

Playing to Script

Friday on Bridge Street played out as expected, despite it being the first day of the new year. The market opened higher in line with global momentum post-Brexit, traded sideways for a while and then at 2pm, the square-up bell was rung.

The index came most of the way back as traders took profits on a very solid week, ahead of a weekend, a long weekend in the US, and the local election, just in case something disturbing like a hung parliament should transpire.

On that note, we are reminded stock markets are usually ambivalent with regard which party is in power, but do not like uncertainty. And that’s exactly what we have this morning.

We also, of course, have a more elevated case of uncertainty over in the UK/EU. But whatever happens now, markets are convinced another wave of central bank easing is afoot. Central bank easing helps support stock markets but also directly supports commodity markets, and as such we saw some big moves up in commodity prices through Friday.

It it thus no surprise the materials sector was the stand-out performer locally on Friday with a 2% gain when every other sector closed as good as flat.

Investors were not fazed by the latest data out of China, which were far from encouraging. Beijing’s official manufacturing PMI fell to 50.0 in June from 50.1 in May, right on the cusp between expansion and contraction. Caixin’s independent equivalent showed a fall to 48.6 from 49.2 – the fastest decline in four months and the sixteenth consecutive month of contraction.

We can perhaps take some heart in the fact Beijing is trying to steer China away from reliance on manufacturing and export, and note the official service sector PMI rose to 53.7 from 53.1, although that doesn’t much help the sellers of rocks. What will help is government stimulus in the form of infrastructure investment, which is expected to be beefed up as China looks to its own favoured means of easing, beyond renminbi devaluations.

Who’d have thought?

Who’d have thought a week ago that Wall Street would post its best week since 2014? Both the Dow and S&P500 gained 3.2%. Friday’s trading nevertheless played to script as well, given both the week’s rally and the long weekend.

Afternoon selling wiped out initial gains, such that the Dow closed up 19 points or 0.1%, the S&P gained 0.2% to 2012 and the Nasdaq added 0.4%. Interestingly, the indices were back at the flat line just after 3pm before a late burst ensured the S&P closed above the psychological 2100 mark.

The US manufacturing PMI posted a much more encouraging rise to 53.2 from 51.2, beating expectations.

Traders have always been keen not to take positions home over weekends but weekends have become even more scary in this post-GFC world. Beijing likes to pull little tricks on a weekend and as we learned from the whole Grexit saga, weekends can often bring meetings between relevant parties that have particular ramifications the following week.

Nothing happened this weekend beyond the no-result Australian election, but the fact gold was up US$20.20 to US$1341.90/oz and the US ten-year bond yield fell back 3 basis points to 1.46% suggests investors were happy to top up their safe haven positions as a hedge against the “no alternative” equity rally.

Commodities

The UK has signalled monetary easing ahead, the EU is ready to do whatever it takes, Japan will probably be forced to do something and Beijing has already slipped in another renminbi devaluation. And on that basis, many do not see the Fed raising anytime soon. Put it all together and global stimulus is supportive of commodity prices.

The US dollar index fell a mere 0.3% to 95.64 on Friday but in London, aluminium rose 0.7%, copper 1.5%, zinc 2.5%, lead 3.5% and nickel 6%.

West Texas crude rose US90c to US$49.30/bbl.

Only iron ore bucked the trend, falling US20c to US$54.00/t.

The Aussie dollar was up 0.8% on Saturday morning at US$0.7499 as the sausages sizzled and the vanilla slices flew out the door, but in the cold hard light of Monday morning, has slipped to US$0.7465.

It was also Saturday morning when the SPI Overnight closed up 32 points or 0.6%.

The Week Ahead

Wall Street is closed tonight but there follows a big week for US releases, including the minutes of the June Fed meeting on Wednesday and the non-farm payrolls report for June on Friday.

Tuesday it’s the services PMI and factory orders, Wednesday the trade balance, and Thursday chain store sales and the ADP private sector jobs report.

In a rudderless, which unfortunately is not as positive as Rudd-less, Australia we’ll see ANZ job ads, the Melbourne Institute inflation gauge and building approvals today and retail sales and the services PMI tomorrow ahead of the RBA meeting. No rate change is expected, but the market will be interested to hear the board’s take on Brexit.

Thursday it’s the construction PMI.

Tuesday is services PMI day across the globe including Caixin’s take on China.

There is very little in the way of local corporate events or releases this first week on the new year but as of next week we start to see the first quarterly reports.

Rudi will be traveling to and presenting in Melbourne this week. Hence no live appearances from the Sky News studios in Macquarie Park.
 

For further global economic release dates and local company events please refer to the FNArena Calendar.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

The Overnight Report: As You Were

By Greg Peel

The Dow closed up 235 points or 1.3% while the S&P rose 1.4% to 2098 and the Nasdaq gained 1.3%.

Wet Sail

The US broad market index last night traded back almost to 2100 last night which is roughly where it was before the Brexit vote. The FTSE rose yet another 2.3% to put it well above its pre-Brexit level. Yesterday the ASX200 made it back to 5233 which is still short of the 5280 close on the Thursday before Brexit.

The futures are indicating up 49 this morning which would imply a complete recovery, but there are other factors to consider.

Firstly, a big chunk of dividends went out on Wednesday, so add that back and we’re close anyway. But secondly, yesterday was end of financial year so we have to consider just how much of the 91 point rally was genuine buying and how much was fund manager window-dressing. Today might be the tell-tale, but then today is a Friday, and Fridays will often bring profit-taking after solid gains for the week. Monday is July 4, meaning no Wall Street, just to provide more reason to square up and enjoy the weekend.

Healthcare was the biggest mover yesterday with a 3.4% gain. Healthcare was initially hit hard by Brexit given UK/EU exposure so it makes sense some ground might be recovered, but a 28% jump by Mayne Pharma ((MYX)) following an announced US drug deal and capital raising also helped.

Elsewhere the moves were more even but what did catch my eye is the 1.4% gain for telcos and 2.3% gain for utilities. These two sectors mostly held their ground as defensives during the brief Brexit panic, so why do they need to come surging back? This is where window-dressing may be apparent.

It is also possible the market was further assisted by the latest election polls, which suggest the coalition is fairly safe. Stock markets are not particularly biased towards either party but do prefer status quo over uncertainty.

There is also an Australian economy actually still ticking along in the background, which we now perhaps can refocus on.

Private sector credit rose by 0.4% in May to be 6.5% higher year on year. Housing credit rose 0.5% for 6.9%, down from 7.0% in April and below last year’s 7.5% peak. Within that figure, investment housing credit rose 0.4% for 6.0%, down from 6.5% in April and 11.5% a year ago. Business credit rose 0.3% for 7.1%.

The numbers indicate overall credit is rising modestly, and housing credit is slowly losing pace. Business credit growth is not yet outperforming to offset this decline. There is nothing here to prevent another RBA rate cut.

Back to the Fed

The London stock market rose another 2.3% last night while France gained 1.0% and Germany 0.7%. The continental markets are still well below their pre-Brexit peaks but the FTSE 100 is now above its peak. The explanation is as straightforward as the much lower pound. Britain’s GDP is roughly 80% weighted to the export of goods and services.

But London’s broader market FTSE 250 has not found its way back. This index encompasses more of the smaller companies that will be hit by a slower UK economy, if that is to be the case. The BoE thinks it will be the case, hence last night guvna Mark Carney all but confirmed monetary easing sooner rather than later, which provided another boost for stocks.

So, we’re back to being under the spell of central banks. And that brings the focus back on the Fed. Brexit, so far, has not resulted in global meltdown. As to whether it might ultimately set in train total EU disintegration will be a longer term story. Is the Fed now comfortable enough to raise in the Brexit wake?

Despite many on Wall Street assuming no further hikes this year or next, it will still come down to next Friday’s June US jobs number. If that shows a big reversal from the May shocker, talk of a possible September hike will reignite. However if the Fed decides it needs to wait for the actual Brexit lever to be pulled by whoever is the new British prime minister -- and it won’t be Boris -- and assess what transpires, then December is more likely, if at all.

It was also end of quarter/half on Wall Street last night and as such commentators were suggesting the rally back to the pre-Brexit level also no doubt involved an element of window-dressing. And because it’s a Friday before a long weekend tonight, the chances of profit-taking are high.

Commodities

There was certainly end of quarter profit-taking in oil last night, according to oil traders. West Texas crude suddenly took a dip just ahead of the day’s official close and is currently down US$1.14 at US$48.40/bbl.

Base metals were all higher in London, but none by as much as 1%.

Iron ore rose US80c to US$54.20/t.

Stock markets continue to rally but gold is hanging in there, up US$3.40 to US$1321.70/oz despite the US dollar index being up 0.25 at 95.88.

The Aussie is steady at US$0.7442.

Today

The SPI Overnight closed up 49 points or 1.0%.

Remember China? Today sees June manufacturing and service sector PMIs from Beijing, and manufacturing PMIs from across the globe.

Locally we’ll also see June house prices today, and tomorrow all the pain and suffering will finally come to an end with a sausage sizzle.

Happy New Year.

Rudi will Skype-link with Sky Business around 11.05am to discuss broker calls.


All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

The Overnight Report: What Brexit?

By Greg Peel

The Dow closed up 284 points or 1.6% while the S&P rose 1.7% to 2070 and the Nasdaq gained 1.9%.

Solid

When the ASX200 rose 53 points on the opening rotation yesterday morning, it looked for all the world like the 84 point jump priced in the by the futures  beforehand may prove accurate. But as now is becoming more the rule rather than the exception, the market completely reversed the opening rotation move in the second half hour, which in this case took the index back to only up 20.

We’ve reached the stage at which it is probably advisable for investors, rather than intra-day traders, to stay out of the market before 11am lest they be whiplashed. From 11am yesterday the market resumed its rally, in a slightly more measured fashion. And if a close of up 39 still looks disappointing against the futures’ 84 point call, we must acknowledge that some 60 stocks went ex-dividend yesterday.

Virtually all of those stocks are in the property/infra fund or utility space, ie, big dividend payers. We note that the only sector to post a fall yesterday was utilities, by 0.8%, which would all be dividends. Industrials was the second worst performer, with a 0.2% gain, and that’s where infra funds sit. Financials managed a 0.6% gain despite being where REITs sit.

Otherwise the bigger movers were materials, energy and telcos, with a solid gain also seen in consumer discretionary.

So realistically yesterday saw a bigger move up for the ASX200 than it would appear. With offshore markets posting a second night of solid rallies, the futures this morning are up 73 points. Only a couple of stocks go ex-div today.

But it is the last day of the financial year, so anything could happen, from last minute tax selling to rampant window-dressing. We really need to get today out of the way to see where the local market really stands.

Had a love affair with Tina

There was nothing new to report on the Brexit front last night, other than the fact the London market rallied back another 3.6%, France 2.6% and Germany 1.9%. Hands up those who predicted last Friday that the FTSE would be back where it was by the Wednesday.

The individual sectors within the FTSE are nevertheless looking a bit different compared to Friday. The banks are still shattered, as are any sectors impacted by the lower pound. The resource sectors have helped make up the difference, as have any sectors benefitting from the lower pound.

The pound has come back a-ways, but at 1.34 to the USD is still well below the 1.50 peak of last Thursday. Last night gold, which one might have expected to continue to pull back as panic subsides, rose US$6.80 to US$1318.30/oz. The US ten-year bond yield rose 2 basis points, but at 1.48% is still a long way down from the pre-Brexit 1.75% level.

In other words, the safe havens are still retaining their safe haven status, yet the risk assets that are stocks have wiped out a lot of the Brexit fall. Europe still has some catching up to do, but the UK is back and the S&P500, having fallen from 2100 to 2000, is back at 2070. And having fallen another 11% last night, the VIX volatility index is back below where it was on Thursday, suggesting investors in US stocks no longer feel they need downside protection.

So why is one asset class suggesting risk is now back off but others imply risk is still very much on?

Well firstly, risk must still be elevated because we still don’t know what’s going to transpire vis a vis Brexit, so uncertainty still prevails. Opinions on that matter range from perfect storm to storm in a tea cup. Secondly, central banks across the globe have vowed to provide whatever liquidity injections are required to prevent calamity. It is expected the Bank of England will be forced to ease, it is expected the Bank of Japan will have no choice but to ease, it is expected Mario Draghi’s “whatever it takes” may need further beefing up, and it is now expected the Fed will remain on the sidelines for months, if not years.

If we are to enter a new round of global central bank stimulus, then all of gold, bonds and stocks are places to be. For stocks, central bank support is the “free put”, or safety net. And when yields are even lower now than they were, where else can anyone make a return than in the stock market, particularly the dividend-paying stock market?

There is no alternative. TINA.

And as an aside, one presumes a fresh round of global easing only strengthens the case for another RBA rate cut. Or two.

On the subject of the Fed, last night’s US personal income & spending data for May showed a 0.4% rise in consumption on only a 0.2% rise in income. This is a positive for the US GDP, which is currently forecast to have risen 3% in the June quarter following March’s 1.1%. But the personal consumption & expenditure (PCE) measure of inflation rose 0.2% to take core PCE inflation to 0.9% over 12 months, down from 1.1% in April.

In other words, the US economy may have a healthier quarter but there is no incentive in the Fed’s preferred measure of inflation to raise rates.

Commodities

The drawdown on weekly US crude inventories was indeed substantial last week, while so far the rig count has not risen much at all. This is helping to support oil, West Texas is up US$1.43 or 3% to US$49.54/bbl.

The US dollar index continued to pull back last night, down 0.2% to 95.71. Base metal prices again moved up, slightly, except for lead which jumped 2%.

Iron ore was unchanged at US$53.40/t.

The Aussie is following up commodity prices, rising 1.3% to US$0.7447.

Today

The SPI Overnight closed up 73 points or 1.4%.

Australian private sector credit numbers are due today.

The final revision of the UK’s March quarter GDP is due tonight, over which, presumably, the Poms will ultimately reminisce.

Rudi will make his weekly appearance on Sky Business today, 12.30-2.30pm, and again between 7-8pm on Switzer TV, same channel.
 

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article 3 months old

The Overnight Report: Relief Rally

By Greg Peel

The Dow closed up 269 points or 1.6% while the S&P gained 1.8% to 2036 and the Nasdaq jumped 2.1%.

Consolidation

The local market opened with steep falls yesterday, sending the index down 86 points. But as so often has occurred recently, regardless of Brexit, as soon as the opening rotation was complete there was a sharp reversal.

There followed a stumbling rally back throughout the session to finish the day down 33 points. Interestingly, the index turned on 5050 – representing the low end of the technical support range – before closing at 5100 – being both the centre of the technical support range and basically where we closed last Friday after the initial Brexit drop.

Three sessions have given us a big fall, a slight recovery, and then a loss of that recovery. With the SPI futures showing up 83 points this morning, we should now recover some of that initial, panicked drop.

At the final bell the selling on the session was relatively even among sectors, unlike Monday’s recovery which featured mixed moves. The stand-outs yesterday were nevertheless utilities, which didn’t move and have remained steady throughout the turmoil, and, funnily enough, the banks, which have copped the brunt of the selling to now. Other than the connection via global interest rates, is there a reason Australia’s banks should suffer from a Brexit?

The question now, as we assume a solid rebound today, is whether or not rebounds across the globe last night represent a simple snap-back from oversold conditions, driven by short term traders looking for quick profits, or genuine buying, driven by investors believing there is value to be had at these lower levels.

It is pretty much a given volatility is not about to go away. Last night David Cameron met, no doubt rather uncomfortably, with EU counterparts. The issue for the EU is to get things rolling asap; to get Britain to clear its desk and leave the building quickly so as to avoid a lingering departure that only provides time for further nationalistic rumblings to fester on the continent.

Fair enough.

The issue for Cameron is to mitigate the fallout and promote stability in the UK before the next step is taken, lest further turmoil result. He will do so as leader until a new prime minister is chosen to take Britain forward.

Fair enough.

Cameron is doing the honourable thing. He’s probably also doing the sensible thing. But the EU is not happy. In theory it could be three months before Article 50 is invoked to set the exit wheels in motion. The EU has said it will not negotiate anything until this happens.

Therefore, we are reminded of those hazy, crazy days of Grexit fears over the past few years. The story that just kept on giving. So many in the market just wanted Greece to go and go now because the endless to-ing and fro-ing and uncertainty kept rekindling volatility and driving everyone insane.

Welcome to Brexit.

How’s the Cat?

The pound stabilised last night and finally recovered a little. The London stock market snapped back by 2.6%, France by 2.6% and Germany by 1.9%.

There was not any initial selling on Wall Street for a typical “Turnaround Tuesday”. Instead the indices opened up and hovered for a while, before a big “program trade” – basically meaning buy the index – gave Wall Street a kicker in the afternoon.

As is always the case, the question was asked as to whether the rebound is genuine or just the sort of “dead cat bounce” that is often seen in such circumstances and proves unsustainable.

Typically a dead cat bounce would feature a violent snap-back on low volumes, suggesting the bulk of investor money is still hiding on the sidelines. But last night volumes were solid on Wall Street. The VIX volatility index on the S&P500 fell 21% to 18.75, leaving it almost back where it was last Thursday when everyone assumed the vote would be “stay”. This implies the protection hastily bought last Friday has now been unwound as it is no longer necessary.

These factors point to it not being a dead cat bounce but a more sustainable consolidation. However, all agree that the volatility is far from over, so it’s not time to breathe a comfortable sigh of relief.

The US ten-year bond yield did not reverse – it’s unchanged on the session at 1.46%.

What did support the Wall Street rebound was oil. Having fallen fairly sharply since Friday, WTI rebounded 3% last night. There were also strong moves up in base metal prices, and safe haven gold gave back US$12.60 to be trading at US$1311.60/oz.

No one paid much attention to the final revision of the US March quarter GDP last night. It came in at 1.1%, up from a prior 0.8%, in line with expectation. Not only is March now a long time ago, the world has changed somewhat in the meantime.

Commodities

West Texas crude rose US$1.50 or 3.2% to US$48.11/bbl. Aside from being a recovery rebound, expectations are for tonight’s weekly US inventory numbers to show a big drawdown.

The US dollar index finally ticked back last night, by 0.2% to 96.11, which would have provided some support for commodities (ex-gold, which is playing a different game at the moment). Indeed on the LME, aluminium, copper and lead all rose 2% and nickel and zinc jumped 4%. What is interesting here as that the Brexit-related falls in base metal prices had been relatively muted in the first place.

Iron ore rose US20c to US$53.40/t.

The Aussie is relatively steady at US$0.7354.

Today

The SPI Overnight closed up 83 points or 1.7%.

The US will see personal income and spending numbers tonight and the Fed’s preferred PCE measure of inflation. But when Janet Yellen coincidentally speaks tonight, there will likely be a different focus of attention than US inflation.

Australia will see new homes sales data today.

We now have two more sessions before the curtain comes down on FY16. That in itself can promote a level of volatility. Fund managers will have welcomed the overnight bounce in markets as a chance to at least recover some returns to put in their marketing material. Others will be last minute tax-selling.

Today sees a huge number of local stocks go ex-dividend. Most of them are REITs or utility/infra funds, meaning some decent cash going out of the market as a downward adjustment from the opening bell.
 

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article 3 months old

The Overnight Report: Day Two

By Greg Peel

The Dow closed down 260 points or 1.5% while the S&P fell 1.8% to 2000 as the Nasdaq dropped 2.4%.

Pause for Thought

It may have been panic selling from those who were caught in the headlights on Friday or maybe the computers were just up to their usual tricks yesterday morning when the ASX200 plunged 62 points on the open. Whatever the case, it didn’t last. In the second half hour we were back to square.

There began a stumbling attempt at a rally through to lunchtime before the market largely decided it had now set itself for the day, ready for what might transpire overnight on Day Two for the post-Brexit world.

The biggest movers up on the session were materials, telcos and utilities, which all put in 2% gains. The defensives of telcos and utilities were among the least sold off on Friday and with time to reflect over the weekend, investors likely decided these sectors offer safer harbours for the time being. For materials, which are the opposite of defensive, there may have been expectation on Friday metals prices would tank on Friday night but they didn’t.

Oil dropped 5%, but in the scheme of things that was nothing too dramatic. Energy was flat on the local bourse yesterday. Outside of insignificant info technology (in terms of market cap), a further 0.2% fall for the banks kept a lid on the bounce-back rally.

It wasn’t much of a bounce-back, more a squaring up on the possibility Friday and Friday night saw typical overreaction. Investors also had the weekend to consider what the real implications for Australian stocks were. Outside of some select direct exposures, there is not a great deal of crossover into the UK and Europe compared to exposure to Asia and the US. An FTA with the UK could no doubt be conjured up in a weekend. The only issue is whether possible recession in the UK could flow through for some companies.

Whatever the case, if local traders were hoping for a snap-back or at least some stability offshore after Friday night’s carnage, they got that wrong. The SPI Overnight is down 67 points.

Trading elders on Wall Street have pointed out that such financial storms typically result in selling on the Friday, because no one wants to risk carrying positions over a weekend, followed by selling on the Monday, because there are always those who were slow to move in the first place, then selling on Tuesday from the open, because things are starting to snowball, before the start of the bounce mid Tuesday morning, when the traders move in on oversold opportunity.

Pounded

As to whether that scenario plays out remains to be seen. Meanwhile, last night S&P cut its credit rating for the UK to AA from AAA. The pound duly plunged once more, trading below 1.32 against the greenback at a thirty-year low. That’s a 12% devaluation from the 1.50 peak on Thursday.

Perversely, the UK ten-year bond yield fell to below 1%, for the first time in history. The credit rating was cut and investors piled into the bonds. If it was Spain, it would be the other way around. But when risk assets are crashing around your head, government bonds still offer security, particularly gilts. It is also now assumed the BoE will have to cut its cash rate.

The 3%-odd fall in the FTSE on Friday night appeared quite tame under the circumstances, and nothing when one considers the futures were suggesting an 8% plunge. European stock markets crashed but then they do have a habit of doing so. The measured fall in London may be one reason the Australian market paused cautiously yesterday.

But last night the FTSE fell another 2.6%. Germany and France both fell another 3%. The bulk of the selling was again in the banks, which for the second session running saw falls of 10-20% for UK and European banks, which translated across the pond to further 5-7% falls for US banks.

Oil fell another 2%, thus the banks and energy led down Wall Street along with high-risk technology sectors, as reflected in a 2.4% fall for the Nasdaq. Utilities, telcos and consumer staples all finished in the green, but do not have the market cap clout to overcome selling in the bigger sectors. The Dow did nevertheless recover from a 350 drop to close with a 260 point drop.

Interestingly, the VIX volatility index on the S&P500 fell by 7%. It had jumped up 50% to 25 on Friday night as those caught out by the Brexit shock piled into put option protection. Last night it appears some who had sought protection – possibly as a hedge prior to the shock – decided to cash in their positions. This suggests a feeling a bottom may be nigh, once the panic subsides.

And that harks back to the aforementioned Tuesday turnaround tradition.

The S&P500 initially plunged through, but ultimately recovered back to, the psychological 2000 level. On Thursday it was above 2100, which had been proving resistance. It would be rather neat, one presumes, if 2000 proves the level that supports the rebound.

All speculation of course, for who knows what’s going to happen next? The UK Labour party leader is struggling on with several knives sticking out of his back, the Tories have yet to begin a leadership battle that Boris will probably win, the Scots have all painted their faces blue and are lining up along Hadrian’s Wall, seeking assistance from the Jacobites in Paris, while the leaders of France, Germany and Italy are refusing to negotiate anything with London until the actual exit lever is officially pulled.

Donald Trump clearly made no bonny friends when he hailed the Brexit as a great thing while teeing off at St Andrews. We now have that election ahead of us.

Which is one reason many on Wall Street are assuming no Fed rate hikes in 2016, despite what Janet Yellen might say. There is nevertheless some grudging respect that in offering up Brexit risk as a reason not to hike this month, Yellen has actually got it very right.

The US ten-year yield fell another 12 basis points last night to 1.46%. Last week it hit 1.75%.

Commodities

Gold’s inevitable rally continued last night, but gold still has to plough into the fierce headwind of a surging US dollar. The dollar index is up another 0.8% at 96.24 and gold is up US$8.50 at US$1324.10/oz.

West Texas crude is down US$1.03 at US$46.61/bbl.

London base metal traders are likely still trying to figure out where this Brexit business leaves the demand-supply equation. Given that mostly swings on China, probably little changed. There is still the matter of the stronger greenback, but while aluminium, lead, nickel and zinc all fell 0.5-1% last night, copper rose 0.9%.

Which brings us neatly to iron ore. It has jumped US$1.80 to US$53.20/t.

Once again the Aussie has been caught in the cross-rates, reflecting US dollar strength rather than sort of commodity price risk we normally associate with Aussie weakness. It’s down another 1.7% at US$0.7347, which of course is not a bad thing.

Today

The SPI Overnight closed down 67 points or 1.3%. If accurate, that will take the index into the middle of the 5050-5100 range that chartists are suggesting is support that must hold, lest we head back down through 5000 once more.

The final revision of US March quarter GDP is out tonight.

Collins Foods ((CKF)) will post its earnings result today.

Rudi will Skype-link with Sky Business at around 11.15am today to discuss broker calls and later tonight, from 8-9.30pm, he will host Your Money, Your Call on the channel.


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All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Monday Report

By Greg Peel

Swing Low

Now what?

That is the question on everybody’s lips, and even among those who believe they have an idea, there is no agreement.

The situation remains fluid, thus uncertainty prevails. When uncertainty prevails, volatility thrives. A common call from global commentators on Friday night, with regard stock markets, was “buying opportunity”. But not right now. Right now there remains further downside risk and as such longer term investors are being told to stand aside for the time being until the fallout from this unprecedented event is more clear.

It is typical for markets to sell first and ask questions later. But we can perhaps take some heart in the fact that when the dust settled after 24 hours of trading on Friday, the reaction was not quite as bad as had been predicted by, for example, futures markets heading into the open of the UK and US stock exchanges.

In Australia the index fell 167 points or 3.6% on Friday but closed 33 points off its lows. We’re sitting just above 5100 – a level last seen in April on the way back from the February commodity crunch. We recall how hard the index had to work to finally move away from the 5000 resistance level. We’re still a hundred points above what will now be solid support.

In London the stock index futures were indicating a fall of 8% heading into the open. Ultimately the FTSE only closed down 3.2%. The Dow futures were showing close to an 800 point fall before the bell. Ultimately the Dow fell 617 points or 3.4%. The S&P fell 3.6% to 2037, and the riskier Nasdaq fell 4.1%.

The real damage was done in Europe, where the German market fell 6.8% and the French market 8.0%. Bank stocks were the main target, falling up to 20% across the UK and Europe. The Australian financials index fell 3.8%.

What happened to the pound over the course of Friday is already the stuff of legend. But the wild gyrations and ultimate collapse of the pound remind us that on Thursday, and as late as Friday morning, markets had rallied back hard on the assumption “stay” was winning. So we first had to give that rally back as we fell on Friday.

As both the pound and the euro tanked, the US dollar index was up a whopping 2.6% on Saturday morning at 95.54, despite carry trade-reversal also sending the “safe haven” yen surging. Caught in the cross-rates, the Aussie fell 2% to US$0.7476.

The US dollar was a headwind for gold, which still managed to shoot up US$59.30 to US$1315.60/oz in its safe haven capacity.

The strong greenback should have been a major headwind for commodity prices, notwithstanding the impact on prices of global uncertainty, so when we look at the 5% drop in West Texas crude, taking it back to US$47.64/bbl, and the one to two percent falls in base metal prices in London, we might conclude it’s not that bad.

Iron ore fell US30c to US$51.40/t.

An adjustment was made across the globe on Friday. In Australia, the SPI Overnight closed up 3 points on Saturday morning, suggesting we will probably now hit a wait and see period, given a bout of vu-deja – the eerie feeling nothing like this has ever happened before.

Politics

It is also important to remember this is not 2008. This is not Lehman. While uncertainty may prevail, there is no credit freeze going on due to financial organisations fearing their counter parties may go under. Global banks are no less capitalised this morning than they were on Friday morning. It’s simply the value of their shares that has suffered. The Bank of England, for one, has pledged to pump hundreds of billions of pounds of liquidity into the system to maintain stability.

Other central banks are preparing to do whatever they may have to do. One has to feel for the Bank of Japan, which just can’t catch a break in trying to rein in the yen, and the ECB, which has fought hard to promote even the slightest of economic growth in the eurozone.

Presumably the Fed will now not raise in July, if ever there were an actual possibility. But with a US dollar now rocketing once more, the Fed is in an even more difficult position. The Aussie dollar appears somewhat caught between its US dollar denomination and the fact Australia has been seen as a form of safe haven at times in these post-GFC years, offering high yields in a well-regulated environment. The RBA will be watching closely, but obviously has plenty of fire power left in the form of rate cuts.

Interestingly, it was the May rate cut which allowed the ASX200 to finally break away from 5000 and find new resistance at 5400.

David Cameron has resigned. It looks like the Labour Party leader will either go or be pushed. There is already a call for a second referendum in Britain. There is already a call for a second vote on Scottish independence, given Scotland voted overwhelmingly to remain in the EU.  To that end, there is talk Scotland will attempt to veto Brexit legislation.

And when does the actual “Brexit” begin? Cameron says he’ll hang around for three months and then the new prime minister can pull the lever which begins a supposed two-year process. Boris Johnson, arguably prime minister in waiting, has urged even less urgency.

Angela Merkel has said take your time. EU bureaucrats have, on the other hand, spitefully insisted the process is overdone with swiftly. They fear the dominoes. Which brings us to the question…

Is this the beginning of the end of the EU?

Europe is littered with euro-sceptics. Nationalist and far right parties have been on the upswing. The talk is a Nexit, Dexit and even Frexit might be on the cards. Over the weekend Spain held a general election.

There was a surge in support for the ruling conservatives, opting for the status quo, ie “stay”.

The Week Ahead

The week ahead will no doubt be an interesting one. As noted, the local market is poised with the futures up 3 points. At least we won’t be flying around on every little shift in bookie odds.

Thursday is nevertheless end of financial year, which can in itself provoke last minute volatility. Obviously portfolio returns are looking a little less flash than they were a week ago.

The final revision of the US March quarter GDP result is due tomorrow night. Tomorrow also sees Case-Shiller house prices, Conference Board consumer confidence and the Richmond Fed index. Wednesday it’s pending home sales, personal income & spending and the PCE inflation measure. Janet Yellen will be speaking yet again on Wednesday night.

Thursday it’s the Chicago PMI and Friday the manufacturing PMI, construction spending and vehicle sales.

Friday is the first of the month, hence manufacturing PMIs from around the globe and both manufacturing and service sector PMIs from Beijing.

In Australia we’ll see new home sales on Wednesday, private sector credit on Thursday, and house prices and the manufacturing PMI on Friday. And just to add more spice to the curry, we have the election on Saturday.

On the local stock front, Collins Foods ((CKF)) will post its earnings result tomorrow.

One fact that caught my attention over the weekend was this one…

In order for Britain to leave the EU, a “qualified” 72% majority of the remaining 27 member states must approve, representing a simple majority of at least 65% of the EU population. I’m not sure what the “qualifications” are, but presumably this means the EU has the power to say “No, you’re staying”.

We live in interesting times.

Rudi will appear on Sky Business on Tuesday, via Skype-link to discuss broker calls around 11.15am, then again on Thursday at noon and again between 7-8pm for the Switzer Report and lastly on Friday, via another Skype-link up to discuss broker calls at around 11.05am.

SPECIAL NOTE: FNArena's Weekly Insights will be a special edition dedicated to Brexit. Watch your inbox later today.
 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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article 3 months old

The Overnight Report: Global Markets Vote Stay

By Greg Peel

The Dow closed up 230 points or 1.3% while the S&P rose 1.3% to 2113 and the Nasdaq gained 1.6%.

Brexit

As I write, the polling stations are not long closed in Britain. I have no idea what the official result will be, but by the time you read this the first regional numbers may well be filtering through.

What I do know is that public exit polling was banned until polling stations were closed. The first exit poll since published suggested 52/48 to stay. Private exit polls were apparently being conducted over the day nonetheless, giving those prepared to pay for the privilege the inside running. Whatever the case, it appears the world decided last night that the “stay” vote would win, and wasn’t about to wait around for confirmation.

Such confidence was not the case in the southern hemisphere yesterday, thus the local market put in another “on hold” session. A 1.6% gain for the materials sector, thanks to a pop in the iron ore price, was about the only reason the index didn’t close completely flat.

Since the release this morning of that first public exit poll, the pound has jumped again, to US$1.49. When Brexit fear was at its peak a couple of weeks ago, the pound traded as low as 1.40.

Prior to the release of any public information, and with polling stations in full swing, the London stock market closed up 1.2%, Germany 1.9% and France 2.0%.

Wall Street then step-jumped higher on the open and largely held its ground for the session before kicking again at the death. The Dow closed above psychological resistance at 18,000. The S&P thundered through psychological resistance at 2100 to close at 2113 – only one percent below the all-time high.

The US dollar index is off another 0.5% at 93.15, on a combination of pound strength but also an unwinding of the safe haven trade. Brexit volatility is playing havoc with the Aussie, which is 1.5% higher at US$0.7632.

With commodity prices relatively stable of late and a belief the RBA may well cut its cash rate again in August still prevalent, the Aussie has managed to rise to 76 from 72 during this whole Brexit episode. Yet if Britain stays, nothing has changed.

And therein lies the rub. Assuming the “stay” vote wins, nothing will have changed. Yet Wall Street, for one, is now higher than it was before anxiety set in a couple of weeks ago. All agree that if by some miracle “go” gets over the line at the last minute, global markets would have apoplexy. But the prevailing view now is that “stay” is more than priced in, thus upside is limited. By tonight we may well be in for a “sell the fact” pullback.

But not on the local market today. The SPI Overnight closed up 60 points. That would take us to 5340 on the ASX200 and put 5400 resistance back in the sights. What could get us there? Global markets only started worrying about Brexit two weeks ago. There was plenty to keep us away from 5400 before then.

With Brexit out of the way, assuming “stay” indeed wins, one obstacle is removed for the Fed. If the June US jobs number is solid, we’ll be back talking Fed rate hikes again. This morning the results of the latest US bank stress tests will be released. Tonight will see the annual rebalancing of the small cap Russell index, which is expected to produce significant volumes and potential volatility.

Spain will hold a general election this weekend. If the UK vote is close, despite a “stay” victory, will this steel the resolve of other EU nations into pushing for an exit of their own? Euro-scepticism is growing across the continent and anti-EU parties are gaining traction.

And there’s that small matter of the presidential election in the US. And someone tells me Australia is also set to have an election in a couple of weeks.

There’s still plenty of fun to be had over the rest of 2016.

Commodities

West Texas crude is up US$1.13 or 2.13% at US$50.13/bbl.

Copper rose 1.7% in London, lead 1% and aluminium 0.5%. Nickel and zinc stood still.

Iron ore is unchanged at US$51.70/t.

Gold is down US$9.60 at US$1256.30/oz. Given the exuberance of other markets one might have expected the safe haven to have seen a lot more selling, but gold does tend to wait until the day after to make its move.

We do note the other safe haven benchmark – the US ten-year bond yield – is up 5 basis points at 1.74% (implying selling).

Today

As noted, the SPI Overnight closed up 60 points or 1.2%. I suspect this morning we will probably step-jump from the open and then hover at that new level at least until an official result is clear. As to whether we’ll then see some profit taking is not clear, but it is a Friday. Riding out the cold and wet with a steak and a good red after an anxious week does seem tempting.

Wall Street can go back to focusing on tonight’s durable goods orders number.

CSR ((CSR)) holds its AGM today.

Rudi will Skype-link with Sky Business today to discuss broker calls at around 11.05am.
 

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