Daily Market Update 4th July 2016
OVERNIGHT NEWS
- AUSTRALIA:
- Australia's two main parties garnered their lowest primary vote since 1943. Anti-Muslim firebrand Pauline Hanson was one of the winners as the global backlash against mainstream politics struck the nation.
- Premier Malcolm Turnbull will probably have to work with a handful of independent lawmakers if he wants to stay in power. Counting doesn’t resume until Tuesday
- RBA meets tomorrow
- The hung parliament is a threat to the country’s AAA rating
- UK:
- Chancellor of the Exchequer George Osborne is considering cutting the Corporate Tax Rate from 20% to 15% and said it should help U.K. prove to investors country is “open for business” as it withdraws from the European Union
- Osborne says his post-Brexit plan focuses on investment from China, support for bank lending, redoubling investment in Northern England, and maintaining fiscal credibility
- ECB Official Francois Villeroy said that the UK will need to come to a new economic agreement with the EU to retain its euro-clearing status
- ECB
- European Central Bank Governing Council member Jens Weidmann said in speech in Munich that There’s no need for additional ECB easing in response to the Brexit and the result will only "slightly" curb growth and it’s questionable whether more expansionary policy would work,
- US
- ISM Manufacturing PMI came in higher than expected at 53.5 (Exp. 51.3). The survey was done before the Brexit vote but even though, the only concerns in the USD could come from a high dollar and turmoil in the financial markets.
FOREIGN EXCHANGE (INDICATIVE RATES)
| Currency | Last | % Change | Overnight Range |
|---|---|---|---|
| DXY | 95.66 | -0.23% | 95.407 – 96.078 |
| EURUSD | 1.1134 | 0.23% | 1.1072 – 1.1169 |
| USDJPY | 102.5 | -0.45% | 102.44 - 103.17 |
| AUDUSD | 0.7467 | 0.23% | 0.7437 – 0.7503 |
| GBPUSD | 1.329 | -0.37% | 1.3232 - 1.335 |
(Source: FabTrader)
Commodities (INDICATIVE RATES)
| Currency | Price USD | % Change | Overnight Range |
|---|---|---|---|
| Gold | 1343.04 | 1.45% | 1320.64 - 1344.52 |
| Silver | 19.94 | 5.10% | 18.717 - 19.9 |
| Oil (BRENT) | 50.51 | 0.92% | 49.25 – 50.68 |
| Oil (WTI) | 49.04 | 0.93% | 47.9 – 49.3 |
(Source: Bloomberg and Saxo)
COMMODITIES
Precious Metals: Silver led the precious metals surge again as it breached the $19 level for the first time since Sept 2014. $20 will be seen as an key resistance level.
Gold posted the longest run of weekly gains in almost two years Friday. Gold futures for August delivery closed up 1.4% and silver futures for September climbed 5.2%.
Funds boosted their net-long futures and options positions in gold and silver to the highest level since the CFTC began collating data in 2006.
Oil: Saudi Arabia’s Energy Minister said oil prices are heading towards rebalancing during a meeting with OPEC’s Secretary General.
FOREX NEWS
AUD gapped lower at the open after the indecision in the Australian elections from 0.7498 to 0.7447 but is recovering slowly since then. The 200d MA at 0.7296 is still a very good support. RBA meets tomorrow and no change is expected in the rates at 1.75%. There is a 12.6% chance of Cut priced in.
GBP is finding good offering interest ahead of the 1.3500 level. The market is not that short GBP. It feels that the move higher last week was more related to profit taking than fresh long positions. Any new indication of a weaker growth will probably make GBP test new lows
Some profit taking in USD short against EM were seen in the market on Friday ahead of the long week-end in the US
Asia stocks down, Aussie dollar slips on election uncertainty
Asian share markets took a step back on Monday, while the Australian dollar dropped after no clear winner emerged from a weekend election.
Activity across much of the region was subdued as investors took stock of the potential economic fallout from the Brexit vote after days of volatile trade, and as U.S. financial and commodity markets will be closed on Monday for the Independence Day holiday.
While Australian politics usually have a muted impact on markets, the current situation suggests that possible policy paralysis ahead which could pose a threat to the country's triple A credit rating.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.2 percent in early trading, while Japan's Nikkei stock index .N225 was down 0.6 percent.
Australian shares dropped 0.2 percent.
The Reserve Bank of Australia (RBA) will hold its July board meeting on Tuesday, and almost all 37 economists polled by Reuters last week expect it to keep the cash rate unchanged at a record low 1.75 percent. <AU/INT>
But some analysts say it might hint at future policy easing in the wake of Brexit, which roiled global markets and raised fears about growth.
"The possibility of a hung Parliament (with possible ratings outlook implications) and the risks that we see an easing bias reinstated in the RBA statement on Tuesday due to Brexit and a deteriorating global outlook suggest that the Australian dollar should trade on the back foot," strategists at Westpac said in a note.
The Australian dollar slipped 0.4 percent to $0.7464 AUD=D4, well below Friday's one-week high of $0.7504.
The British pound edged up 0.1 percent to $1.3282 GBP=D4, nursing its losses after its 11 percent plunge to a 31-year trough of $1.3122 a week ago following last month's Brexit stunner.
The U.S. dollar took a breather ahead of the holiday, with the dollar index steady at 95.691 .DXY, but it remained pressured by a fall in U.S. Treasury yields on Friday that saw the benchmark 10-year US10YT=RR yield briefly touch a four-year nadir.
Volatile trade around the world has pressured bond yields. Early on Monday, the yield on the 5-year Japanese government bond JP5YTN=JBTC fell to a record low of minus 0.375 percent.
The euro inched 0.1 percent lower to $1.1129 EUR= and was down 0.2 percent against its Japanese counterpart at 114.10 yen EURJPY=R. The dollar slipped slightly to 102.51 yen JPY=.
Crude oil prices built upon Friday's surge and extended gains on Monday in Asia, bolstered by the Saudi energy minister's view that the oil market is heading toward balance.
Brent crude LCOc1 added 0.2 percent $50.47 a barrel, while U.S. crude CLc1 rose 0.1 percent to $49.02. There will be no U.S. crude settlement on Monday due to the holiday. (Source: reuters.com)
