6 things Australian traders will be talking about this morning

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Markets remain in the thrall of the Brexit referendum and fear of its potential consequences now that it appears the Leave campaign has gained the ascendancy.

That saw stocks in Europe under pressure with the DAX down 1.43% and the FTSE off 2.01%.

But stocks in the US were nowhere near as worried and rallied into the close leaving the Dow and S&P 500 down just 0.3% and 0.2% respectively.

That lifted the SPI 200 well clear off its lows overnight and suggests a market under mild downward pressure in our day today but nowhere near the acute pressure that looked like it may be brought to bear just a few hours ago.

Elswhere the pound came under pressure, German 10 years joined the negative rate club, UK and Australian 10s rallied overnight and the Aussie and Kiwi dollars came under some selling pressure also.

On commodities, gold is still strong, oil is lower, copper is drifting and iron ore is down again.

All eyes on the FOMC decision tonight.

Here’s the scoreboard (7.31am):

  • Dow: 17674 -58 (-0.33%)
  • S&P 500: 2075 -4 (-0.18%)
  • SPI200 Futures (June): 5,193, -9 (-0.2%)
  • AUDUSD: 0.7343 -0.004 (-0.62%)

Now, the Top Stories

1. The Brexit funk continues – the Leave campaign just might win and that is freaking people out. Adam Payne had a great article overnight noting that the momentum being built up by the Leave campaign in Britain’s EU referendum means Britain may well be on course for Brexit.

That’s something most of the elites and many traders and investors had not considered a real chance until the last week and the shift in the polls. And it’s why markets have suddenly gone into a funk. Or at least turned a little funkish.

As Elena Holodny pointed out many believe that Brexit would open Pandora’s Box for Europe. A team of analysts at Barclays reckon that Britain leaving the EU sets an unwelcome precedent for Europe as other nations begin to think about exit as a viable strategy. It’s something Wolfgang Munchau also highlighted over the weekend. Writing in the FT Munchau said that what is really freaking out Europe’s elites is that “a successful Brexit would rob pro-Europeans of what they think is their strongest argument: fear of the unknown. The recent swing in the opinion polls towards Leave suggests that the fear campaign employed by the Remain camp is not working.”

2. US stocks rallied into the close lifting the SPI but the ASX could be under pressure again today.
The ASX had a terrible day yesterday losing around 109 points with a close of 5203. The banks copped a hammering, with the ANZ and CBA leading the charge lower with 2.6% falls but WBC and NAB were down 2.4% and 2.3% respectively. The miners had a bad day – BHP -3.19%, Rio -1.38%, FMG -2.8%. Overnight, US financials were under more pressure and the miners’ global peers fell heavily as well.

So it’s likely to be another tough day. But maybe not as bad as it could have been. Around 5.15am the US market was near its lows and the ASX SPI 200 June contract was down 39 points at 5163 (overnight low of 5154). That fall suggested the ASX200 was going to open right in the important support zone technical traders were watching closely in the 5150/60 region. That looks like the big level to watch.

3. German 10-years went negative last night and UK rates are rallying – here’s why. You don’t need to look much further than the rally in gold to see trader and investors fears of the outcome of the EU referendum. But in many ways it’s the rally in German and UK long bonds which is the most instructive.

Last night German 10-year Bunds went negative for the first time ever, hitting a low at -0.028% before closing at -0.002%. Likewise there was a rally in UK 10-year Gilts that took the rate to another record low of 1.125% before closing at 1.147%.

Key to both these moves and an indications of what traders think the economic impact of a vote to leave the EU might be is that this is not just a safe-haven bid for bonds. Rather, a large number of traders and fund managers told the FT that they are worried about recession if Britain votes to leave the EU.

Grant Lewis, an analyst at Daiwa, told the FT that “the moves reflect both a general global [nervous] sentiment surrounding the referendum as well as expectations that Leave will result in recession and a cut in interest rates and more QE from the BoE. Simple as that. Low Gilt yields are telling us nothing more than the markets expect recession and low inflation to result from Brexit.”

4. Cash is king and investors are hoarding more of it than any time in the past 15 years. In what might be a happy coincidence for global fund managers at this time of irreducible uncertainty, Myles Udland reports that according to Bank of America Merrill Lynch’s latest fund manager survey, investors surveyed by the firm now have 5.7% of their net holdings in cash, the highest percentage since November 2001.

As I have written recently, many analysts believe that all this cash on the sidelines, and in bonds, means that eventually the US stock market will get a turbo charge higher. For the moment though safe havens, not risk, are favoured by investors the world over.

5. Here’s Jeff Gundlach’s latest presentation on markets. DoubleLine CEO Jeff Gundlach is delivering his latest presentation on markets and the economy. It’s titled “Timing & Strategy.” And as usual it’s chock full of of charts and Gundlach’s unique look at the world.

You can find the slideshow here.

6. Henry Blodget says it’s time for a new capitalism. If you are a trader, or work in financial markets, there is a fair chance you might believe in the primacy of the market system. But what we’ve learnt in the past 10 or 20 years is that the notion that markets are efficient is a good premise from which to start but it’s a flawed theory. Yet that theory – the Efficient Markets Hypothesis – and its rise to prominence as finance became mathematical – spawned a way of thinking in finance and the corporate world that fundamentally changed the relationship between corporation’s management and their workers.

That is something Henry has editorialised on.

He takes aim at the choice management makes to always and everywhere seek to “maximise profit for their shareholders” at the expense of workers. You should read his piece because it’s a global issue and applicable in Australia as well. I can’t do it justice in this space but here a neat excerpt.

“The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in 1951, “is to maintain an equitable and working balance among of the claims of the various directly interested groups… stockholders, employees, customers, and the public at large.”

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Food prices, m/m, %, May: -0.5 vs. 0.3 prev.
AU: NAB business conditions, May: 10 vs. 9 prev.
AU: NAB business confidence, May: 3 vs. 5 prev.
UK: Core CPI, y/y, %, May: 1.2 vs.1.3 exp.
EZ: Employment, q/q, %, Q1: 0.3 vs. 0.3 prev.
US: Retail sales adv., m/m, %, May: 0.5 vs. 0.3 exp.
US: Ret. sales ex auto & gas m/m %, May: 0.3 vs. 0.3 exp

You can catch me on Twitter.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Metcash (MTS: ASX)

Aldi may not be listed on the Australian stock exchange but it’s a big influence on the share prices of those supermarkets that are. Yesterday was Metcash’s turn. The operator of the IGA chain rallied 5% on what was a woeful day for the broader market.

Metcash has been heavily shorted on the theory that it would be one of the principal victims of increased competition from Aldi, especially in South Australia where it has recently opened.

However, Metcash reports next week and the market appears to be positioning for the possibility that Aldi has not had nearly as big an impact as was feared.

From a chart point of view, there looks to be plenty of scope for ongoing volatility in either direction. The major support is back around $1.84 compared to yesterday’s close of $2.19. This consists of the well-established resistance that applied for most of this year and the 100 day moving average. Major resistance is up at around $2.45/$2.55 and includes the 2014 support level and the 78.6% Fibonacci retracement.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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