US stocks rallied early on the lead from stronger UK and European stock markets.
But again the S&P 500 found the air a little thin near 2100 and it dropped back to close down 3 points at 2085. The Dow dipped 0.27% to 17,780 while the Nasdaq fell 0.22% to close at 4833.
That reversal in the US, along with the 1.4% fall in oil and the slight dip in gold put SPI futures under pressure and the September contract is down 16 points this morning at 5201. It’s likely to be a thin and illiquid day but the latest polls (see below) and the rally in forex mean we might actually have a better day than the SPI suggests.
On forex markets the Aussie has had a cracking rally since 7am and is up 0.31% at 7521 in the first hour. That move reflects similar moves in other currencies which are rallying hard after a ComeRes poll for ITV and the Daily Mail showed a strong lead for Remain of 6 points.
Here’s the scoreboard (7.37am):
- Dow: 17780 -49 (-0.27%)
- S&P 500: 2085 -3 (-0.17%)
- SPI200 Futures (September): 5,201, -16 (-0.3%)
- AUDUSD: 0.7522 +0.0073 (+0.96%)
Now, the Top Stories
1. It’s official, Australia’s apartment building boom is at an end. Ring the bell. It seems that Australian developers have got the message and that with so much supply coming down the pipe, Australian apartment prices are at risk of a sharp downturn.
The AFR reports this morning that, “the construction of about $1 billion worth of recently approved apartment developments will be postponed, with owners either waiting for the next cycle or looking to sell out because of concerns about oversupply, financing, construction costs and government regulation”.
It could be a little too late given Australian apartment prices are falling just as 230,000 more units are about to hit the market. Add to that warnings from Luci Ellis, the RBA’s head of financial stability, about the risk of all this building and her “Slower Builder Theory” which suggests some developers – or perhaps the off the plan buyers of these late cycle developments – are at risk.
2. Brexit Watch – the poll that said Leave was winning yesterday flipped to Remain today. The bookies still have Brexit as a less than 30% chance from tonight’s EU referendum vote. But the polls still look very much like it is too close to call.
The latest Survey Monkey poll – just 24 hours after the last one – shows that Remain has taken the lead over Leave – 50% want to Remain, 47% want to Leave. Remember this one is the one now being lauded as one of the few that got the British General Election in 2015 right. Separately a TNS poll shows 50% want to Remain; 47% want to Leave. Polls since 7am show Remain in the lead.
Markets are backing the bookies and betting that Remain wins. That means the risk to traders is again now somewhat asyemmetric as I wrote here at AxiTrader yesterday and Adam Button suggested here at ForexLive this morning.
3. Two more warnings of how wild trade could be after the Brexit vote. Discretion, they say, is the better part of valour. And in financial markets, where traders want to make profits, what they also want – need – to avoid is the risk of catastrophic loss which can blow up the trader and their account. The Brexit vote, and either outcome, is the very essence of danger that traders should seek to avoid. It’s why UBS and others have warned their clients about fractious trading conditions post-vote.
It’s also why Westpac’s currency team said it has no positions in its high conviction currency trade portfolio in the lead up to Brexit. And it is why Jason Wong, NAB subsidiary BNZ’s Wellington-based currency strategist, warned clients about how messy forex markets could get. Wong wrote in his morning note today:
Any customers with currency requirements should be looking to transact sooner rather than later. A number of banks and liquidity providers have indicated that they will be turning off electronic trading systems as the referendum gets underway. Some money-transfer services have said that they will stop any GBP transfers until the results are released. Stop loss and take profit orders will not necessarily be acted upon as liquidity dries up further and bid-ask spreads will widen. The debacle following the Swiss abandonment of its currency peg to the euro eighteen months ago is still fresh in the memories of currency traders and banks, illustrating what can happen to liquidity and price action following a major shock.
4. Albert Edwards says Brexit has diverted attention from the real issue – China’s stealth devaluation. Edwards says “…there is an argument that global investors have overly focused on Brexit at the expense of other more important macro events”. The primary issue he says is “China’s ongoing stealth devaluation of the renminbi [which] is far more important for the global economy”.
His key point is that while we are all focused on the stability of USDCNY, the currency is weakening against the basket. He says that’s because China is now exporting its deflation and the only way to get out from under that weight is to let the currency slide. We’ll see.
5. OPEC’s revenue has collapsed – but that is a strong sign the oil cartel might change its approach. New out of OPEC overnight is that its revenues in 2015 were the worst they’d been in 10 years. Elena Holodny reports that the oil cartel earned $518.2 billion in 2015 from the sales of crude and refined fuels, according to the group’s Annual Statistical Bulletin.
That’s a 45.8% drop from the prior year, and the lowest level since 2005. The collapse in income comes even though exports rose 1.7% to 23.6 million. Two things are clear there. First there is no offset from falling prices from increased volumes, and second, maybe small reductions in volumes might have material impacts on prices.
Maybe that’s why the Saudis have subtly shifted their approach under their new oil minister. And perhaps once the market is closer to balance in 2017 – as the Saudis suggest – OPEC may be able to cement it above $50 a barrel or more.
And as if on cue, Chloe Pfeiffer reports Macquarie says the “stage is set” for an oil rebound.
6. When Brexit is done we can deal with the worries of Albert Edwards and others but the real change coming to the global economy is this – old age. Chloe Pfeiffer again reports on some interesting research from German bank Berenberg which has used over 100 years of economic data, as well as UN projections, to attempt to figure out what exactly the world will look like, demographically, in the next 50 years.
The report shows that within 50 years, the problem of an ageing and shrinking population is likely going to affect most countries.
In a sense, we are all turning Japanese. That has massive implications for economic growth, inflation, interest rates and so on. It’s certainly worth a look.
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Net migration, May: 5500 vs. 5520 prev.
EC: Consumer confidence, Jun: -7.3 vs. -7 exp.
US: Existing home sales (mn), May: 5.53 vs. 5.55 exp.
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And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Treasury Wine Estates (TWE: ASX)
One of the characteristics of strong trends is that downward corrections are relatively shallow compared to the upswings. The corrections typically don’t overlap or move below the last major peak in the uptrend. These are the situations where the big money is made.
The opposite situation is where the corrections are relatively large compared to the upswings and do overlap below previous peaks. This choppy, lower momentum behaviour is typical of corrections; peaking patterns or stocks that are simply grinding sideways or gradually higher.
By this definition, the chart for wine producer and exporter TWE has changed from a strong, impulsive up trend to choppier, lower momentum behaviour. This is just about valuation and re rating. After the big upgrade in its earnings outlook it is still trading at 25.5 times F17 earnings, even though it’s now 7% below its recent peak.
Right now, TWE is approaching the support of an established trend line and its 100 day moving average. Below that there are support levels around $9.40 and $9.00. The really big correction scenario would see a move back to the 200 day moving average and 38.2% Fibonacci retracement around $8.33. However, that seems a stretch absent some really bad news for this good quality growth stock.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC