6 things Australian traders will be talking about this morning

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The vote count has just begun but traders and markets have already factored in a win for the Remain camp in Britain’s EU referendum.

Stocks in the US rose more than 1% which was in line with the UK move higher, while stocks on the continent were up closer to 2%.

Those results predated the end of voting and polls and comments since 7am suggesting Remain will win have buoyed traders even further with the SPI 200 futures up 60 points. The pound has made a high of 1.4998 in the past hour and the Aussie dollar is well entrenched above 76 cents. Both WTI and Brent are back above $50 a barrel and gold is down at $1255.

That positivity poses a risk to traders and markets if polls are wrong but for the moment it looks like a stronger day for the ASX and markets across Asia.

Here’s the scoreboard (7.39am):

  • Dow: 18011 +230 (+1.29%)
  • S&P 500: 2113 +28 (1.34%)
  • SPI200 Futures (September): 5,294, +60 (+1.23%)
  • AUDUSD: 0.7622 +0.0100 (+1.3%)

Now, the Top Stories

1. UK Vote Live – YouGov poll day poll says Remain has it. Nothing else matters for traders than the referendum results today. So here’s the link to our live UK vote post.

The latest news is that the YouGov poll day poll has Remain winning 52-48. Lets hope they are right or things will get very ugly in markets sometime in the next 8 hours.

2. Brexit, schmexit, markets vote Remain – ASX should have a cracking day. The price action overnight and then this morning makes it pretty clear that traders are betting with the bookies and expecting Britain to firmly remain in the EU. The YouGov poll day poll has Remain winning 52-48 and so it would be an incredible surprise now for Leave to get up.

So if we assume that there is actually wisdom in this crowd we call markets and the bets that Britain will stay prove correct, then it sets up a massive day for the ASX 200 in trade Friday. Taking a strong lead from the solid rally in the US, UK and European stock markets, the SPI September futures are up 60 points to 5294. Given also that the financial, material, and energy sectors led the S&P 500 higher overnight, we get a nice set up for the leaders of the exchange to do well also.

So the ASX 200 should be able to happily run toward mild trendline resistance at 5350. If it can break that, we are off toward 5400 again. Here’s the chart from my Reuters Eikon terminal.

ASX200 Daily (reuters Eikon)

3. If Britain remains in the EU there is nothing to stop the Aussie dollar’s rally. The Australian dollar is back above 76 cents this morning after a gain of 1.33%, 100 points, since 7am Thursday. That puts it on the top of the forex leaderboard of gains against the US dollar. Yes, it’s even bigger than the rally in the pound, although GBPUSD did trade as high as 1.4950(ish) before pulling back 1.4880 now.

Key to the Aussies rally is that there has been a confluence of positives that suggest were it not for the Brexit poll, there is little reason to sell it.

Key drivers of the Aussie include investor sentiment, expectations of global growth, interest rate differentials, technicals, and of course the US dollar as the other side of the coin. Assuming the market is right and Britain votes to stay, this combination coalesces into a pretty positive short-term outlook for the AUDUSD. I had a target of 0.7640 earlier this week which I’ll probably revise up to 0.7800/7850 if Britain does stay – and assuming 0.7640 breaks of course.

4. Here’s another great example of just how freaked out banks were about Brexit. It’s fair to expect that Remain will get up but that is not guaranteed and Reuters reports major global banks are still freaked out by the potential repercussions of a surprise.

Reuters says that unnamed clients have told it that Barclays, which had communicated to clients earlier this week that it wouldn’t use its algos to execute stop losses, went a step further overnight and “also refused all new stop-loss orders, whether over the phone or through messaging or dealing systems, as of 0600 GMT on Thursday”.

That, as Reuters says, is a pretty rare move and follows the warnings from other banks we’ve been talking about this week. Of course it looks at present – or the market is betting – that this is just another Y2K. But the votes haven’t been counted yet and banks are still worried that a shock could cause the kind of dislocation we saw back in January 2015 when the Swiss national Bank dropped the EURCHF peg.

5. China says its debt is NOT a problem – as long as it keeps growing. Yesterday China gave a strong indication that it is going to continue to pump-prime its growth rate in the months and years ahead. Reuters reports that Wang Shengbang, an official with the China Banking Regulatory Commission (CBRC) said that “Overall, government and household debt ratios are relatively low but corporate debt ratios are relatively high. Pro-active fiscal policy will help promote economic growth”.

“Growth is vital for deleveraging; there will be no deleveraging if there is no growth,” Wang added.

That’s something that all the China doomsayers might want to remember. It doesn’t mean China is not still facing structural issues as it makes its difficult growth transition. But it does mean it is intent on making that transition and by continuing to grow it can help deal with some of these issues such as debt.

6. Speaking of China, here’s a bullish take on the outlook – as long as China stays away from its old habits. Rachel Butt reports that a report by Jonathan Woetzel and his team from the McKinsey Global Institute have issued a report saying “China needs to open up more sectors to competition, enable corporate restructuring, and further develop its capital markets. It needs to raise the skills of the labour force to fill its talent gap and to sustain labour mobility.”

If it can do that, China could add more than $5.6 trillion in GDP and $5.1 trillion of new income for households by 2030. But China risks a hard landing if it goes back to an investment-led model to support its near-term growth goals, according to the report.

Two neat pieces of news which highlight the debate over China’s outlook.

Key data for the past 24 hours (with thanks to BNZ markets)
GE: Markit Manufacturing PMI, Jun P: 54.4 vs. 52.0 exp.
GE: Markit Services PMI, Jun P: 53.2 vs. 55.0 exp.
EC: Markit Manufacturing PMI, Jun P: 52.6 vs. 51.4 exp.
EC: Markit Services PMI, Jun P: 52.4 vs. 53.2 exp.
US: Markit Manufacturing PMI, Jun P: 51.4 vs. 50.9 exp.
US: New Home Sales (‘000), May: 551 vs. 560 exp.

You can catch me on Twitter.

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

Seek (SEK: ASX)

Seek fell 6% yesterday after announcing plans to increase its stake in a couple of international securities and providing an update on profit guidance.

It was the guidance that caused the sell-off. Seek gave preliminary guidance for net profit in F17 the range of $215-220m. This represents growth of about 11.5% over the current year but was clearly a bit below what some were expecting. A price earnings multiple of around 29 times F16 earnings means makes Seek a stock that’s vulnerable to any “confession season” announcements, even if they are only minor blemishes.

Strategically, the stock is on course to develop as an international growth stock, hence the high multiple. Yesterday’s announcements of additional investments in its Brazilian and Asian subsidiaries at EPS accretive multiples were consistent with this.

Seek bounced out of an initial chart support zone around $14.75 yesterday. This consists of the 200 day moving average and the 50% retracement level. A bit more work around current levels would provide confidence that this will hold. If it doesn’t, the 61.8% retracement around $14.20 may be a level of interest.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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