U.S. Markets Lower on Chinese currency revaluation; Gold Lower; ASX to Open Lower
U.S. stocks saw selling after early gains could not be sustained. The key driver was the news that China will be relaxing its Yuan Peg to the US dollar, which was initially seen as a positive,
however the fact there was little detail given about how the revaluation of the Yuan will unfold, sent nervous investors to the sidelines. Our market is likely to trade lower with negative lead from the U.S. Expect to see some profit taking ahead of the month end.
The SPI Futures is above the key level of 4500 the ASX is set to open lower as the SPI closed down 30 points (or 0.7%) at 4,569. Key levels this week are 4450 and 4650. Expect our market to trade lower today with gold stocks again in focus as the precious metal reaches record highs, Gold stocks see profit taking.
US Markets
In the U.S. the retailers were the biggest drag with the sector down 1.7 per cent over concerns that the yuan revaluation will increase their cost of goods, all 30 stocks in the retailing index fell. The tech heavy Nasdaq index also retreated with a possible key day reversal overnight. There were some positives with the credit card businesses, Visa and Mastercard jumped 5% as financial regulation changes were not as onerous as first feared. The Dow down 8 points, or 0.1 per cent, to 10,442, while in the broader market the S&P 500 index lost 4 points, or 0.4 per cent, to 1,113, and the tech-heavy Nasdaq ended 0.9 per cent lower at 2,289.
European Markets
European shares generally rose overnight, with miners in the lead BHP was up 4.7 % and RIO up 5% in London. In the U.K. the London FTSE 100 index added 48 points, or 0.92 per cent, to 5,299 points. The German DAX gained 76 points, or 1.2 per cent, to 6,292 points, while in France, the CAC 40 rose 50 points, or 1.3 per cent, to 3,736 points.
China has made a move on its currency ahead of this weeks’ G20 meeting, by announcing it will be removing its two year yuan peg to the US dollar, not in a one-off revaluation but the currency will be appreciated in an orderly manner. This is potentially good news for our miners because a strengthening in Chinese currency will make our resources cheaper.
Asian Markets
The Chinese revaluation news sparked a jump in Asian markets yesterday. In Japan the Nikkei index of the Tokyo Stock Exchange jumped 2.5% to end at 10,238. The benchmark Hang Seng Index was up 3.1% at 20,912, and China jumped up 2.9% at 2586.
Oil prices finished the week above US$77 a barrel overnight as U.S. The benchmark crude NYMEX for July delivery up US$0.64 to settle at US$77.82 a barrel. Copper prices finished down again but remains around the critical $US3.00 a pound. Copper for July delivery up 5.8 cents to settle at $US2.942 a pound. Gold closed below record levels falling the most in a month, with August gold fell $US17.60 to settle at $US1,240.70 an ounce.
Key News Drivers Today
G20 – meeting to be held in Toronto this week.
YUAN – China to end its two-year yuan peg to the US dollar. China has signaled a “more flexible yuan” currency policy, which will allow its currency appreciate in an orderly manner against the US dollar.
The yuan has been pegged at 6.83 against the US dollar since mid-2008. It will not be a one-off revaluation.
US – reacts to Chinese currency revaluation
Markets Overview
U.S. Markets Off Their Highs; Gold Pulls Back
SP500: down 0.4% at 1,113 – Above 200 day Moving Average
DOW down 0.1% at 10,442 – Above 10,000
NASDAQ: down 0.9% at 2,289
Dollar Index: bounce at 85.25 on Higher Euro
A$ higher at 87.96
FTSE: flat at 5,250 – Financials Weigh
DAX down 0.1% at 6,217 – Still in Outperforming�
CHINA: up 2.9% at 2,586 – Currency Allowed to Revalue
HSI up 3.2% at 20,912
Oil: up 0.5% ($77.82)
Gold: down 1.5% at ($1,240.70)
Commodities Mixed
SPI: Above key Level 4500 ASX
SPI down 0.7% at 4,569
ASX News
The SPI Futures is above the key level of 4500 the ASX is set to open lower as the SPI closed down 30 points (or 0.7%) at 4,569. Key levels this week are 4450 and 4650. Expect our market to trade lower today with gold stocks again in focus as the prescious metals reaches record highs, Gold stocks see profit taking.
AUD – lower at 87.75
AGO – Atlas Iron rose after the company said it had begun mining at its second mine and was on track to quadruple exports by the end of this calendar year.
AMC – faces $466 million law suit in class action seeking damages over the pricing fixing cardboard box cartel.
BHP – S&P Equity Research has downgraded BHP’s target to reflect the RSPT impact, citind estimated lower EPS around 15% due to the RSPT. They went on to say the tax has a 50% chance of being approved.
FMG – Fortescue is poised to sign an agreement with a Chinese engineering group for works to boost iron ore production at its Chichester Hub operations in WA.
GCL – Gloucester Coal independent directors have recommended the miner’s shareholders accept a $1 billion takeover bid by Singapore’s Noble Group Ltd.
MTE – MetroCoal has upgraded the inferred resource at its Bundi thermal coal deposit in the Surat Basin in Queensland by 500 percent.
NAB – NZ’s Commerce Commission has given AMP regulatory approval to acquire the Australasian operations of AXA Asia Pacific Holdings.
ORI – board has approved a $75 million investment to help expand its ammonium nitrate plant in Newcastle.
RIO – BHP Billiton and Rio Tinto have reached an agreement with the WA government for iron ore royalties that brings them in line with other producers.
SDL – Sundance missing executives has been found dead in aircraft crash.
TLS – again in spotlight as it is to receive $11 billion from the government in exchange for sharing its infrastructure with the NBN and migrating customers to the new fibre network. This is obviously a huge step in resolving issues between the government and Telstra re the NBN rollout.
Economic Reports out today:
Committee for Economic Development of Australia – two-day conference
AGMs - Trust Company; Extract Resources; CBio
Market volatility will continue near term, some speculative accumulation is underway.
We the suggest trading strategy is to tighten stops. Be prepared to take profits and open/hold short positions, remember we are trading into the end of the financial year.
Market Summary
ASX – to open lower
US & UK/Europe – US lower, Europe Higher
US ADRs - Mixed!!!…
BHP up 2.3% & RIO up 2.5%; AWC up 3.6%
ANZ up 0.6% & NAB up 1.3%
NEM down 2.9%, JHX down 0.6%, NWS down 1.3%
Commodities Stock Index up 0.2%
Gold Stocks Index down 2.6%
Oil Stocks Index down 0.6%
By Michael Hevern
Head of Research
