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WPL comes back online today after yesterday’s big news that Shell was selling out of the majority of its stake. The removal of the overhang will be welcomed by the market, who will also like the controlled manner by which the sell-down takes place. There had been some concerns that if WPL was to buy-back Shell’s stake, it may have to over-gear or even sell certain assets to achieve this, so the fact it is using cash and existing debt facilities, while maintaining its 80% payout ratio is a win for shareholders. What’s more, the buyback increases return on equity and is 6% EPS accretive. The buy-back still needs 75% shareholder support, which should get over the line, although there will be some objection to Shell’s access to WPL’s franking credits.
After yesterday’s RBA minutes it seems the market is once again warming to long GBP/AUD trades. I feel this pair could be a good buy at 1.8140 and the fact that we hardly saw any selling in this pair despite a soft UK CPI print has interested me. Westpac produced a note yesterday, which after taking into a number of key variables, suggested that fair value on AUD/USD is now at 0.8770; this suggests AUD should underperform against the USD. However, with the prospect of the BoE being the first major central bank to hike, this should see this pair continue to gravitate higher. Technically the pair has broken the May downtrend and momentum indicators are looking like further upside could be on the cards. Stops on the trade could be placed at 1.7955 (just under the 61.8% retracement of the recent move), although the 200-day moving average at 1.7920 could be another level worth looking at.
In my afternoon market wrap yesterday I looked at taking advantage of the downtrend in EUR/GBP and potentially selling rallies in the pair at 0.8030. This is just under the 38.2% retracement of the recent sell-off and given the oversold conditions (the nine-day RSI is at 20), I still feel this pair can creep higher in the short term. I feel traders could look to place stops at 0.8105, while look for a more protracted move over time to 0.7800.
Japan release trade figures at 09:50 AEST and the market expects to see a deficit on the headline (or unadjusted) of ¥1.1 billion, with imports gaining over exports. Perhaps the bigger issue though will be tonight’s FOMC meeting at 04:00 AEST and Janet Yellen’s press conference 30 minutes later. We will see the Fed cuts the pace of bond buying by a further $10 billion, however that is in the price and traders will be watching for narrative around the economy and when the Fed could raise rates. There will also be changes to the central bank’s economic forecasts, with inflation, unemployment and growth all likely to be tweaked. I’ve looked at USD/JPY around this meeting, but USD/CHF could also be a good way of playing the meeting, with US treasuries a central focus as well.