- The S&P 500 was unchanged on the day, with 51% of stocks higher on the day. Volume was 21% under the 30-day average. With the US volatility index at 11.65, the market is clearly not expecting big moves any time soon.
- The S&P 500 energy sector was the laggard losing 0.5%, with US crude trading -0.6% on the session (range of $43.52 to $42.50).
- Much of the focus was on the GBP, with Bank of England (BoE) member Ian McCafferty writing an op-ed piece in The Times about future additional easing measures. GBP/AUD is currently trading below A$1.7000. Momentum suggests this pair goes lower, stay short.
- UK ten-year bonds (gilts) trade to new record low of 58 basis points. Some focus on a technical failure from the BoE to buy its full requirement of bonds as part of its recently announced Quantitative Easing program. Traders suggest that this something that will be increasingly more common, specifically in Japan and Europe.
- AUD/USD a pillar of strength and currently eyeing the 77c level (session range of $0.7687 - $0.7622).
- AUD traders focused today on June home loans (consensus +2.3%) at 11:30 AEST and Glenn Stevens final speech as RBA governor at 13:05 AEST.
- Hillary Clinton continues to pull away in the polls. Donald Trump raises the controversy levels, seemingly encouraging gun owners at an overnight rally to take action if Hillary Clinton is elected president!
- SPI futures +0.2% (or 10 points) at 5500, so a flat open expected for the ASX 200. BHP ADR -1.1%, CBA -0.3%.
- A big day of earnings in focus with CBA, FXJ, AGL, CPU and OZL reporting.
- CBA expected to report cash earnings of $9.48 billion, 222c final dividend, and gross margins of 2.06% (2H 16 - 2.05%). Outlook is key.
We question what is going to cause a sharp increase in market volatility and with Donald Trump continuing to consistently ramp up the controversy dial, it is becoming more and more likely that we get a Clinton presidency and even a Democratic Congress. There are a number of other issues traders have on their watch list, with the USD, oil and the push higher in three-month LIBOR in full view. However, these markets are not at levels likely to cause any real anxiety in broader risk sentiment.
In the FX market, traders have been active in the GBP, with the BoE firmly placing the pound as the preeminent funding currency for the carry trade. With such low levels of implied market volatility, traders want to be paid to be in a position and this means picking up higher yielding assets and funding the position with a lower yielding asset. This puts short GBP/AUD firmly on the radar as the default pair for the carry trade, so add in a strong downtrend and it’s a speculators dream. The only issue is that it is a very crowded trade and everyone is short. The session risk today is squared firmly on Glenn Stevens’ final speech as the governor and one suspects he will focus on his time at the helm of the RBA.
With US indices largely unchanged the same fate awaits the ASX 200 on open, with a mixed open expected across Asia more broadly. Modest weakness is likely to be seen in the Nikkei, while the Hang Seng should resume its trend higher after yesterday’s unconvincing sell-off. The corporate news rolls in today though and with CBA commanding such a sizeable weight on the ASX 200 full-year earnings will be the key focal point for today. On first blush the numbers are mixed relative to expectations and hardly likely to inspire, with cash earnings slightly below the analysts’ consensus, while net interest margins are modestly better. The final dividend at 222c was in-line, as was return on equity and tier one equity.