Article / 24 September 2015 at 0:38 GMT

Today's Trade: ASX 200 defies global jitters, iron ore dips

Trading Desk / Saxo Capital Markets
Australia
  • Traders are worried about China's woes and the Volkswagen scandal
  • Nevertheless the S&P/ASX 200 rebounded strongly at the open
  • Iron ore prices slid again, with fewer mills restocking on weak steel prices
  • However Vale is optimistic about China's steel demand outlook

By Saxo Capital Markets Australia

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Overnight and early trading

  • The ASX rebounded at the open following its slide on Wednesday. The S&P/ASX 200 was up 1.2% to 5,058.00 at 1035 AEST (0035 GMT).  
  • All the same, traders are cautious and nervous about the impact of China's slowdown and the Volkswagen scandal on the markets.


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Ore prices are down and steel demand gloom is widespread, but leading Brazilian miner Vale believes that China's peak steel demand has yet to be reached. Photo: iStock


  • US stocks closed mildly lower as materials weighed whilst European stocks all clocked gains.
  • The Dow Jones Industrial Average fell 50.58 points, or 0.3%, to finish at 16,279.89. The Dow rose slightly soon after the opening bell before giving up gains and falling as much as 118 points. The S&P 500 index slipped 3.98 points, or 0.2%, to 1,938.76 while the Nasdaq Composite lost 3.98 points, or 0.1%, to 4,752.74.
  • Volume was light in the US with an exchange volume of 780 million and a composite volume of nearly 3.2 billion in the close.
  • Materials fell more than 2% to weigh on the S&P 500.
  • Apple (AAPL) closed up 0.8%, while the iShares Nasdaq Biotechnology ETF (IBB) closed down 0.8%, extending recent losses.
  • Crude traded more than 3% lower in the afternoon despite initially spiking on a report that US crude inventories fell by 1.9 million barrels. Crude settled down $1.88, or 4.06 percent, at $44.48 a barrel.
  • The CBOE Volatility Index (VIX.I), traded near 22.
  • European stocks finished marginally higher on Wednesday, as investors digested the latest from Volkswagen and continued to ponder China's economic health.
  • The Stoxx Europe 600 added 0.1%, after falling more than 3% on Tuesday. The U.K.’s FTSE 100 rose 1.6% while Germany's DAX pared gains at the close, ending up 0.4% after Deutsche Bank cut its target levels for the index and the CEO of Volkswagen stepped down.
  • European carmakers rebounded after their worst two-day drop since 2008: Volkswagen added 5.2% after closing at its lowest price since 2011.
  • See attached Macro piece and week ahead by our Asia Macro Strategist, Kay Van-Petersen.
Local markets and commodities

  • Spot gold lifted 0.5% to $1,130 as it traded in a tight $5 range. Gold is finding its levels with lower highs and consolidating between July lows and August highs. We are waiting for gold to break to $1,150 or below $1,100 in the immediate future before considering its next direction. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR.
  • Crude oil has fallen with WTI and Brent down 3.2% and 2.1% to $44.71 and $47.83 respectively. Despite oil inventories falling last week, refinery utilisation have also fallen on weaker demand. These low oil prices are seeing as was to be expected, CapEx cuts and subsequently lower production. Total (TOT) is one such company who is expecting a fall in barrels drilled in 2017. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore has given up another 1.6% to $55.30 as fewer mills are restocking inventories on weak steel prices and poor fundamentals. Brazil, which saw a sharp spike in deliverable costs earlier this month has seen a normalisation in prices and with future supply looking to rise, marginal cost on delivery is set to fall. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were mixed as copper edges lower again, down 0.3% to $5,059. Palladium, a metal used in pollution control devices for cars has emerged as a hero on the back of Volkswagens saga, rallying 6.2% overnight. The market sees diesel cars following the $18bn fine on VW to be in less demand and by default gasoline cars using palladium to increase. Zinc has bounced off its 5 year lows, up 1.2% to $9,765. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Vale disputes peak-steel views for China.
  • BHP Billiton (BHP): Sees China’s steel output peaking mid-2020s.
  • Fonterra (FSF): Raises forecast 2015-16 milk payout to $NZ4.60/kg; FY NPAT jumps 183% y/y after strong H2.
  • Santos (STO): LNG ship headed to Queensland with Santos plant set to start
  • Seven Group (SVW): Kerry Stokes-controlled entities hold 71.03% stake after shr buyback.
  • No shares go ex-dividend today
Open positions

Perf






Broker upgrades
  • Beach (BPT): Raised to hold vs sell at Canaccord
  • Drillsearch (DLS): Raised to buy vs hold at Canaccord

Broker downgrades
  • None today

Data points

Thursday:
  • JPN: Flash Manufacturing PMI (11:35am)
  • EUR: German Ifo Business Climate & Targeted LTRO
  • US: Core Durable Goods Orders m/m, Unemployment Claims, Durable Goods Orders m/m, New Home Sales
  • Fed Chair Janet Yellen Speaks: Due to speak at the University of Massachusetts, in Amherst
Friday:
  • JPN: Tokyo Core CPI y/y, National Core CPI y/y
  • German Buba President Weidmann Speaks: Due to speak at the Young Factor Conference, in Florence
  • EUR: M3 Money Supply y/y, Private Loans y/y,
  • US: Final GDP q/q, Final GDP Price Index q/q, Flash Services PMI, Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations,
  • German Buba President Weidmann Speaks: Due to hold a press conference, in Florence

EURUSD rebounds

The 1.11 level was key support for the EURUSD in January of this year and earlier this month. Last night, it proved to be a solid support level again, as EURUSD rebounded on the back of the less dovish tone from the ECB meeting.

The next support level is at 1.1017, and if we see further volatilities in the stockmarket, the EUR is expected to be bought up as a safe haven currency.

AUDUSD sells off sharply

Meanwhile the AUDUSD sold off sharply to break below 0.7050 when a yet another weak Caixin flash manufacturing PMI (a six-and-a-half-year low) was released. Then it extended the losses down to the $0.70 handle area as the major commodities such as crude oil and copper continued to be well offered.

The $0.70 level has been key support level at the end of last month. So if AUDUSD fails to trade above this level, then that would indicate further decline is likely in the very near term. The recent swing low 0.69 handle is the support level and 0.7050 should be resistance level.

AUDUSD weekly chart

AUDUSD
 
Bearish on S&P/ASX200

After two days of solid gains, the Shanghai Composite Index finally showed some weakness yesterday as it fell more than 2%. The S&P/ASX200 (AUS200.i) found the major support level at 4,986 again and the short-term downtrend was broken at the beginning of the SYCOM session.

Since then, the AUS200 has been trading above this downtrend line but considering the overnight volume on E-mini S&P500 was low compared to the previous session’s sell off, the selling momentum appears to be stronger.

Therefore we remain bearish on AUS200 and expect a genuine break out below 4,986 soon, although we would need the Shanghai index to trade below 3,000 in order to confirm the near-term aggressive selloff and CBA to break through the triple bottom level of $A71.30

SP200
Charts: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more.  

– Edited by Robert Ryan

For more on forex, click here.

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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