Article / 11 May 2016 at 1:00 GMT

Today's Trade: ASX busts through 5,400

Trading Desk / Saxo Capital Markets
Australia
  • At the open, the S&P/ASX 200 index bounced 73.4 points, or 1.37%, to 5,416.2
  • Resources sector the leader rather than the laggard it has been for past week
  • The improved sentiment has been mainly about a lack of bad news

By Saxo Capital Markets

Overnight and early trading


The ASX/S&P 200 began strongly as oil led a bounce in commodity prices, sparking gains in global sharemarkets, ahead of consumer confidence data.

The index busted through 5,400 points for the first time since August thanks to a broad, commodities-led rally.

At 1032 AEST (0132 GMT) BHP was up 3.5% and Rio 2.2%, while Fortescue climbed 4.7%. Woodside was also up 1.6%.

In overnight trading:

US stocks climbed overnight as a broad rally bolstered by a rebound in oil prices drove major  indices to their biggest gains since March.

The Dow Jones Industrial Average gained 222.44 points, or 1.3%, to 17,928.35. The S&P 500 rose 25.70 points, or 1.2%, to 2,084.39. The two indices posted their largest percentage gains since March 11. The Nasdaq Composite index added 59.67 points, or 1.3%, to 4,809.88

The Dow industrials and S&P 500 are now each up 0.9% this month and are off about 2% from the record highs they hit last May.

All 10 sectors of the S&P 500 rose Tuesday, with gains in commodity-linked shares and financial stocks outpacing the broader market. Energy shares in the S&P 500 rose 1.8%, more than any other sector. US crude oil prices rose 2.8% to $44.66/barrel, as supply disruptions in Canada, Nigeria and elsewhere helped alleviate concerns about the global glut of crud.

Safe haven assets held steady: the yield on the benchmark 10-year Treasury note was unchanged at 1.760%. Gold for May delivery fell 0.1% to $1,263.90/oz.

Goldman Sachs Group was the biggest gainer in the Dow on Tuesday, rising $3.91, or 2.5%, to 161.42, adding close to 27 points to the index. JP Morgan Chase rose 83 cents, or 1.4%, to 62.04. Financial shares in the S&P 500 rose 1.4%.

Consumer shares also rallied, but there were some weak spots, particularly among traditional retailers. Gap tumbled 2.51, or 12%, to $19.30 after the company warned on Monday about weak same-store sales.

Walt Disney shares fell sharply in after-hours trading, following the company’s quarterly earnings results: Disney shares fell 4.9% to $101.35 in recent after-hours trading as its second-quarter per-share earnings, excluding certain one-time items - as well as revenue - missed expectations.

Through Tuesday’s close, the stock has risen roughly 20% over the past three months. (See trade idea over Disney)

The CBOE Volatility Index (VIX) fell below 14. The Stoxx Europe 600 rose 0.9%, its largest gain since April 19. The Dax added 0.65%, the FTSE rose 0.68% and the CAC lifted 0.36%.

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Oil was the big kicker for markets overnight, but Down Under it was
 the rise in the iron ore price rise as well. Photo: iStock

Shares in Credit Suisse Group rose 5% in Switzerland after the lender announced its first-quarter results, spurring broader gains in the region’s banking sector.

Dutch lender ING jumped over 2.5% after it said its underlying net result was EUR 842 million in the first three months of the year, falling 29% year-on-year due to higher "regulatory expenses".

Meanwhile, French bank Natixis reported a 30% year-on-year fall in net income for the first quarter of 2016 due to weakness in its investment banking division, sending shares to close almost 7% down.

Shares of London-listed Anglo American soared, closing up 4.7% after Renaissance Capital raised its price target. ArcelorMittal jumped 2.7% after Barclays raised its price target on the steelmaker

Local markets and commodities

  • The S&P/ASX 200 Index futures +0.6%; futures relative to estimated fair value suggest an early gain of 0.7%.
  • Bank of New York Australia ADR Index +0.6%. BHP Billiton ADR +3.5%. Rio Tinto ADR +3.9%.
  • Spot gold could have easily moved further down but instead held on, finishing 0.2% higher at $1,266/oz. With a stronger USD, support would have faded had it not been for strong demand in gold ETFs. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil rose with WTI and Brent up 2.3% and 3.6% to $44.40 and $45.38 respectively. Despite concerns that US inventories will rise for a fifth week in a row tonight, the markets views on both Canada and now Nigeria are greater. Nigeria has seen a number of infrastructure attacks take place on their oil fields, pushing their output to 22-year lows (Nigeria is Africa’s largest producer). Canada is yet to bring their full supply back on board which is predominately consumed by the US. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore rose 0.5% as it fought off a selling pressure. On Monday intraday trading steel rebar prices fell as much as 7.6% posting their largest fall in seven years, giving a knee-jerk bounce. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals were mixed but generally up. Weak inflation data out of China added to hopes that further stimulus would be around the corner but failed to push prices. Copper gave up ground following its recent double top and breaking down through the 200 Day Moving Average. Copper closed at $210/lb and is now looking at $200/lb which is a significant level as seen in November and February. If achieved, the 50 DMA will be crossing over the 200DMA to the upside for the first time since 2014, which can be viewed as a bullish signal for some traders.
  • Rio Tinto’s Sam Walsh earlier this month said it was brave for anyone to be calling the bottom of this commodity pricing cycle as Glencore’s assessment indicates resurgence is just getting started. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • In other news: Aurizon (AZJ): Network unit euro note roadshow starts May 16; BHP (BHP): Expanding copper, oil exploration as rivals retreat; Blackmores (BKL): Completes purchase of Global Therapeutics; CSR (CSR): Scheduled to release FY results; NOTE: Adj. net income est. A$162.2m (10 analysts, range A$156m-A$168m); Kingsgate Consolidated (KCN): Thailand to shut largest gold mine as social costs top benefits; MG Unit Trust (MGC): ASIC investigates Murray Goulburn over corporate disclosure: Australian;  Paladin Energy (PDN): Cuts year Langer Heinrich output view; Rio Tinto (RIO): Says temporary shutdown at Richards Bay operations; CFO says macro environment still challenging; Woolworths Ltd. (WOW): KKR considering bid for Woolworths: AFR.

Stock-to-Watch: Telstra (TLS)

Telstra has crossed over its 200DMA last week and after testing this 200DMA, has now run for a third day in a row. Trading at its prior ceiling, watch for a breakout to lead traders to catch a run as it moves in to a new range.

Telstra monthly chart

a
Source; Saxo Bank
 
Earnings this week

Wednesday: Macy's, Wendy's, Nissan, Toyota, Allianz
Thursday: Kohl's, Nordstrom, Shake Shack, Nvidia, Party City, Ralph Lauren
Friday: Honda Motor, JC Penney, Brookfield Asset Management

Broker upgrades and downgrades

- APA Group (APA): Cut to neutral at JPMorgan
- Origin Energy (ORG): Raised to overweight at JPMorgan
- Technology One (TNE): Cut to sell at Bell Potter
- Treasury Wine (TWE): Cut to underperform vs neutral at Credit Suisse
- Woodside (WPL): Raised to buy vs neutral at Goldman Sachs

Open positions

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AUDUSD

The AUDUSD seems to have found interim support level at 0.73 handle and rebounded up to the previous double top level 0.7380. This level also coincides with the previous uptrend that began in September last year.

Despite subdued price actions from copper and iron ore, the risky currencies seemed to have benefited as the rebound from crude oil raised positive sentiments. The US dollar index (DX) is not far from the key resistance level 95 which is expected to be tested in the near term.

AUDUSD monthly chart

b
Source: Saxo Bank
 
AUS200.I

The AUS200 has outperformed the Shanghai Composite Index which has continued to remain weak these past several trading sessions.

The last two days of huge gains from the big four banks are boosting up the AUS200 which is now approaching the upper line of the ascending channel. The next resistance level should be 5,400, where we expect some pull back but the current upward momentum appears to be strong and the support level would now be 5,290.

AUS 200 monthly chart
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Source: Saxo Bank - Create your own charts with SaxoTrader; click here to learn more:

Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

-- Edited by Adam Courtenay

Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 9:45am: #SaxoStratsAPAC

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