Today's Trade: ASX continues June sell-off
- Aussie trade deficit shrinks more than expected, but retail sales disappoint
- ASX drops 0.2% to 5311.9, while the All Ords has shed 0.2% to 5385.7.
- Miners under pressure after commodity falls, with BHP and Rio both down
By Saxo Capital Markets
Overnight and early trading
Aussie stocks slipped at the open following a flat finish on Wall Street, as major miners and ANZ gave up over 1% each.
At 10:20am AEDT (0120 GMT) the S&P/ASX 200 was 0.2% weaker at 5312.6 points – well on its way to its first negative week in two months.
BHP Billiton fell 1.35% despite a rebound in the price of oil – investors seem more interested in sliding iron ore prices at the moment. Rio Tinto lost 1.3% and Woodside Petroleum gained 0.6%.
Global equities stumbled into June, while the dollar declined, as lacklustre economic data rekindled concern over global growth before a series of events that could set the tone in financial markets for the next six months.
While ending the day higher, the S&P 500 Index failed to hold above a key level as the MSCI All-Country World Index lost 0.1%. WTI settled just above $49/barrel before an Opec meeting Thursday.
The US benchmark erased an earlier drop of as much as 0.6% after the Institute for Supply Management’s manufacturing report showed factories are using a pickup in bookings from the US and abroad to help trim stockpiles, laying the ground for bigger gains in production later in the year.
The index slipped 0.1% on Tuesday, but still capped a third straight month of gains in May for its longest rally since 2014. The S&P 500 remains 1.8% below an all-time high set May 21, 2015.
The Nasdaq Composite Index advanced for a sixth day, its longest run of gains since February 2015 that’s added 3.9% to the technology-heavy gauge. It’s still down 1.1% in the year.
While the manufacturing data was better than economists projected, US construction spending unexpectedly dropped. The Fed’s Beige Book, an economic survey published eight times a year, showed modest growth in wages and “tight labor market conditions were widely noted.”
The ADP report is expected to show payrolls rose by 173,000 workers in May, after rising 156,000 in the previous month, according to economists polled by Bloomberg.
The currency also gained as middling manufacturing data in China and Europe prompted investors to favor haven assets. The pound declined 0.5% to $1.4416 after sliding 1.1% on Tuesday, when an ICM opinion poll released by the Guardian newspaper showed the campaign to take Britain out of the EU was in the lead.
A gauge of the pound’s one-month volatility versus the dollar climbed to 20% on Wednesday, its highest level since 2009.
West Texas Intermediate oil fell 0.2% to $49.01/b as Opec ministers arrived in Vienna for talks, after climbing for a fourth month in May. Oil has surged about 85% since touching a 12-year low in February on signs the global surplus is easing.
See short trade set up over OILUSJUL16 CFD.
Gold slipped for the 10th time in 11 days as the prospect of a US rate hike as soon as this month dims the appeal of the precious metal. Copper dropped 1.2% in London and Freeport-McMoRan led mining stocks lower after a private gauge of Chinese manufacturing signaled contraction and the OECD warned that the global recovery is set to stall this year.
Global fixed-income ETFs, which track bond indices and trade like stocks, attracted $60 billion of inflows this year through May 25, according to data compiled by BlackRock Inc.
Local markets and commodities
- The S&P/ASX 200 Index futures +0.1%; futures relative to estimated fair value suggest an early gain of 0.1%.
- Bank of New York Australia ADR Index -0.3%. BHP Billiton ADR -1.2% to A$18.36 equivalent, 0.7% discount to last Sydney close, Rio Tinto ADR -1.9% to A$37.94 equivalent, 13% discount to last Sydney close.
- Gold edged lower as investors weighed new US manufacturing data and assessed the likelihood the Federal Reserve would raise interest rates soon. Gold futures for August delivery, the most actively traded contract Wednesday, slipped about 0.2% to $1,214.70/oz on Comex.
- Gold’s drop was attributed to the Institute for Supply Management’s manufacturing activity index which offered a 51.3 reading for May, higher than April and better than market expectations. The data bolstered the view that the Fed could raise interest rates sooner rather than later, possibly at its June policy committee meeting. Higher rates are negative for gold, which pays no interest, because yield-bearing assets such as U.S. Treasurys become more attractive in comparison. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Oil slipped for a fifth day (although it rebounded off session lows), heading for the longest run of declines since February, as Opec ministers prepare to convene in Vienna Thursday to discuss production policy. US crude oil for July delivery settled down 9 cents, or 0.2%, at $49.01/b on the New York Mercantile Exchange. Brent crude, the global benchmark, lost 17 cents, or 0.3%, to $49.72/b on ICE Futures Europe. Both markets had traded in losing territory for much of the day, with US oil bottoming out at a one-week intraday low of $47.75/b.
- With the late-afternoon headlines out of Vienna, oil flipped into positive territory after settlement, with US oil recently trading up 6 cents, or 0.1%, at $49.16/b. Saudi Arabia is now considering backing a ceiling on production from Opec when the group meets Thursday in Vienna, delegates said. That might remove what analysts consider one of the biggest threats to oil’s recent rally. Saudi Arabia is likely one of only a few major oil producers in the world that can keep ramping up the record production that has caused a world-wide oil glut. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore slumped below $50, falling $1.75, or 3.5%, to $48.40/tonne Fortescue is likely to report a profit for the year ending June, based on consensus, mainly due to lower costs. The iron ore producer aims to drive down cash costs for mining, freight and processing (C1 costs) to $13 a wet ton from $15 in December. Meanwhile, Mount Gibson may report a loss: The company lowered its cost guidance for the year in April. Iron ore prices surged 62% this year through April 21, before plunging 29% through the end of May. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Copper dropped and mining stocks led by Freeport-McMoRan retreated after a Chinese factory gauge contracted and the OECD warned that the global recovery is set to stall this year. There was a 15th straight month of contraction in May for Chinese manufacturing, while OECD said the world economy is slipping into a self-fulfilling “low-growth trap.”
- Manufacturing in the 19-nation euro area barely grew last month. Copper for delivery in three months dropped 1.2% to settle at $4,617/t ($2.09 a pound) on the London Metal Exchange. The bourse’s gauge of metals slumped last month by the most since November as a stronger dollar made commodities priced in greenbacks more expensive in other currencies. Tin fell on the LME, while zinc, nickel, lead and aluminium gained. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
- In other news: ALS (ALQ): Bain Capital, Advent set to bid for co.: AFR; APN News (APN): Completes retail entitlement offer; Automotive Holdings (AHG): Acquires Melbourne Mazda franchise; AWE (AWE): Rated new hold at Canaccord;PT A$0.96; Challenger (CGF): Scheduled to host investor day; NOTE: Co. in Feb. forecast FY16 life COE A$585m-A$595m, 18% roe;Fonterra (FSF): Whole milk powder average price falls to $2,205/t; Fortescue (FMG), BHP Billiton (BHP): Iron ore falls 3.5% to lowest since February 26, according to a price index compiled by Metal Bulletin; JB Hi-Fi (JBH), Harvey Norman (HVN): Blackstone may join race for Good Guys: Australian; Patties Foods (PFL): Said to agree on A$1.65/share offer- AFR; Qantas Airways (QAN), Virgin Australia (VAH): Airline industry chief says terrorists won’t halt travel boom; Rio Tinto (RIO): Advancing studies on Serbia lithium-borate project; Z Energy (ZEL): New Zealand Super Fund cuts stake in co. via block trade; Cos. trading above 20/50/200 DMAs, Bollinger upper band with RSI above 70: SDF, AAC; Cos. trading below 20/50/200 DMAs, Bollinger lower band with RSI below 30: FXL; Ex-div: Kathmandu (KMD) & Ruralco (RHL).
Broker upgrades and downgrades
- Cooper Energy (COE): Rated new buy at Canaccord; PT A$0.34
AUDUSD and EURUSD
AUDUSD extended the gains on the back of the stronger than expected quarterly GDP (1.1% against 0.6%) which was the highest number since June 2014, however it found the resistance level at the 0.73 handle.
The resistance level would be 0.7380 and the support level remains at 0.7150. The major focus for today would be the retail sales and the trade balance at 1130 AEDT (0230 GMT)
AUDUSD monthly chart
The 200 DMA of the EURUSD seems to be a valid support level as the EURUSD is now trading near the 1.12 handle. The next resistance level would be 1.1218 which was the April low and the major focus today should be the ADP non farm employment at 0115 GMT and the ECB meeting at 0130 GMT.
The downward momentum continued to exist in the AUS200 but the key support level at 5,290 is yet to be broken. The resistance level is expected to be 5,360 where we may look to sell in the anticipation of further selling pressure in the near term.
AUS 200 monthly chart
We noticed the volume was quite thin last night compared to the previous day. We still do not see any clear trade set up at the current level and the Opec meeting is expected to bring some volatilities in the next 24 hours.
US 500 monthly chart
-- 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