Article / 04 August 2017 at 0:29 GMT

Today's Trade: ASX down as CBA takes a hit

Trading Desk / Saxo Capital Markets
Australia
  • The local market opened down, led by banks and energy stocks
  • CBA is in focus over allegations it allegedly breached anti-money laundering rules
  • The Dow rose on the buoyant global economy, a weaker USD and earnings season
  • Gold steadied after nearing a seven-week high in the previous session 
  • Oil skidded to its lowest level in more than a week

By Saxo Capital Markets (Australia)

Overnight 
  
  • Asian equity markets look set to end the week mixed after Treasuries and the yen were boosted following a Wall Street Journal report that US Special Counsel Robert Mueller was said to have impanelled a grand jury in the ongoing Russia probe.
  • Investors awaiting the monthly US jobs report got a shock from news that Mueller, who is probing Russia’s interference in 2016 US elections as well as possible collusion with the Donald Trump campaign, has impanelled a grand jury. 
  • Ten-year Treasury yields slumped, while the S&P 500 Index fell to session lows before recouping some ground. The strength in the yen will likely weigh on Japanese stocks. The Australian dollar was steady ahead of a quarterly statement on monetary policy from the country’s central bank.
  • Earnings results from dozens of big US corporations pulled major stock indices in different directions overnight.
  • Some of the biggest insurance companies dragged down the broader financial sector after reporting quarterly earnings, while solid profits lifted consumer goods companies including Clorox.
  • The result: major US stock indices struggled to find direction the day after the Dow Jones Industrial Average rose above 22,000 for the first time.
  • The Dow rose for an eight straight session and notched its 33rd record of the year Thursday, as stocks continued to benefit from a buoyant global economy, a weaker dollar and a solid earnings season.
  • The blue-chip index rose 9.86 points, or less than 0.1%, to 22026.10 and is now up 11% so far this year.
  • The S&P 500 fell 5.41 points, or 0.2%, to 2472.16 Thursday, while the Nasdaq Composite declined 22.30 points, or 0.4%, to 6340.34.
  • Prudential Financial shares fell $4.96, or 4.3%, to $110.27 as its operating income missed analysts’ expectations. MetLife lost $1.58, or 2.9%, to $53.50.
  • Kellogg’s stock jumped $2.92, or 4.3%, to $70.36 as second-quarter earnings for the maker of Frosted Flakes and Eggo waffles beat analysts’ expectations.
  • Clorox added $2.76, or 2.1%, to $134.73 after the maker of products such as liquid bleach and trash bags reported a climb in net profit for the latest quarter.
  • Tesla jumped $21.20, or 6.5%, to $347.09 after the electric-car company reiterated its plans to sell more vehicles during the second half of the year.
  • Elsewhere, declines in the British pound helped push the export-heavy FTSE 100 index up 0.9%, with British American Tobacco and AstraZeneca both rising.

Source: Bloomberg, TradingFloor.com, WSJ.com

US earnings

  • Friday: Lincoln National Corp, Duke Energy Corp, CenterPoint Energy Inc, Marathon Oil Corp, Church & Dwight Co Inc, Progressive Corp/The, Molson Coors Brewing Co, Abaxis Inc, Alere Inc, Exact Sciences Corp, GenMark Diagnostics Inc, T2 Biosystems Inc, Quest Diagnostics Inc, Meridian Bioscience Inc, Quidel Corp, Vermillion Inc, IDEXX Laboratories Inc, Natera Inc, Laboratory Corp of America Holdings, Illumina Inc, OraSure Technologies Inc, HTG Molecular Diagnostics Inc, Hologic Inc, Genomic Health Inc, Synchrony Financial, SAP SE, Paychex Inc, Oracle Corp, Workday Inc, NetSuite Inc, Ultimate Software Group Inc/The, Baxter International Inc, DaVita Inc, Fresenius SE & Co KGaA, Cincinnati Financial Corp, Federal Realty Investment Trust, Parker-Hannifin Corp, Occidental Petroleum Corp, Prudential Financial Inc, Ball Corp, Norfolk Southern Corp, DISH Network Corp, Hasbro Inc, Pinnacle West Capital Corp, Macerich Co/The, Noble Energy Inc, AvalonBay Communities Inc, Clorox Co/The, Apache Corp, SCANA Corp, Western Union Co/The, Viacom Inc, Activision Blizzard Inc, Western Union Co/The, Microsoft Corp, Microchip Technology Inc, Motorola Solutions Inc, Electronic Arts Inc, PerkinElmer Inc, Kraft Heinz Co/The, Stericycle Inc, Fluor Corp, , Newell Brands Inc, CBOE Holdings Inc, Ameren Corp, Berkshire Hathaway Inc, DENTSPLY SIRONA Inc, Cigna Corp, Aon PLC, Fastenal Co, Cigna Corp, CBOE Holdings Inc, Newell Brands Inc, Aon PLC, Sempra Energy

dfd
 The CBA has been accused of 'serious and systemic' breaches of anti-money laundering and terrorism financing laws that could leave it exposed to massive civil penalties. Photo: Shutterstock

Local markets and commodities

  • The S&P/ASX 200 Index futures contract little changed; futures relative to estimated fair value suggest an early decline of 0.2%
  • Bank of New York Australia ADR Index -0.8%, BHP Billiton ADR -0.9% to A$25.66 equivalent, little changed from last Sydney close, Rio Tinto ADR +0.4% to A$58.09 equivalent, 9.5% discount to last Sydney close
  • Gold steadied on Thursday after nearing a seven-week high in the previous session as investors awaited US jobs data for further clues on the outlook for interest rate rises. Gold rallied through most of July as the dollar fell on reduced expectations for a third US rate rise this year. 
  • Inflation has been contained even though the labour market appears to be in its best shape in many years and despite double-digit US earnings growth in the second quarter. Reduced rate rise expectations tend to weaken the dollar, making dollar-priced gold cheaper for non-US investors. 
  • Spot gold was up 0.14% to $1,268.01/ounce after touching $1,258.20 earlier in the session, its lowest in almost a week. US gold futures for December delivery settled at $1,274.40/ounce. 
  • The dollar steadied above a 2-1/2-year low versus the euro hit in the previous session, but was still looking wobbly due to doubts about whether there will be another US interest rate rise this year. Gold stocks in Toronto were basically unchanged rising 0.05% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil skidded to its lowest level in more than a week as rising US production stirred worries of persistent brimming supplies. Futures settled 1.1% lower in New York, reversing an earlier creep toward $50/barrel during the session. 
  • While a decline in US inventories and a rise in gasoline demand helped prop up prices on Wednesday, production was at its highest since July 2015 and shale producers like EOG Resources boasting higher production targets in their earnings reports dampened sentiment. 
  • Adding to the concerns, Andy Hall, one of the most storied oil traders, is said to be closing down a fund. Oil climbed above the key $50/barrel-level this week for the first time since May as Saudi Arabia promises to trim exports this month. Even so, investors continue to evaluate whether more US shale oil will flood the market and suppress prices, while Opec and its allies work to curb production. 
  • West Texas Intermediate for September delivery dropped 56 cents to settle at $49.03/barrel on the New York Mercantile Exchange. Total volume traded was about 17% above the 100-day average. The contract advanced 43 cents to $49.59 on Wednesday. 
  • Brent for October settlement lost 35 cents to close at $52.01/barrel on the London-based ICE Futures Europe exchange, after advancing 58 cents on Wednesday. The global benchmark crude traded at a premium of $2.82 to October-delivery WTI, the largest premium since May. Brent futures for the nearest delivery traded at a discount of 1 cent to those for the following month. 
  • The spread traded in backwardation during the session. This pattern typically signals tighter supplies, while the opposite contango structure signals a glut. Andy Hall, the oil trader sometimes known in markets as “God,” is closing down his main hedge fund after big losses in the first half of the year, according to people with knowledge of the matter. 
  • The capitulation of one of the best-known figures in the commodities industry comes after muted oil prices wrong-footed traders from Goldman Sachs Group to BP's in-house trading unit. Hall’s flagship Astenbeck Master Commodities Fund II lost almost 30% through June, a separate person with knowledge of the matter said. 
  • Hall shot to fame during the global financial crisis when Citigroup revealed that, in a single year, he pocketed $100 million trading oil for the US bank. His career stretches back to the 1970s and includes stints at BP and legendary trading house Phibro Energy, where he was chief executive officer. 
  • A representative of Astenbeck Capital Management declined to comment. The Southport, Connecticut-based company managed $1.4 billion at the end of last year, according to a Securities and Exchange Commission filing. Hall is the latest high-profile commodity hedge-fund manager to succumb to the industry’s low volatility and lack of trending markets. 
  • At least 10 asset managers in natural resources have closed since 2012, including Clive Capital LLP and Centaurus Energy LP. Goldman Sachs reported its worst-ever result trading commodities in the second quarter. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Spot iron ore prices inched higher on the back of stronger steel prices in China. Spot iron ore rose 0.9% or $0.63 to close at $72.93. Vale, the world’s biggest producer of iron ore says the industry is enjoying a Goldilocks moment with prices generating a tidy profit but not enough to lure much new supply. 
  • “The market is in a sweet spot right now from $60 to $70,” Vale SA Chief Financial Officer Luciano Siani Pires told Bloomberg Television. “It is a price which does not incentivice too much swing capacity to come back and it’s a very profitable range for major mining companies.” 
  • Prices of the steel-making ingredient have see-sawed this year, rallying to $95 in February before tumbling to $53 in mid-June as glut fears resurfaced. Now they’re back above $70 after an up-tick in demand from Chinese steel mills. For Vale – even more so than its main rivals, Rio Tinto Group and BHP Billiton – the differences in price outlooks are a big deal. Each $1 drop in iron ore has a $350 million impact on the Brazilian company, the CFO said. That in turn affects its ability to bring down a whopping $22 billion debt load and return cash to shareholders. 
  • “We’re positive about China and we never shared the views that the country would collapse,” Siani Pires said. Spot ore with 62% content delivered to Qingdao was at $72.93/dry ton on Thursday, after hitting $73.70 earlier this week, the highest since April, according to Metal Bulletin. The raw material rose 13% in July after a 14% gain in June, paring this year’s drop. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Benchmark copper on the London Metal Exchange ended unchanged at $6352/tonne, close to Monday's two-year high of $6430 and up 14% since early June. LME nickel closed up 0.3% at $10,380/tonne in its 10th day of gains after touching a four-month high of $10,445 earlier in the session. 
  • Aluminium finished down 0.5% at $1916, zinc ended 0.3% lower at $2792, lead rose 0.6% to $2367 and tin closed up 0.3% at $20,650/tonne. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • AUD stalls as RBA rhetoric spikes
  • Australia slams brake on property investors, price boom cools
  • RBA fight against Aussie strength looks set to fail
  • Alacer Gold (AQG): Short-interest ratio rises 17% to eight days
  • BHP Billition (BHP), Rio Tinto (RIO), Fortescue (FMG): Top iron ore miners to boost Q3 exports by 3.6%, Bernstein says
  • Crown Resorts (CWN): FY results expected; NOTE: FY17 normalised profit est. A$367.1m (9 analysts)
  • Evolution Mining (EVN), Northern Star (NST): Cashed-up Australian goldminers set to take deal spree global
  • Oil Search (OSH): LNG expansion decision in PNG faces delay on election pause: RBC
  • Pepper Group (PEP): KKR considering offering equity in privatised group as part of takeover bid: AFR
  • Primary Health (PRY): May cut 100 staff in Philippines as it closes data entry support office: AFR
  • Red 5 (RED): Gold Fields sells Darlot Mine in Australia to Red 5 for A$18.5m
  • Tabcorp (TAH): FY results expected; NOTE: FY17 adj. net income est. A$177.5m (10 analysts)

Broker upgrades and downgrades

  • Australian Pharma (API): Raised to buy at Bell Potter
  • Webjet (WEB): Raised to add at Morgans Financial, PT A$13.50
  • Suncorp (SUN): Cut to underperform at APP Securities, PT A$13.94; Cut to neutral vs buy at Goldman Sachs

Australian earnings

  • Friday: Crown Resorts Ltd, Tabcorp Holdings Ltd

TLS and GDX

Yesterday Telstra (TLS) broke out of the bearish pennant and at the same time made a new low below July's low of $4.065. While this move signals further downside risk, we are tempted to buy if it approaches near the 2017 low of $4 in the anticipation of forming a double bottom and the AU 10-year yield is starting to look weak. The key focus is the earnings release in about two weeks.
 
Telstra monthly
1
Source: SaxoTrader
 
Market Vectors Gold Miners ETF (GDX) still trades under the downtrend (from its 2017 high) and at the same time is holding prices above the previous uptrend (from the 2016 low) near the declining 200 DMA. The interim resistance level sits at $23, which is expected to remain intact.
 
GDX monthly
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more  

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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