- The ASX200 was slightly higher in early trade, mirroring Wall St
- Woodside is in a trading halt after flagging a capital raising
- Investors remain on edge ahead of a key US report on inflation
- The AUD was trading at US78.56¢ early Wednesday
By Saxo Capital Markets (Australia)
- Stocks in Asia headed for a mixed start as a stronger yen looks set to weigh on Tokyo equity trading, where a rally Tuesday fizzled. US stocks rose while the dollar fell with Treasury yields as investors await the keenly watched inflation report.
- Futures on stocks in Japan pointed slightly lower, while contracts on Hong Kong and Australian equities climbed.
- Major US stock indices rose slightly Tuesday, gaining for a third consecutive session, though investors remained on edge ahead of a key report on inflation.
- The Dow Jones Industrial Average fell 180 points earlier in the session before recovering those losses to eke out a slight gain. Despite the intraday swing, investors appeared to avoid making any drastic trades ahead of Wednesday’s Bureau of Labor Statistics report on consumer prices.
- Further evidence of inflation will likely prolong the market selloff, similar to how strong wage growth in January pressured US bonds ahead of last week’s correction.
- The Dow industrials rose 39.18 points, or 0.2%, to 24,640.45, while the S&P 500 added 6.94 points, or 0.3%, to 2,662.94. The Nasdaq Composite climbed 31.55 points, or 0.5%, to 7,013.51.
- Despite the gains in recent sessions, the S&P 500 and the Dow remain on pace for their worst month since August 2015, while the Nasdaq faces its biggest monthly decline since January 2016. The indexes are off about 7% from their January 26 highs.
- Base metals rallied for a second day as a slump in the dollar encouraged investors to wade back into commodities after last week’s rout. Copper rallied as much as 2.5% to $3.164/pound on the Comex in New York as the dollar dropped for a third day, making assets denominated in the greenback cheaper for buyers using other currencies
- In Europe, the Stoxx Europe 600 declined 0.6%.
Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
US inflation outlook (Christopher Dembik, head of macro analysis at Saxo Bank)
- US inflation is currently close to target by most measures. PCE, which is the Federal Reserve’s preferred inflation measure, is running at an annual rate of 2%. We also notice upward trend for Cleveland 16% Trimmed-mean CPI, Dallas Trimmed-mean CPI and Core PCE.
- See Christopher Dembik's article here: US inflation is no game changer, but worth a closer look – #SaxoStrats.
- However, as we remember, in early 2017, inflation went up significantly due to base effect before vanishing the rest of the year. We will probably need to gather more data about Q1 to know exactly if the market is right to worry about inflation.
- What we really need to watch tonight is the impact of oil prices on gasoline prices.
- So far, consumers haven’t seemed too concerned about rising inflation. Inflation expectations measured by the University of Michigan are quite stable (around 2.5% in January) but US break even inflation rate (5-10yr forward) has moved up quite significantly over the past three months (currently at 2.1%), which is the highest level since June 2015. This is certainly some kind of adjustment but it does not mean that inflation will become an issue in coming months.
- There has been lately a strong focus on higher wage rates in the USA. Actually, the surge observed in the last data partially reflects the impact related to the reduction of hours worked due to bad weather. In fact, wage growth is lower than before the GFC in the USA, but also in most of the developed countries (except in Germany).
- Yes, inflation is slowly coming back. In the G-7 countries, as you can see below, mean is at 1.7% but it is slightly lower than in February 2017 (1.8%). Inflation is not a game-changer for the market and inflation will certainly remain low compared to previous periods due to structural factors that SaxoStrats often mention (such as ageing, new technologies etc).
- Wednesday: Cisco Systems, Applied Materials, Credit Suisse, Dr. Pepper Snapple, Groupon, TripAdvisor, Marriott, Cedar Fair, Wyndham Worldwide, Agilent, NetApp, Kinross Gold, SunPower, Williams Cos, Waste Connections
- Thursday: CBS, Zoetis, Con Ed, Andeavor, Shake Shack, TrueCar, Nestle, Encana, Waste Management, TransCanada, TreeHouse, Yamana Gold, Allscripts Healthcare, Cognex, Avon Products, Brookfield Asset Management
- Friday: Coca-Cola, Kraft Heinz, Campbell Soup, Deere, Och-Ziff Capital Management, Ryder System, Vulcan Materials, VF Corp, JM Smuckers
Investors remain on edge ahead of a key US report on inflation later today. Photo: Shutterstock
Local markets and commodities
- Bank of New York Australia ADR Index is up 1.1% to 284.3, BHP Billiton ADRs are up 2.0% to A$30.38 equivalent, a 1.6% premium to last Sydney close, Rio Tinto ADRs are up 1.1% to A$70.99 equivalent, a 10.0% discount to last Sydney close
- Australia’s banks won’t have to raise further capital overall to reach the regulator’s “unquestionably strong” benchmark, the Australian Prudential Regulation Authority said on Wednesday. However the amount of money lenders have to set aside against riskier mortgages – such as interest-only and investment mortgages – may rise, the regulator said in a consultation paper.
- Gold rose for a second day on Tuesday as the dollar slipped in the face of a recovery in global equities, which dampened appetite for the US currency as a safe store of value. A retreat in the dollar, in which the precious metal is priced, has helped gold to pull back nearly 2% from last week's one-month low of $1,306.81/ounce.
- Spot gold was up 0.36% at $1,327.62, while US gold futures for April delivery were 0.26% higher at $1,329.80. Gold stocks in Toronto dipped slightly overnight shedding 0.46%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Crude eased its losses as robust worldwide demand helped an Opec-led effort to snuff out excess inventories, calming fears of a new shale-driven glut. Futures ended Tuesday’s session down 0.2% in New York after earlier dropping as much as 1.5%.
- Crude inventories in the world’s strongest economies dwindled by the most in six years in December, even as American shale drillers pumped more oil onto world markets, according to the International Energy Agency.
- Meanwhile, traders turned their attention to a post-settlement stockpiles report that could provide more evidence about supply trends. Opec posted record compliance with self-imposed production limits last month amid aggressive drilling by American shale explorers. In a report released on Tuesday, the Paris-based IEA predicted America may unseat Russia as the world’s top crude producer by the end of this year, echoing a similar forecast by US government analysts.
- Meanwhile, Iraqi Oil Minister Jabbar al-Luaibi said Tuesday that the cartel will discuss in December whether to extend their supply accord into a third year and there has been no talks about ending the cuts.
- West Texas Intermediate crude for March delivery slipped 10 cents to settle at $59.19/barrel on the New York Mercantile Exchange, the lowest level in more than seven weeks. Brent for April settlement rose 13 cents to end the session at $62.72 on the London-based ICE Futures Europe exchange.
- The global benchmark traded at a $3.69 premium to April WTI. Meanwhile, in the US, crude stockpiles probably climbed by 3.05 million barrels last week, according to a Bloomberg survey. In Cushing, Oklahoma, home to the biggest American pipeline hub, crude inventories probably decreased by 1.7 million barrels last week, according to a forecast compiled by Bloomberg. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- Iron ore futures found some support amid a pre-holiday lull in the physical market. However, with the market closing for the Spring Festival, volumes in the futures market were also low. Reports of US imposing tariffs on steel imports failed to rattle the market. US President Donald Trump reiterated his support for protectionist measures, suggesting tariffs on steel and aluminium are still an option for the US. Spot iron ore was unchanged closing at $75.56. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- In London, copper climbed 2.3% to $6987/tonne. Late last year it hit a four-year high above $7300/tonne. Tin prices rose towards recent one-year peaks. Benchmark tin on the London Metal Exchange closed up 1.9% at $21,500/tonne. Earlier, prices of the semiconductor metal touched a session high at $21,475 and late last month they touched $22,000, the highest since February 2017.
- Zinc ended up 2.6% at $3469/tonne, lead rose 1.8% to $2561, nickel added 2.7% to $13,450 and aluminium gained 0.7% to $2139 a tonne. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Companies trading ex-dividend today: Commonwealth Bank (accounting for 13.13 index points), Milton Corp.
- Dividend index points for the month of February: 39.797 points with 39 companies going ex–div. March: 35 points with 84 companies going ex-div.
- In reporting: CSL Ltd (CSL) Expects FY18 net ~$1.55b-$1.6b at constant FX vs prev. target $1.48b-$1.55b. Expects solid ongoing demand for Behring biotherapies; sees strong patient uptake of Haegarda. Uneven profit profile seen amid timing of flu season and expenses. Note: FY18 adj. net income est. $1.586b (10 analysts). 1H net $1.1b, up 35% y/y. Net at constant FX $1.1b, up 31% y/y. Ebit $1.476b, up31% at constant FX. Rev. $4.1b, up 13% y/y. Rev at constant FX $3.9b, up 11% y/y. Behring rev. $3.4b, up 8% in constant FX terms. Seqirus $791m, up 26% in constant FX terms. Interim div. $0.79; BDVD est. $0.72
- Orora Ltd (ORA) Still expects FY18 earnings higher than FY17 in constant currency terms amid organic growth, innovation investment. General economic, manufacturing market conditions across Australasia, North America remain flat. 1H net A$103.8m, up 13% y/y. EPS ex-items A$0.088, up 15% y/y. Ebit A$A165.3m, up ~11% y/y. Australasia A$121.1m, up 11%. North America A$60.3m, up 9.4%. Rev. A$2.1b, up 6.2% y/y. Operating cash flow A$155.9m, down 1% y/y. Interim div. A$0.06; BDVD est. A$0.06
- Insurance Australia Group Ltd (IAG) Sees FY reported margin 15.5%-17.5%; Saw FY18 reported margin 12.5%-14.5%. Margin lift from positive revision to expected reserve release and credit spreads. Affirms low single digit GWP increase; Saw “low single digit”. GWP increase amid “modest” underlying insurance growth. 1H GWP A$5.83b vs A$5.8b y/y from rate increases in commercial and consumer, volume growth in motor. Underlying insurance margin 12.6%, flat y/y. Margins helped by net. natural peril claims costs below allowance in half; higher favorable credit spreads and larger than anticipated reserve releases. 1H NPAT A$551 vs A$446m y/y. 1H investment income A$138m; 2H17 A$144m, 1H17 A$105m; Interim div. A$0.14; BDVD est. A$0.145
- Woodside Petroleum Ltd (WPL) announced a A$2.5 billion ($2 billion) capital raising to fund the purchase of ExxonMobil Corp.’s interest in the Scarborough gas field off Western Australia. The Perth-based energy producer has asked for trading in its shares to be paused until it announces the outcome of the institutional component of the raising. WPL reported this morning, increased NPAT by 18%, generated free cash flow of $832 million. Net income $1.02b, Est $1.04b.
- Goodman Group (GMG) reported statutory profit for the first half of A$542.7 million. Interim dividend per share A$0.1375. Upgrades FY18 Operating EPS Guidance to 46.5 Australian cents. Goodman 1H Operating EPS 23.3 Australian cents. Goodman sees FY18 distribution of 28.0 Australian cents/unit per security
- Aveo Group (AOG) says Q1 deposits taken were "significantly lower" vs pcp; Q3 now tracking to date with pcp. Deposits on hand A$61m at Dec. 31 2017, down 67% vs pcp. FY18 results expected to be toward higher end of guidance range due to sales of additional Freedom conversion minor development units; NOTE: Had seen A$0.204; est. $A0.202 (6 analysts). Established business unit FY performance seen at lower end of guidance range. 1H net A$149.3m, up 23% y/y. 1H underlying profit A$36.3m, down 33% y/y. Total retirement sales 463 units, down 25% y/y. Still sees FY18 distribution in range of 40%-60% of underlying profit
- Computershare Ltd (CPU) reported net income for the first half of $171.2 million. 1H interim dividend per share A$0.19. 1H revenue from continuing operations $1.12 billion
- 3P Learning (3PL AU): Non-Deal Roadshow Scheduled By Morgans for Feb. 21
- Ainsworth Game (AGI AU): Ainsworth Game Upgraded to Buy at Baillieu Holst; PT A$2.45
- BHP (BHP AU): Expects $1.8b Income Tax Expense Due to U.S. Reforms
- Charter Hall (CHC AU): Steinhoff APAC Distribution Hubs Are Said to Draw Interest: AFR
- Corporate Travel (CTD AU): Non-Deal Roadshow Set By Morgans for Feb. 21
- CSL (CSL AU): 1H Results Expected
- Macquarie Group (MQG AU): TDC Deal Financing Won’t Add to Debt Load
- Medibank Private (MPL AU), NIB Holdings (NHF AU): Australians With Private Hospital Cover Drop to Lowest in Seven Years: SMH
- Pilbara Minerals (PLS AU): CEO Says South Korea Racing to Secure New Lithium Deals
- Transurban (TCL AU): WestConnex Not a ’Must Have’ Asset: SMH
- Vimy Resources (VMY AU): Roadshow Scheduled By Morgans for Feb. 14
- Wellcom (WLL AU): Non-Deal Roadshow Scheduled By Morgans for Feb. 21
Broker upgrades and downgrades
- Boral (BLD AU): Downgraded to Neutral at Credit Suisse; PT A$7.70
- Cochlear (COH AU): Upgraded to Hold at Morgans Financial; PT A$153.60
- Domino’s Pizza Enterprises (DMP AU): Downgraded to Hold at Morningstar
- Myer (MYR AU): Upgraded to Buy at Morningstar
- Praemium (PPS AU): Downgraded to Hold at Wilsons; PT A$0.61
- Wednesday: Aveo, Computershare, CSL, Domino's Pizza, Dexus, Goodman Group, Orora, Woodside
- Thursday: ASX, Evolution Mining, Healthscope, IOOF, Newcrest, Sonic, Suncorp, Telstra, Treasury Wine Estates, Vocus
- Friday: IAG, Medibank Private, Origin, Primary Healthcare, Whitehaven Coal
Stock to watch: Newcrest Mining (NCM)
Gold was one of the best-performing sectors out of the materials along with copper. Six out of seven major goldminers lifted higher yesterday and price actions of Newcrest Mining (NCM) look the most interesting.
It is very rare to see a candlestick like yesterday as NCM formed a Marubozu where the open is the intraday low and the high is the intraday high without wicks on either side. This pattern signals bullish moves although we see two downside risks in the near term.
One would be retest of the long-term triangle at 22.50 and another could be tomorrow's reactions to the earnings release. Our overall bias is still bullish as gold (XAUUSD) continues to retain its resilience.
The US dollar index (DX) appears to still be under selling pressure however the Hong Kong dollar has been one of the few currencies that struggled against the US dollar. USDHKD is still pegged to the US dollar but it is now hovering near the lower limit of 7.85. USDHKD is expected to maintain strength near 7.825 with potential scope for further upside moves towards 7.85.
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more
Today's data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Gayle Bryant
Saxo Capital Markets (Australia) Pty Ltd | A part of Saxo Bank Group
ABN 32 110 128 286 | AFSL 280372
Level 25, 2 Park Street SYDNEY NSW 2000
Phone: +61 (2) 8267 9000 | Fax: +61 (2) 8267 9050
Please visit our website at: http://www.saxomarkets.com.au
The daily outlook is brought to you by Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286, AFSL 280372 (Saxo Capital Markets), in association with TradingFloor.com which is the property of Saxo Bank A/S, the parent company of Saxo Capital Markets. TradingFloor.com is a social trading facility offering clients of Saxo Bank Group access to in-depth market news, commentary, analysis and much more.
The content of the daily outlook should not be considered as a ‘personal’ or specific investment advice catered for your specific need, objectives or financial situation, or be construed as an express or implied promise, guarantee or implication by Saxo Capital Markets that clients will profit from the strategies expressed or that losses in connection therewith can or will be limited.
None of the information contained in the daily outlook constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy. Saxo Capital Markets; TradingFloor.com shall not be responsible for any loss arising from any investment based on any forecast or other information contained in the daily outlook. Past performance is not a reliable indicator of future performance. Information contained in this daily outlook may have previously been distributed to; and acted upon; by other clients and persons who have shown interest in Saxo Capital Markets, as well as internal affiliates/employees of Saxo Capital Markets. Any trade ideas or positions contained herein relating to products or services offered by Saxo Capital Markets may be inconsistent to trades/positions entered into by Saxo Capital Markets and/or its affiliates. Further, any information contained may consist of opinions and views of the ‘Sales Trading Desk’ as a team, however does not reflect the ‘specific’ opinion of Saxo Capital Markets.
Trades in accordance with the information contained in the daily outlook, especially, but not limited to, leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the daily outlook do not occur as anticipated. Prior to making any investment or entering into any transaction, you should carefully consider your financial situation and consult your independent financial expert in order to understand the risks involved and ensure the suitability for you of any investment or transaction decision you enter. Any information or opinions in this material are not intended for distribution to, or use by, any person in any jurisdiction or country where such distribution or use would be unlawful. Please refer to our Combined Financial Services Guide & Product Disclosure Statement available via www.saxomarkets.com.au. Please also consider whether acquiring or continuing to hold financial products is suitable for you, prior to trading and investing.
If you would like to unsubscribe from the Daily Outlook, please reply ‘Opt Out’ to this email with your Client ID.
SAXO CAPITAL MARKETS (AUSTRALIA) PTY LTD
LEVEL 25, 2 PARK STREET SYDNEY NSW 2000 AUSTRALIA