Article / 23 August 2016 at 0:37 GMT

Today's Trade: ASX edges up despite hit to mining services

Trading Desk / Saxo Capital Markets
  • Local markets opened slightly higher although mining services companies hit
  • Most currencies fell against the greenback on comments from Fed speakers
  • Oil slumped as Iraq sought to increase exports amid a global oversupply 
  • Gold prices closed at their lowest level in a week 

By Saxo Capital Markets (Australia)

Local markets edged higher at the start, led by the big banks. The ASX200 was up 0.3% to 5530 while the All Ords was up 0.2% to 5625. It's another busy day for earnings and mining services companies will come under pressure after Monadelphous' results disappointed.

Under pressure ... mining companies are likely to be hit in a
 busy earnings day today. Photo: iStock 

Traders pushed up the dollar, while sending stocks and commodities down as comments from a Federal Reserve official bolstered speculation that US borrowing costs will rise this year. Most major currencies fell against the greenback after Fed Vice Chairman Stanley Fischer said the world’s largest economy is close to meeting the central bank’s goals and that growth will pick up. While he gave no indication on the timing of a rate hike, his remarks echoed signals from officials last week indicating the market is underestimating the likelihood of tightening. 

The "Fed speak" initially sent Treasuries slumping, a move that didn’t last long as a slide in commodities drove investors into haven assets. Energy shares dragged down the S&P 500 Index after oil halted its longest gain in four years.

Global markets have been whipsawed by comments from regional Fed presidents including William Dudley and John Williams that indicated US borrowing costs may rise as early as next month. Their remarks set the stage for Chair Janet Yellen, who speaks Friday at an annual symposium hosted by the Kansas City Fed in Jackson Hole, Wyoming. Futures prices indicate about a 52% chance the central bank will increase rates this year, up from a 45% probability a week ago, according to data compiled by Bloomberg.

The S&P 500 Index fell 0.1% after rising to a record high last week. Marathon Oil sank after announcing the departure of its chief financial officer. Medivation jumped 20% after Pfizer agreed to buy the company for about $14 billion. Intersil also surged after a person familiar with the matter said the chipmaker is in talks to be acquired by Japan’s Renesas Electronics for about $3 billion. 

A rally that has brought equities to a series of record highs since early July lost momentum as investors mulled extended valuations, scepticism over a recovery in corporate profits and mixed signals from policymakers over the timing for higher rates.

The slide in commodity producers also weighed on European equities, which pared gains to 0.1%. Heavyweight Syngenta jumped 11% as China National Chemical received approval from US national security officials for its $43 billion takeover of the Swiss chemical company. 

The MSCI Emerging Markets Index fell 0.7%. Brazil’s Ibovespa dropped the most among the world’s biggest stock markets. Shares in Shanghai had the largest decline in three weeks.
Any potential US rate increase would buck the trend of monetary easing by central banks in developed markets. 

Bank of Japan Governor Haruhiko Kuroda told the Sankei newspaper that there is “sufficient chance” the BoJ will add to its unprecedented easing at next month’s policy meeting and that “technically” there is room for deeper negative rates. The European Central Bank meanwhile is also weighing whether to increase its stimulus package in the wake of the UK’s vote to leave the European Union.

Most emerging-market currencies fell, led by Russia’s rouble. Turkey’s lira slumped after Fitch Ratings cut the outlook on the nation’s debt as a failed coup attempt last month increased the political risks in the country.

Benchmark Treasury yields declined across maturities, after initially rising as Fischer indicated that an interest-rate increase by year-end was still under consideration. Yet he also questioned whether the Fed had the power to stimulate worker output, asking whether the economy is “doomed to slow productivity growth for the foreseeable future.” 

The shift in how bond traders interpreted the remarks highlights the challenge of parsing Fed officials’ comments. Policymakers have signalled time and time again that they want to raise interest rates, yet they remain on hold after liftoff eight months ago.

The US 10-year note yield dropped four basis points, or 0.04 of a percentage point, to 1.54%, according to Bloomberg Bond Trader data. Two-year note yields fell one basis point to 0.74% after earlier reaching the highest since June 23 – the day Britain voted to leave the European Union, and before the result of that referendum sparked a buying spree in the safest government debt. Benchmark German 10-year bunds advanced on Monday with their euro-area counterparts, after sliding last week.

Oil slumped as Iraq sought to increase exports amid a global oversupply and Nigerian militants called an end to hostilities. West Texas Intermediate for September delivery, which expires Monday, slid 3% to settle at $47.05/barrel on the New York Mercantile Exchange.

Oil entered a bull market last week, having climbed more than 20% since sliding below $40/barrel earlier in August. Speculation that informal talks with members of the Organisation of Petroleum Exporting Countries in September may lead to action to stabilise the oil market helped push prices higher, even though a previous meeting in Doha in April between the world’s biggest producers ended with no agreement. 

Gold futures for December delivery slid 0.2% to settle at $1,343.40/ounce on Comex in New York, a third decline in four sessions. Silver futures for September delivery fell to a seven-week low.

Source: Bloomberg,

Key earnings

  • Global: Bank of Montreal, Best Buy, Toll Brothers, J.M. Smucker, Intuit, Trina Solar
  • AU: Caltex, Oil Search, Scentre Group and Healthscope

  • Global: HP, Royal Bank of Canada, Guess, Express, WPP Group, Heico, Williams-Sonoma, Workday
  • AU: Wesfarmers, Boral and Westfield

  • Global: Toronto-Dominion Bank, Canadian Imperial Bank, Tiffany, Movado, Burlington Stores, Dollar General, Dollar Tree, Michaels Cos, Autodesk, GameStop, Pure Storage, Splunk
  • AU: Woolworths, Amcor, Perpetual and South32

  • Global: Big Lots
  • AU: Harvey Norman and Coca-Cola Amatil

Local markets

  • The S&P/ASX 200 Index futures little changed; futures relative to estimated fair value suggest an early gain of 0.3%
  • Bank of New York Australia ADR Index down 0.3%, BHP Billiton ADR minus 0.9% to $A20.73 equivalent, 1% discount to last Sydney close, Rio Tinto ADR down 1.4% to $A41.41 equivalent, around 16% discount to last Sydney close
  • Gold prices closed at their lowest level in a week on Monday, under pressure from a stronger dollar and rising expectations for an interest-rate increase this year. Gold for December delivery settled down 0.2% at $1,343.40 a troy ounce on Comex, and fell as low as $1,339.30 earlier in the session. 
  • The US dollar strengthened following a speech on Sunday by Federal Reserve Vice Chairman Stanley Fischer that analysts say struck a hawkish tone on the state of the country’s short-term economy, despite raising concerns about its long-term health. Gold has been influenced by remarks from Fed officials as traders gauge the likelihood of a rate increase by the end of the year. 
  • The market is also looking ahead to Friday, when Federal Reserve Chair Janet Yellen is scheduled to speak at a monetary-policy conference in Jackson Hole. Goldies in Toronto lost 0.78% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil held its biggest loss in three weeks on concern that increased Iraqi exports will compound a global oversupply of crude. Oil entered a bull market last week, having climbed more than 20% since sliding below $40/barrel earlier in August. Speculation that informal talks with members of Opec in September may lead to action to stabilise the oil market helped push prices higher, even though a previous meeting in Doha in April between the world’s biggest producers ended with no agreement. 
  • Brent for October settlement slipped $1.72, or 3.4%, to settle at $49.16/barrel on the London-based ICE Futures Europe exchange, while WTI crude futures dropped over 3% at its US close. Energy was the weakest sector in the S&P500 overnight, down 0.88%. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore was largely unchanged, adding 0.28 to 61.23 as stockpiles across ports in China fell 1.52m from a week ago to 96.8mt, according to Monday data from researcher Antaike Information Development. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Rio Tinto (RIO): To close Bunder diamond project in India to cut costs; preferred over BHP at Deutsche Bank on growth, debt burden
  • Benchmark copper on the London Metal Exchange ended down 1% to $4748.5/tonne. The metal used in power and construction hit $4735 earlier, its lowest since July 11. Three-month zinc closed down 0.3% at $2280/tonne. But prices of the metal used to galvanise steel are up nearly 60% since January lows on escalating concern about mine supplies.
  • Aluminium ended unchanged at $1667/tonne, lead slipped 1.6% to $1854, nickel was bid 0.9% lower at $10,260 and tin was flat at $18,540. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • A2 Milk (A2M): Synlait, A2 reaffirm infant formula supply arrangements
  • Aconex (ACX): Scheduled to release FY results; NOTE: Adj. net income est. $A9.5mln (7 analysts)
  • Bell Financial (BFG), REA Group (REA) & Regis Resources (RRL): Trades ex-div.
  • Caltex (CTX): Scheduled to release 1H results; NOTE: Co. in June forecast 1H RCOP pre-items $A245mln-$A260mln
  • Charter Hall (CHC): Scheduled to release FY results; NOTE: FFO/shr est. $A0.302 (4 analysts)
  • CSL (CSL): Healthcare stocks see biggest EPS est. cuts in Asia in Q2 season: CS
  • Fortescue (FMG): Continuing to review refinancing options, CFO Pearce says
  • Greencross (GXL): Scheduled to release FY results; NOTE: Adj. net income est. $A42.3mln (6 analysts)
  • Healthscope (HSO): Scheduled to release FY results; NOTE: Adj. net income est. $A192.2m (11 analysts)
  • Monadelphous Group (MND): Scheduled to release FY results; NOTE: Adj. net income est. $A69.9m (10 analysts)
  • National Storage REIT (NSR): Scheduled to release FY results; NOTE: FFO/shr est. $A0.088 (3 analysts)
  • Oil Search (OSH): Scheduled to release 1H results; NOTE: 2- analyst rev. est. $A581.5mln
  • Origin Energy (ORG): Sale of Stockyard Hill windfarm likely to Chinese suitor: Australian
  • Scentre Group (SCG): Scheduled to release 1H results; NOTE: Adj. EPS $A0.112 (2 analysts)
  • Virtus (VRT): Scheduled to release FY results; NOTE: Adj. net income est. $A33.9mln (6 analysts)
  • Vocus (VOC): Scheduled to release FY results; NOTE: Adj. net income est. $A96mln (8 analysts)

Broker upgrades and downgrades

  • Fortescue (FMG): Cut to underperform vs neutral at Credit Suisse
  • Spark Infrastructure (SKI): Cut to neutral vs outperform at Credit Suisse
  • Primary Health (PRY): Cut to underweight vs equalweight at Morgan Stanley
  • NIB Holdings (NHF): Cut to underperform vs neutral at Credit Suisse
  • Infigen (IFN): Raised to buy vs hold at Canaccord Genuity
  • Insurance Australia (IAG): Cut to sell vs hold at Shaw & Partners
  • Japara (JHC): Cut to underweight vs equalweight at Morgan Stanley

Stock to watch: Caltex (CTX.xasx) 

Caltex has enjoyed a decent rally following its lows printed in June and most recently is struggling to punch through its 50% retracement level between this year's highs to lows. CTX.xasx is currently hovering just below a critical area as marked on the chart. 

CTX.xasx is also caught within a channel and the stock looks to retrace lower to retest the lower trendline of the channel. A break higher above 35 could see CTX.xasx retrace higher to 35.70, its 61.8% retracement level however given the most recent rejection, this is an unlikely scenario.
Caltex monthly
Source: Saxo Trader
US30.i and XAGUSD

Both US500 and AUS200 continue to trade sideways without clear trends, however we are seeing marginal weakness in US30 as it had been making lower highs and lower lows in the last three trading sessions.  

The short-term uptrend (from July low) is already broken and a double top seems to have formed at 18,650, although it went as high as 18,669 last Monday. Furthermore there is a divergence between the price of US30 and the declining RSI, which is an indication of fading upside momentum.
US30 monthly
Source: Saxo Trader
Silver (XAGUSD) was smacked down yesterday morning below the key support level 19.20 as the US dollar regained strength and the precious metals are expected to remain under further selling pressure. The RSI is indicating the momentum is falling rapidly and it is approaching an oversold level 30. The key support level would be 18 and the resistance level now becomes 19.20.
Silver monthly
Source: Saxo Trader. Create your own charts with SaxoTrader; click here to learn more 

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

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call here.


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