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06 September 2016 at 0:32 GMT
Today's Trade: ASX falls ahead of RBA rate decision
- ASX200 opened cautiously this morning; it was down 0.3% at the start
- European stocks nudged ahead to their highest level since April
- Iron ore was virtually flat, shedding $0.15 to $59.24
- RBA Governor Glenn Stevens hands down his final rate decision today
By Gayle Bryant
Overnight and early trading
The local market opened slightly lower this morning led by banks and miners. At the start, the ASX200 was down 0.3% at 5410, with the All Ords lower by the same amount at 5509. There was a 1% fall in CSL while the Aussie dollar was hovering a touch under US76¢. Energy and telecommunications were the two sectors posting modest gains.
RBA Governor Glenn Stevens will hand down his final rate decision today. Photo: iStock
- European stocks nudged ahead to their highest level since April as investors assessed the likelihood of central banks continuing to keep monetary policy accommodative. Energy stocks rose with crude as Russia and Saudi Arabia agreed to work together to stabilise the global oil market, although gains pared after they fell short of agreeing to a freeze on output.
- ArcelorMittal led miners higher as leaders of the Group of 20 major economies mentioned the global steel glut in their communique at a meeting in China. Hugo Boss helped drag retailers to the biggest drop on the Stoxx 600, retreating 2.2% after UBS Group recommended selling the shares because of risks to 2017 earnings.
- The Stoxx Europe 600 Index climbed 0.1% to 350.62 at the close, after earlier rising as much as 0.4%. On Friday, it jumped to its highest level since April after US data signalled the labour market is holding steady without advancing the case for an imminent rate increase. Investors will now look to this week’s European Central Bank meeting, after data showed the region’s economy lost momentum in August.
- Spain’s IBEX 35 Index advanced 0.5%, even as political wrangling over the formation of a new government intensified after opponents of caretaker Prime Minister Mariano Rajoy reiterated their refusal to back him for a second term.
- Germany’s Dax Index was little changed as investors ignored a defeat for Angela Merkel’s Christian Democrats in an election in her home state.
- Among stocks moving on corporate news today, SFR Group rose 6% after Patrick Drahi’s Altice agreed to buy the 22% of the company that it didn’t already own for €2.4 billion ($2.7 billion). Vonovia slid 2.2% after Goldman Sachs Group said the German company’s purchase of Austrian developer Conwert Immobilien Invest SE for about €1.7 billion would be negative for its shares.
Source: Bloomberg, TradingFloor.com
Key earnings
- Tuesday: Bannerman Resources Ltd, Buru Energy Ltd, Lucapa Diamond Co Ltd
- Thursday: Karoon Gas Australia Ltd, FAR Ltd, Intrepid Mines Ltd
- Friday: Altura Mining Ltd, Stavely Minerals Ltd, Rex Minerals Ltd
Local markets and commodities
- The S&P/ASX 200 Index futures -0.4%; futures relative to estimated fair value suggest an early decline of 0.4%.
- BHP Billiton LSE ADR +0.70%, Rio Tinto LSE ADR was unchanged
- Spot gold added marginal gains, rising $2.95 overnight. Gold steadied as holdings in bullion-backed funds rebounded from the largest two-day drop this year.
- Investors bought 0.6 tonne of the metal through exchange-traded funds as of Friday, when prices rose as weaker-than-expected US jobs data cut expectations that the Federal Reserve will raise interest rates this month. They sold 16.1 tonnes in the two days before that, the most since December.
- Gold had surged as much as 30% this year as the Fed refrained from further tightening and the UK’s Brexit vote boosted demand for a haven. The metal’s rally then lost momentum from mid-July as improving data bolstered expectations that US policymakers may soon raise borrowing costs.
- Prices closed at the highest since August 23 on Friday after data showed American hiring moderated more than forecast in August, while a Thursday report showed manufacturing unexpectedly contracted. Investors now own 2,017.2 tonnes of gold through ETFs and holdings are 1.1% below a three-year high set August 11. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil pared gains as talks between Russia and Saudi Arabia over ways to stabilise the crude market fell short of a freeze on output. West Texas Intermediate for October delivery gained 73 cents to $45.17/barrel on the New York Mercantile Exchange before trading was halted at 1300. There was no settlement on Monday because of the Labor Day holiday. The contract rose $1.28 to $44.44 on Friday, the biggest gain since August 18.
- Brent for November settlement rose 80 cents to settle at $47.63/barrel on the London-based ICE Futures Europe exchange. The contract added 3% to $46.83/barrel on Friday. The global benchmark crude traded at a $1.84 premium to November WTI.
- WTI futures rose as much as 4.7% before what was flagged as a “significant” announcement by Saudi Arabia’s Energy Minister Khalid Al-Falih at the G-20 summit in China. While there’s no need to freeze production now, Al-Falih said he was optimistic a meeting later this month between producers in Algiers would lead to an agreement. His Russian counterpart, Alexander Novak, said the two nations were seeking ways to ease oil market volatility.
- While Russia and Saudi Arabia agree that Iran should be allowed to reach its pre-sanctions output, they have different views on whether the nation has already attained this level, Novak said Monday. Opec Secretary-General Mohammed Barkindo welcomed the joint statement by the Saudi and Russian energy ministers and urged other producers to support it. Saudi Arabia led Opec's decision in 2014 not to cut output amid a global glut in order to protect market share and force out higher-cost producers.
- The group’s production rose to a record 33.69 million barrels/day in August, just under a third of global demand, a Bloomberg survey showed last week. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore was virtually flat, shedding $0.15 to $59.24. In an interview by on Friday, BHP's vice president of market analysis and economics Huw McKay signalled that it expects iron ore prices to begin retreating as "well-telegraphed" new supply hits the market from Australia and Brazil. McKay stated that "Some of that supply is late, but we have every confidence it will arrive," and that "We do expect it will weigh on price from where we are, and we'll be closer to the middle of the range that we think about, rather at the top of the range, which is where the price is now”.
- The remarks by BHP add to a chorus of banks calling time on an unexpected rally after prices soared in 2016 to trade around $60/tonne over the last month after three years of declines. Citigroup and Morgan Stanley have flagged iron ore weakening toward the end of the year as more supply is shipped, with Westpac Banking Corp predicting a slump below last year's low of $38.30. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Lead rose for a seventh day to a 15-month high as world leaders discussed economic growth at a summit in Hangzhou, China. Other industrial metals traded mixed as US markets were closed for a holiday. Lead for delivery in three months climbed as much as 1.7% to $1,975/tonne, the highest since May 29, 2015, and was at $1,969.50 on the LME.
- Prices rose 3.6% last week, narrowing a discount to the LME’s top-performing metal zinc. Tin reached the highest since January 2015. Copper was little changed at $4,626/ton as inventories in warehouses tracked by the LME expanded for a 10th day to the highest since September 2015, while a strike at Codelco’s Salvador mine in Chile started Monday with operations suspended.
- Nickel rose 0.1% to $10,070/ton. Shipments of nickel ore from the Philippines may shrink as much as 30% this year as the country cracks down on errant miners and after some companies cut output in the first half due to weak prices and poor weather, a top local producer said. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Trades ex-dividend: Amcor (AMC), Bendigo & Adelaide Bank (BEN), Blackmores (BKL), Insurance Australia (IAG), Medibank Private (MPL), Monash IVF (MVF), oil Search (OSH), Ramsay Health (RHC), Servcorp (SRV)
- AMP (AMP): China will be a "material contributor" to results in a few years as pension market opens up: AFR
- JB Hi-Fi (JBH): Said to pay $A850mln-$A900mln for Good Guys, partially funded by capital raising: AFR
- Metals X (MLX): Received applications for $A17.45mln of shares
- Qube (QUB): Simon Moore resigns as director
- Woodside (WPL): Eyes LNG boost after $400mln gas deal with BHP
Broker upgrades and downgrades
- Altium (ALU): Cut to sell vs buy at UBS
- Cover-More (CVO): Cut to neutral vs buy at UBS
- CYBG (CYB): Cut to hold from buy at Bell Potter
- GBST (GBT): Raised to buy vs neutral at UBS
- Sandfire Resources (SFR): Raised to buy vs neutral at UBS
- Silver Lake (SLR): Raised to buy vs sell at UBS
- Star Entertainment (SGR): Raised to outperform from neutral at Credit Suisse
Stock to watch: Northern Star Resources (NST.xasx)
After trading through the 50% head and shoulder extension which coincided with our first profit target, Northern Star Resources (NST.xasx) has recently found support off its 200DMA and is currently enjoying a retracement. (See original trade set up: sell stop below $4.95: Banks hit but ASX floats on oil. We regard the recents gains over NST.xasx to be temporary and see added shorting opportunities upon a test of $4.40 which happens to be mid-June lows. The final target over NST.xasx for our short position remains at $3.37 – the 100% head and shoulder extension level.
Northern Star Resources monthly
Source: Saxo Bank
AUS200.i and AUDUSD
We are seeing a dead cat bounce from the big four banks, which pushed the AUS200 above 5,400. The overnight price actions were subdued due to the Labor Day holiday in the US, but we expect trading volumes to pick up today. Both the Hang Seng and Nikkei seem to have made a critical breakout yesterday so the sentiment will remain positive in the Asia session. The previous double bottom 5,454 should be an interim resistance level.
AUS200 monthly
Source: Saxo Bank
The huge focus for AUDUSD today is the Reserve Bank of Australia's rate decision at 1430 AEST, marking Glenn Stevens’ 109th and final meeting as governor. It is highly unlikely we will see a rate cut and furthermore RBA has only twice moved rates in September in the past two decades. The US dollar index (DX) looks strong and will probably continue to strengthen in the near term as the 150,000 nonfarm payroll number seemed to be regarded sufficient for this month’s US rate hike possibility.
Previously AUDUSD has rallied on the back of the weak CPI and rate cut, therefore the downside risk is expected to be limited although we would fade any sharp rally up to the resistance level 77 handle.
AUDUSD monthly
Source: Saxo Bank. 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 our daily morning call on Periscope at 0945: #SaxoAPAC and follow us on Twitter at twitter.com/SaxoAustralia.
Watch the recording of this Week’s Macro Monday Call here.