Today's Trade: ASX hovers in the red
- Markets to digest Yellen's speech later tonight at the Jackson Hole gathering
- Markets suffers few swings, which is surprising given the reporting season
- ASX/S&P 200 has been trading between 5,505 and 5,565 for 15 straight days
- Overseas, traders pushed down US stocks, bonds and the dollar
By Saxo Capital Markets Australia
Aussie shares this morning are looking at another red session following on from yesterday as traders take on a negative lead from offshore and cautiously await the Federal Reserve's Janet Yellen, who is speaking tonight AEDT.
The benchmark S&P/ASX 200 index weakened 23.8 points, or 0.43% in the first 15 minutes of trading.
Beverages giant Coca-Cola Amatil, fell 2.7%, Mayne Pharma rose 4% on a bumper profit result and Cabcharge was hit 3% on a 45% reduction in annual earnings.
Overnight, traders pushed down US stocks, bonds and the dollar before a speech by Federal Reserve chair Janet Yellen that may provide clues as to the path for interest rates in the world’s largest economy.
Treasury yields rose as a sale of seven year notes drew the weakest demand since February, while drugmakers led US equity losses as Mylan's move to alleviate the cost burden on its allergy shots was blasted by members of Congress.
The USD traded near a three-month low. European shares slumped amid a drop in German business sentiment. Oil rebounded after a report that Iran will participate in an informal meeting of Opec members.
While minutes of the central bank’s July meeting showed divisions within the rate-setting committee, regional Fed chiefs have signaled that a hike may come before the end of 2016.
Odds of such a move by September have risen to 32%, from 18% at the start of the month, Fed fund futures show. Traders assign a 59% probability of a rate increase this year, according to the data.
Investors are hoping for some description of the economy in the chair’s first public comments since June, as well as some clarity over the Fed’s rate outlook.
The central bank’s next meeting is September 20-21. Fed Bank of Kansas City President Esther George, speaking in a Bloomberg Television interview with Michael McKee, said the US nearing full employment and inflation accelerating toward the central bank’s target should prompt higher rates.
Dallas Fed chief Robert Kaplan separately told CNBC television that “the case is strengthening” for another increase.
The S&P 500 Index fell 0.1%. The benchmark gauge has held within a rough 30-point range for three weeks as traders awaited signals from policy makers. The Dow Jones Industrial Average shed 0.18% and the Nasdaq lost 0.11%.
Health insurers and US lawmakers, along with Democratic presidential candidate Hillary Clinton, criticised the effort as an attempt to cover a 400% price hike that won’t make the drug more affordable.
Dollar General and Dollar Tree tumbled after the discount retailers posted disappointing sales, a sign that cuts in food-stamp programs are taking a toll. Tiffany climbed after the luxury jewelry retailer posted profit that topped analysts’ estimates.
Benchmark 10-year yields increased one basis point to 1.58%. History suggests that a Fed rate increase benefits longer - maturity bonds more than their short-dated counterparts.
Every time the central bank has raised rates over the past four decades (betting that longer-term Treasuries would outperform short-term notes) has proved to be a winner, according to data compiled by Bloomberg.
Higher rates helped stem inflation and keep economic growth from overheating.
A gauge of demand fell to its lowest point since February at a $28 billion auction of seven-year notes Thursday. The decline in buyer interest comes after a $34 billion five-year debt sale Wednesday saw the greatest demand on record from indirect bidders, a class of investors that includes foreign central banks and mutual funds.
Demand at a $26 billion two-year note auction on August 23 was the highest since May.
Meanwhile, Citigroup said a survey of investors shows asset managers are positioning for a Fed hike once this year followed by a slow approach to further monetary tightening, presenting headwinds for the dollar.
South Africa’s rand slumped as President Jacob Zuma said that while he has “full confidence” in his finance minister, he has no power to stop a police probe into allegations that Pravin Gordhan established an illicit investigative unit during his tenure as head of the national tax agency.
Prices surged this month partly on speculation that informal discussions among Opec members and other producers may lead to action to stabilise the market.
Local markets and commodities
- The S&P/ASX 200 Index futures +0.1%; futures relative to estimated fair value suggest little change.
- Bank of New York Australia ADR Index little changed, BHP Billiton ADR +1.2% to A$21.23 equivalent, 1% premium to last Sydney close, Rio Tinto ADR +1% to A$41.77 equivalent, 15% discount to last Sydney close.
- Gold fell to a fresh one-month low Thursday as investors awaited further clues on the timing of a rate increase from this week’s Federal Reserve conference. Gold for December delivery settled down 0.4% at $1,324.60/oz on Comex, hitting its lowest level since July 25 in intraday trading. The Fed conference could provide views on the state of the country’s economy that could affect the value of the USD or clues on when the central bank plans to raise interest rates. Goldies in Toronto reclaimed some of their previous day losses, up 1.2% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil prices rose Thursday from further signs Iran may talk cooperation with other oil exporters. Light, sweet crude for October delivery settled up 56 cents, or 1.2%, to $47.33/b on the New York Mercantile Exchange, its ninth winning session in the past 11.
- Brent, the global benchmark, gained 62 cents, or 1.3%, to $49.67/b. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore with 62% content delivered to Qingdao fell 0.4% to $61.44/tonne on Thursday whilst Iron ore dropped 2.3% in Singapore after Li Xinchuang, a vice chairman at the China Iron & Steel Association, said falling steel production in China should weigh on prices for the raw material. The price is still up by about 40% for the year. There will be significant declines in the next three months, said Li, who’s also dean of the China Metallurgical Industry Planning & Research Institute. If steel consumption and production are set to decline, then there’ll definitely be less demand for iron ore, Li said in a phone interview on Wednesday.
- China’s vast army of mills, which make half the world’s steel, was busier than ever on a daily basis in June as local demand held firm and exports were sustained at near-record levels. Still, year-to-date output remains lower than in 2015, and Li’s outlook suggests further weakness ahead. Steel output this year will continue to drop from a year ago, according to Li, who has more than 30 years’ of experience in the industry.
- The original estimate was for a 3% decline this year, he said from Beijing. Based on how things have played out this year, he said the decline in output might be less than anticipated but the downtrend remains unchanged. He added: Iron ore should be on a downtrend, not on an uptrend. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Nickel slumped to the lowest in over six weeks after worries eased that an environmental crackdown on mines in the Philippines would create shortages of metal. Three-month nickel on the London Metal Exchange closed down 1.5% at $9,845/t, the weakest since July 11 and extending a 2.6% slump from the previous session. LME copper fell 0.1% to $4,626/t, following a 1.7% loss in the previous session, when it fell to its weakest since July 24. Copper has been under pressure from a rise in LME copper stocks, which added another 9175 tonnes on Thursday, bringing total stocks to 263,875, a jump of 72% since June 1. Aluminium dipped 0.1% to finish at $1,644.50/t after touching $1,632/t, the weakest since August 5. Lead closed up 0.4% at $US1862, while tin fell 0.5% to $US18,750. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- In other news: Cedar Woods (CWP): Names Nathan Blackburne COO; Coca-Cola Amatil (CCL): Scheduled to release 1H results; NOTE: Rev. est. A$2.46b (2 analysts); Corporate Travel Mgmt (CTD): Scheduled to release FY results; NOTE: Adj. net income est. A$42m (6 analysts); Crown Resorts (CWN): Macau gaming mkt bottoms out last 2 mos: Galaxy; Helloworld (HLO): Final div. A$0.02; Incitec Pivot (IPL): Hosts investor day; NOTE: Yday, FY17 growth questioned by Morgan Stanley; Integral Diagnostics (IDX): Advent said to be selling stake in Integral Diagnostics: AFR; Macquarie (MQG): Soliciting bids for possible MYOB selldown; Mayne Pharma (MYX): Scheduled to release FY results; NOTE: Adj. net income est. A$44.3m (6 analysts); Trades ex-div: Bellamy’s Australia (BAL), Prime Media (PRT); Rabobank (RABO): Sells A$350m of 1-year bonds; Reece Australia (REH): FY net up 16%; Rio Tinto (RIO): Said to end relationship with adviser Credit Suisse: Sky.
- Saracen Mineral (SAR): Scheduled to release FY results; NOTE: Adj. net income est. A$36.7m (6 analysts); Select Harvests (SHV): Scheduled to release FY results; NOTE: Adj. net income est. A$29.1m (6 analysts); Sky Network TV (SKT): FY profit fell, sales little changed; South32 (S32): To pay first dividend, monitoring M&A opportunities; Cut to sell vs neutral at Citi; Southern Cross Media (SXL): Raised to outperform vs neutral at Credit Suisse; St. Barbara (SBM): Raised to B2 with stable outlook: Moody’s;Star Entertainment (SGR): Scheduled to release FY results; NOTE: Adj. net income est. A$ 238.8m (9 analysts); Super Retail Group (SUL): Scheduled to release FY results; NOTE: Adj. net income est. A$107.9m (11 analysts); Western Areas (WSA): Cut to hold from buy at Argonaut Securities.
Stock to watch - Bluescope Steel
In 2015 Bluescope Steel (BSL.xasx) made a higher low at $A2.70 above the all time low of $A1.47 and since then Bluescope has continued its rebound to break the first resistance level at $A6.64 and extended its rally to test $A9.40 which used to act as solid support levels during 2009- 2011.
Furthermore the RSI shows double top above the overbought level 70 while the price of Bluescope continued to climb higher, therefore unless we see a clear breakout above $A9.40, we see the stock retracing lower given the stock stalled at its 50% extension of the 2012 low to 2014 high consolidation range.
QBE Insurance is hovering at the critical support level of just below the $A10 mark which has been a major support level since 2012. These levels would continue to attract buyers until we see a proper sell off below this year’s false break of $A9.50.
QBE Insurance yearly chart
The upside momentum appears to be fading and it seems overbought therefore we continue to monitor for any signs of continued exhaustion.
Domino's Pizza quarterly chart
Source: Saxo Bank
The price actions of the major currency pairs remained subdued ahead of tonight’s Jackson Hole meeting and the major focus is on Yellen’s speech at midnight.
We maintain our bearish bias on AUDUSD as the divergence between its price and the copper (HG) widens, although the upside risk would be a US dollar sell off if Yellen fails to deliver a concrete indication on the September rate hike.
The key levels to watch are 0.77 handle and 0.76 where the uptrend (from May) crosses the previous support level from 2015.
AUDUSD monthly chart
A weekly close below 5,500 is expected to signal potential reversal of the Q3 rally. The psychological level 5,600 still remains as a key resistance level.
AUS 200 monthly chart
Source: Saxo Bank - create your own charts with SaxoTrader. Click here to learn more
-- Edited by Adam Courtenay
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call at 1030 AEST. Watch our daily morning call on Periscope at 9:45am: #SaxoStratsAPAC and follow us up on twitter.com/SaxoAustralia
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