Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 11 August 2016 at 0:35 GMT

Today's Trade: ASX lower as Telstra, banks sold off

Trading Desk / Saxo Capital Markets
  • Local markets opened lower than expected as banks and resources were sold off
  • Telstra announced it will spend an extra $3bn on networks over three years
  • WTI fell 3% overnight to $41.71/barrel causing US equities to tumble

By Saxo Capital Markets (Australia)

Overnight and early trading

Local markets opened lower than expected as Telstra was sold off on its profit results. Banks were also lower and resources stocks felt the effect of the falling oil price. At the open, the ASX200 was down 0.7% at 5507.

 Telstra reported a full-year profit of $A5.8 billion, up 36.6%. Photo: iStock

US stocks fell, sending the S&P 500 Index down by the most in more than a week as energy producers tumbled with the price of crude, while bank shares sank on speculation interest rates won’t rise this year. Earnings from Perrigo to Wendy’s disappointed.

The S&P 500 lost 0.3%, after the measure closed a point from a record high. The Dow Jones Industrial Average slid 39.55 points to 18,493.50, and the Nasdaq Composite Index slipped 0.5% after closing at a record for the second time in three sessions.

Losses picked up speed at about 1115 in New York as the S&P 500 slipped past its lowest points of the previous two days, around 2,178. Coupled with the market’s failure to close at a record Tuesday, chart analysts say the potential for a decline increased.

The S&P 500 trimmed its annual increase to 6.4% and its valuation stood at the highest in more than a decade on an estimated earnings basis. The benchmark has failed to rise or fall more than 1% in either direction for 22 straight days, the longest such streak since 2014. The lack of price swings had sent the CBOE Volatility Index to a more than two-year low.

Transocean and Exxon Mobil fell at least 1% to lead energy companies lower after crude tumbled on data showing an increase in crude inventories amid weakening refinery demand. Banks retreated as yields on the 10-year Treasury note slid on speculation the Federal Reserve won’t rush to raise interest rates. Perrigo plunged 10%, the most in the S&P 500, after cutting its annual earnings forecast.

More than 90% of S&P 500 members have posted quarterly results this season, of which 78% beat profit predictions and 56% topped sales projections. Michael Kors Holdings, among four companies on the index reporting today, fell 1.5% after its quarterly comparable sales fell more than expected.

Analysts have tempered their estimates for a decline in second-quarter net income to 2.7%, from a 5.8% drop less than a month ago. Forecasts for the current quarter ending in September have turned negative, indicating a sixth consecutive period of falling profits, the longest since the financial crisis.

European shares halted a five-day rally, retreating from their highest prices in almost seven weeks, on disappointing earnings at companies including EON SE and Novozymes A/S. EON sank 6.9%, the most since June, as it reported a first-half loss, triggering a slide in the industry. Danish biotech company Novozymes sank 12%, pushing pharmaceutical companies to the biggest drop among sectors, as it reported profit that missed estimates and cut its sales outlook. 

Royal Dutch Shell and Tullow Oil dragged down energy companies as oil declined, while steelmakers including ArcelorMittal and Voestalpine fell more than 2%.

The Stoxx Europe 600 Index slipped 0.2% at the close, trimming a decline of as much as 0.4%. Trading was volatile, with the volume of shares changing hands about a third lower than the 30-day average. Germany’s Dax, which entered a bull market on Tuesday, dropped 0.4%, weighed down by EON and exporters such as ThyssenKrupp and Bayer as the euro strengthened.

Source: Bloomberg,

Key earnings

  • ThursdayAustralia: Virgin Australia, Magellan Financial, Goodman Group, Telstra; International: Alibaba Group Holding Ltd., Deutsche Telekom AG and Macy’s Inc
  • FridayToshiba, A.P. Moeller-Maersk and Sands China 

Local markets and commodities

  • Bank of New York Australia ADR Index -0.7%, BHP Billiton ADR -1.1% to A$20.04 equivalent, 2% discount to last Sydney close, Rio Tinto AR -1.1% to A$41.59 equivalent, 18% discount to last Sydney close
  • Gold prices rebounded Wednesday, encouraged by a weaker dollar and disappointing US productivity data. Gold for December delivery settled up 0.4% at $1,351.90 a troy ounce on Comex, paring some gains after rising as high as $1,363.30 earlier in the session. 
  • Net bullish bets on gold reached the highest level in 10 years earlier this year, according to data from the US Commodity Futures Trading Commission. Exchange-traded funds for the precious metal have also surged, with gold ETF holdings hitting their highest level in three years at the end of June, according to the World Gold Council. Goldies in Toronto rallied 1.38% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Oil extended losses after a government report showed US crude inventories unexpectedly increased amid weakening demand from refineries. Futures lost as much as 0.6% in New York after falling 2.5% Wednesday. Crude inventories rose 1.06 million barrels last week, according to the Energy Information Administration. They were forecast to fall 1.5 million barrels. Refineries lowered operating rates by 1.1percentage points to 92.2% of capacity.
  • Crude has fluctuated after tumbling more than 20% into a bear market and closing below $40/barrel last week for the first time in almost four months. The Organisation of Petroleum Exporting Countries predicted in its monthly report that weakness in global oil markets may persist as demand slows seasonally and fuel inventories remain abundant. 
  • West Texas Intermediate for September delivery lost as much as 24 cents to $41.47/barrel on the New York Mercantile Exchange. Prices dropped $1.06 to $41.71/barrel on Wednesday, the lowest close since August 3. Total volume traded was about 46% below the 100-day average. 
  • Brent for October settlement dropped 93 cents, or 2.1%, to $44.05/barrel on the London-based ICE Futures Europe exchange on Wednesday. The global benchmark crude closed at a $1.59 premium to WTI for October delivery. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Iron ore for September delivery on Dalian Commodity Exchange dropped 1.5% to close at 494 yuan/mt retreating for a second day from more than an 18-month high. Meanwhile Vale stated in a regulatory filing which denied a report on plans to sell future iron ore product. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Copper posted the biggest rally in almost two weeks after the US dollar weakened on speculation the Federal Reserve will be slow to raise interest rates, boosting demand for commodities as an alternative investment. Copper for delivery in three months advanced 0.9% to settle at $4,821/tonne ($2.19/pound) on the London Metal Exchange, marking the biggest gain since July 28. 
  • On the Comex in New York, copper futures rose 1% to $2.171/pound. Zinc rose to the highest since May 2015, while aluminum, nickel, lead and tin also gained. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In reporting this morning: Telstra will invest an extra $3 billion in networks over the next three years as it tries to win back customers following a series of network outages. The announcements came as Australia's largest telecommunications provider reported a full-year profit of $A5.8 billion, up 36.6% from the previous corresponding period, and buoyed by the $A1.8 billion sale of Autohome. It also confirmed a $A1.5 billion buyback. Revenue climbed 1.5% to $A25.9 billion. Telstra is forecasting low single-digital earnings before interest, tax, depreciation and amortisation growth in the 2017 financial year.
  • Goodman Group (GMG): Scheduled to release FY results
  • James Hardie (JHX): Annual meeting scheduled in Ireland
  • Magellan Financial (MFG): Scheduled to release FY results; Note: Adj. net income est. $A194.9mln (10 analysts)
  • Netcomm Wireless (NTC): Starts new R&D facility in US
  • Platinum Asset (PTM): Scheduled to host business update call
  • REA Group (REA): Cut to sell vs neutral at UBS
  • Ex-div: Rio Tinto (RIO)

Broker upgrades and downgrades

  • Goodman Group (GMG): Cut to neutral at Credit Suisse
  • Commonwealth Bank of Australia (CBA): Ratings unaffected by FY results: S&P; Cut to neutral vs buy at UBS
  • IOOF (IFL): Cut to hold vs buy at Shaw & Partners
  • SkyCity (SKC): Cut to equalweight vs overweight at Morgan Stanley

US500.i and XAUUSD

While the Dow Jones transport and Russell 2,000 are looking weak, US500 broke the uptrend (from June low) but it failed to make a clear close below the key support level 2,175. As we mentioned in yesterday’s report, the rising wedge seems to have formed and we need to see another negative daily close today in order to confirm the validity of the wedge. We maintain our bearish bias on US500 as long as the upper resistance line of the wedge holds.
 Source: Saxo Trader

The precious metals are soaring and we witnessed palladium leading the way as it made a huge break out above the double top level 722. After gold (XAUUSD) rose as high as 1,357, it retraced 10 points lower. We expect further continuation of the upside momentum with the next resistance level at 1,367 and support level at 1,333.
 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 the recording of this week’s Macro Monday Call


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