Article / 25 August 2016 at 0:46 GMT

Today's Trade: ASX lower while Woolworths soars

Trading Desk / Saxo Capital Markets
  • Woolworths soars 6.8% at the open despite poor earnings report
  • Copper fell for a fourth day, erasing its gains for the year
  • US biotechnology stocks had their biggest drop in two months

By Saxo Capital Markets (Australia)

Overnight and early trading

The local market opened slightly down, with miners leading the direction: BHP and Rio both fell 2%. At the start, the ASX200 was down 13 points at 5549. However, Woolworths rose nearly 7% despite its dreadful earnings report. The retailer was $1.2 billion into the red in 2016, reporting its first loss as a listed company.

 Woolworths rose nearly 7% at the start of trading despite
announcing a dreadful earnings result. Photo: iStock

  • Stocks fell as heightened political and security risks rattled emerging markets, oil tumbled and US biotechnology stocks had their biggest drop in two months as politicians decried drug price hikes. Developing-nation shares slid after Turkey launched a military operation in Syria, while North Korea conducted a missile test. South Africa’s rand sank as the nation’s finance minister refused to report to police amid a probe. 
  • Drugmakers dragged the S&P 500 Index lower as Mylan NV drew the ire of lawmakers over a price increase of a life-saving allergy shot, which Democratic presidential candidate Hillary Clinton dubbed “outrageous”. Oil sank on data showing US stockpiles rose.
  • Investors including foreign central banks and mutual funds bought a record amount at a Treasury debt sale.
  • Market sentiment has seesawed in recent weeks amid wagers on how aggressive the Federal Reserve will be in its approach to monetary tightening as traders awaited Chair Janet Yellen’s speech on Friday. The angst was amplified by the recent flare-ups in emerging markets, which exposed the frailty of a rally spurred in part by investors seeking refuge from low or negative rates in developed economies. 
  • The late-session slide disrupted a recent period of tranquility that has seen the US stock volatility gauge on track this month for its lowest mean level for any August since 1994.
  • The probability of a US rate hike next month rose to 28% from 24% at the start of this week, and the chances by the end of the year increased to 54%, according to data compiled by Bloomberg from fed fund futures. 
  • In another sign of mixed US economic data, the National Association of Realtors said sales of previously owned homes dropped more than forecast in July from a nine-year high. The report came a day after the Commerce Department said purchases of new homes unexpectedly jumped.
  • MSCI’s global stock index dropped 0.5% at 1600 New York time, erasing this week’s gains. A measure of emerging-market shares lost 1.1%. Turkish equities slumped 1.6% as the nation aims to force Islamic State militants away from its border and deter further advances by Syrian Kurds allied with separatists.
  • The S&P 500 fell 0.5%, with losses accelerating in afternoon trading, led by Mylan NV’s 5.4% slide.
  • Investors were spooked by Clinton’s comments, a reminder of critical remarks she made last year on drug prices, which helped spur a 20% selloff in the Nasdaq Biotechnology Index.
  • Teva Pharmaceutical Industries also slumped after a US agency invalidated two of the patents protecting Copaxone, a multiple sclerosis drug that generates 20% of its revenue.
  • European equities climbed for a third day as a gauge of banks reached its highest level since the UK referendum on European Union membership. Italy’s UniCredit SpA surged 8%, while Commerzbank AG and UBS Group AG added at least 2.9%. At the same time, a measure of volatility is recording its lowest monthly average since March 2015.
  • Strong demand at Wednesday’s Treasury five-year note auction added to evidence that markets aren’t yet wholly convinced that the Fed is poised to tighten policy this year. The lack of clarity on the timing of the Fed’s next move has confined Treasuries to tight trading ranges this month.
  • Officials project the policy rate will rise this year, even as some have expressed longer-term concern that it may not climb to levels seen in previous economic cycles. Fed Chair Yellen speaks Friday at a symposium in Jackson Hole, Wyoming.
  • Treasury five-year note yields were little changed at 1.14%, according to Bloomberg Bond Trader data. The yield on two-year securities was 0.76%, while the benchmark 10-year note yield was 1.56%. 
  • South Africa’s benchmark government bond yields due December 2026 surged 53 basis points to 9.05%. Finance Minister Pravin Gordhan said that he had done nothing wrong by authorising the establishment of a special investigative unit when he headed the national tax agency and he wouldn’t obey a police instruction to present himself for questioning.
  • The US currency strengthened 0.4% to $1.1264 per euro, and 0.2% to 100.45 yen. The pound rose to a three-week high as data continued to suggest the UK economy is proving resilient to the secession vote. 
  • Most emerging-market currencies fell as South Africa’s rand sank to the lowest level in a month. South Korea’s won led losses in Asia after North Korea’s missile launch added to the mounting geopolitical tension in the region. Both Mexico’s peso and Brazil’s real rose.
  • West Texas Intermediate for October delivery dropped 2.8% to close at $46.77/barrel on the New York Mercantile Exchange. Inventories climbed by 2.5 million barrels in the week ended August 19, according to an Energy Information Administration report. 
  • A Bloomberg survey ahead of the data had forecast inventories would fall by 850,000 barrels. Iran’s oil ministry said the country hasn’t yet decided whether to join informal Opec talks next month in Algiers following a Reuters report that the nation had confirmed its attendance at the gathering.
  • Copper fell for a fourth day, erasing its gains for the year, on surging inventories and signs of weak demand in China, the biggest consumer. Gold and silver also retreated.

Source: Bloomberg,

Key earnings

  • 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 and commodities

  • Bank of New York Australia ADR Index minus 0.6%, BHP Billiton ADR minus 2.2% to $A21 equivalent, 2% discount to last Sydney close, Rio Tinto ADR minus 2% to $A41.37 equivalent, 17% discount to last Sydney close
  • Gold futures headed for the biggest drop in two weeks and mining stocks tumbled as traders pulled back bets before a speech by Federal Reserve Chair Janet Yellen on Friday that may give clues into the timing of US interest-rate increases. 
  • The next Fed policy decision will be announced September 21
  • Gold fell for the third time in four sessions, and traded below its 50-day moving average price or the first time since June. Shares of mining companies fell, with Goldcorp and Barrick Gold among the biggest decliners. 
  • Goldies in Toronto was smashed 7.79% overnight. Gold futures for December delivery dropped 1.2% to settle at $1,329.70/ounce on Comex in New York, the biggest decline since August 5. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil dropped to a one-week low after a government report showed that US crude inventories unexpectedly rose last week. Crude supplies rose by 2.5 million barrels in the week ended August 19, according to an Energy Information Administration report. 
  • A Bloomberg survey ahead of the data had forecast an 850,000-barrel decline. Stockpiles are at the highest seasonal level since at least 1986.  
  • West Texas Intermediate for October delivery dropped $1.33, or 2.8%, to close at $46.77/barrel on the New York Mercantile Exchange. It’s the lowest settlement since August 16. Total volume traded was 3.5% above the 100-day average. 
  • Brent for October settlement fell 91 cents, or 1.8%, to $49.05/barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.28 premium to WTI. US crude stockpiles rose to 523.6 million, leaving supplies at the highest seasonal level in decades, the EIA report showed. Inventories at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, advanced by 375,000. 
  • Crude production in the US fell by 49,000 barrels/day to 8.55 million, while imports surged 449,000 barrels to 8.64 million. Refineries reduced operating rates by 1 percentage point to 92.5% of capacity. Refiners typically boost their operations in July to meet peak gasoline demand before ratcheting back in August. 
  • Over the past five years, refiners’ thirst for oil has dropped an average of 1.2 million barrels/day from July to October. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore fell marginally overnight, down 0.1% to $61.70, dropping from a two-week high as steel cuts dent demand. Fortescue's fiscal 2017 revenue will obviously hinge on iron-ore price movements as the miner steadies output volume following expansion. It projects output of 165-170 million tonnes, virtually unchanged vs. the previous year. 
  • Ore shipments have more than doubled since 2013, to 169.4 million tonnes in the year ended June, mainly due to the miner's expansion program. The company's main projects include the 40 million-tonne Kings Valley mine and the 20 million-tonne Firetail mine, both located at the Solomon Hub in Australia. 
  • Fortescue may trim its costs further to boost margin, given iron-ore prices could come under pressure as China demand slows. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Copper fell for a fourth day, erasing its gains for the year, on surging inventories and signs of weak demand in China, the biggest consumer. Glencore, the top copper supplier, fell after reporting profit declined by two-thirds. Supply has been outpacing demand. China cut copper imports for a fourth month to the lowest level in 17 months, while inventories tracked by the London Metal Exchange rose 21% over the past three days to the highest since November. 
  • Copper for delivery in three months declined 1.7% to settle at $4,632/tonne ($2.10/pound) on the LME, capping the longest stretch of losses since July 7. Copper futures for December delivery declined 1.9% to $2.085/pound on Comex. Glencore shares dropped as much as 6%, the most intraday since July 20, in London after posting a 66% drop in first-half profit on lower raw-materials prices. 
  • Jiangxi Copper, China’s biggest producer, said in an earnings report that while low prices had eroded earnings, the market may bottom out soon as central banks seek to boost growth. Nickel, zinc, lead and aluminum fell on the LME, while tin gained. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In early reporting, South 32 reported a FY16 net loss $1.62bn vs net income GAAP loss est. $1.67bn (12 analysts had estimates of losses ranging $1.45b-loss $1.81b). Underlying profit came in at $138m VS net income est. $111.1mln
  • APA (APA): Seeks to buy distressed US natural gas pipes
  • Asaleo Care (AHY): Scheduled to release 1H results
  • Ausdrill (ASL): Sees FY17 rev. ~$A800mln vs $A743.9mln in FY16
  • Trades ex-div: Baby Bunting (BBN), Cover-More (CVO), Henderson Group (HGG), JB Hi-Fi (JBH), Mantra (MTR), QBE Insurance (QBE)
  • Breville Group (BRG): Scheduled to release FY results; NOTE: Adj. net income est. $A49.9mln (9 analysts)
  • ClearView (CVW): Macquarie working to become part of review process for Crescent Capital’s stake in co.: Australian
  • Costa Group (CGC): Scheduled to release FY results; NOTE: Adj. net income est. $A47.5mln (2 analysts)
  • Cromwell Property (CMW): Scheduled to release FY results; NOTE: FFO/shr est. $A0.094 (4 analysts)
  • CSL (CSL): Trivalent adjuvanted flu vaccine showed increased immunogenicity, efficacy vs non-adjuvanted vaccines in analysis of more than 10,000 young children
  • Evolution (EVN): Seeks $A500mln 5Y loan for Ernest Henry acquisition; Trades ex-div
  • Flight Centre (FLT): Scheduled to release FY results; NOTE: Adj. net income est. $A251.4mln (9 analysts)
  • Fonterra (FSF): Increases 2016-17 milk price target to $NZ4.75
  • Iluka Resources (ILU): Scheduled to release 1H results; NOTE: Rev. est. $A339.5mln (2 analysts)
  • Mesoblast (MSB): Scheduled to release FY results; NOTE: Adj. net income loss est. $A66.8mln (5 analysts)
  • MYOB (MYO): Scheduled to release 1H results
  • Nine Entertainment (NEC): Scheduled to release FY results; Adj. net income est. $A112.1mln (8 analysts)
  • Paladin (PDN): Sees FY 2017 LMH production at 3.8mln-4mln lbs
  • Perpetual (PPT): scheduled to release FY results; NOTE: Adj. net income est. $A125.8mln (12 analysts)
  • Quadrant (AAD): Seeks loan for Ardent Leisure Health Clubs acquisition
  • Retail Food Group (RFG): Scheduled to release FY results; NOTE: Adj. net income est. $A65.7mln (5 analysts)
  • Southern Cross Media (SXL): Scheduled to release FY results; NOTE: Adj. net income est. $A77.9mln (6 analysts)
  • Village Roadshow (VRL): Scheduled to release FY results; NOTE: Adj. net income est. $A53.3mln (7 analysts)
  • Wesfarmers (WES): Bunnings in pact with Home Consortium for properties
  • Western Areas (WSA): Scheduled to release FY results; NOTE: Adj. net income loss est. $A17mln
  • Woolworths (WOW): Scheduled to release FY results; NOTE: Adj. net income est. $A1.55bn (14 analysts), Net income GAAP loss est. $A1.22bn (7 analysts); To exit from home improvement business for $A1.5bn

Broker upgrades and downgrades

  • Ardent Leisure (AAD): Cut to neutral vs buy at UBS; Cut to neutral vs buy at Goldman Sachs
  • Bega Cheese (BGA): Raised to buy vs hold at Baillieu Holst; Cut to hold at Bell Potter
  • Blackmores (BKL): Cut to neutral vs overweight at JPMorgan
  • Boral (BLD): Cut to neutral vs outperform at Credit Suisse; Raised to sector perform at RBC Capital
  • Qantas (QAN): Raised to buy from underperform at APP Securities
  • Metcash (MTS): Raised to overweight vs neutral at JPMorgan
  • Link Administration (LNK): Raised to hold vs sell at Morningstar
  • ISentia (ISD): Raised to buy vs hold at Moelis & Co.

Stock to watch: Alumina (AWC.xasx) 

Since failing to push below the psychological level of $1 earlier this year, AWC retraced slightly over 50% (February 15 high 2.10 – January 16 low 0.97) in May. The downtrend (from Feb 15 high 2.10) looks valid and at the same time the uptrend has been established from the Jan 16 low. It is quite visible to see that the trading range has been converging towards 1.40, therefore we expect a break out of these two trend lines in the coming weeks.
 Source: Saxo Trader


AUS200 maintained its resilience on the back of the rebound from the banks yesterday but it erased all these gains in the SYCOM session as US500 declined and looked weak throughout the whole trading session. The recent price actions of AUS200 still do not indicate any clear clues on the near-term direction. This week’s swing high 5,574 should remain as a solid resistance level as energy and mining stocks are expected to weigh on the AUS200 today.
Source: Saxo Trader
While US dollar index (DX) rebounded overnight, AUDUSD stubbornly remains strong despite three days of a sharp selloff from copper. The downside momentum of copper (HG) continues to accelerate, therefore AUDUSD is highly likely to follow the same sooner or later, once it makes a break out below the uptrend (from May low) although the support level 0.76 handle seems quite strong for now.
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 its daily morning call on Periscope at 0945 AEST: #SaxoStratsAPAC.  Watch the recording of this Week’s Macro Monday Call here.


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