Article / 15 July 2016 at 1:55 GMT

Today's Trade: ASX moves past 5400 mark, AUD resilient

Trading Desk / Saxo Capital Markets
  • US stocks extended gains at an all-time high amid good corporate results
  • The ASX/S&P 200 is nudging the 5400 mark which it breached yesterday
  • The resistance level of 0.7650 holds for AUDUSD while support level is at 0.76

Overnight and early trading

The ASX/S&P 200 is nudging the 5400 mark which it breached yesterday for the first time in six weeks. at 1015 (0015 GMT) The benchmark index was up 16 points, or 0.3 per cent, to 5428.

The moves follow a record 2016 close for the ASX yesterday, with today’s gains seeing them flirt with intraday peaks for the year.

Driving the gains are the big banks, aided by news of an earnings beat by JP Morgan in the US, which improved sentiment for the global financial sector.

Overnight, US stocks extended gains at an all-time high amid corporate results that pointed to resilience in the global economy, while Treasuries slid with the yen as speculation central banks will add to stimulus sapped demand for havens.

The S&P 500 rose to a fresh record, led higher by banks as the MSCI All-Country World Index climbed a sixth day, capping its longest rally since October. Emerging market currencies strengthened amid commodity gains, while the yen was on track for its steepest weekly drop in 17 years versus the dollar on speculation Japan may resort to so-called helicopter money.

GBPUSD surged to a two-week high as the Bank of England held interest rates in its first decision since the UK voted to leave the European Union.

The corporate earnings season got off to a strong start this week, with JPMorgan Chase and Alcoa exceeding analysts estimates in the US along with Daimler in Europe.

The growing pool of negative-yielding bonds around the world is also burnishing the appeal or riskier assets.

 US corporate results have only just come in, but they look on the up and up. Photo: iStock

The S&P 500 added 0.5% to 2,163.75 in New York, setting a new record for a fourth day and capping the index’s longest stretch of gains since March.

Thursday’s advance pushed the US benchmark up to 20 times reported earnings, the first time its valuation has crossed that threshold since 2009, data compiled by Bloomberg show.

JP Morgan jumped 1.5%, leading a rally in lenders after the biggest US bank by assets said second-quarter profit fell 1.4%, exceeding analysts’ estimates as fixed income trading revenue and loan growth jumped. Defensive stocks less tied to growth - utility, consumer-staple and telephone companies - lagged the broader measure.

Injecting a cautionary note into the run-up today, Laurence Fink, who runs the world’s largest asset manager as chief executive officer of BlackRock, said the current rally in equities may not be justified and won’t last unless earnings pick up.

Analysts have come into the second-quarter earning season predicting a 5.7% drop drop in S&P 500 company profits, which would make it the fifth straight quarterly decline, the longest since 2009.

The Stoxx Europe 600 Index rose 0.8% Thursday, continuing to pare its losses since Britain’s referendum in favor of Brexit on June 23. The UK’s benchmark FTSE 100 Index erased gains after the Bank of England's decision, slipping 0.2%.

A gauge of European lenders rallied for the fifth time in six days, with UniCredit, the Italian lender that’s selling assets to boost capital, jumping after Citigroup advised investors to buy the stock.

The MSCI Emerging Markets Index added 1.1% in its longest winning streak since April. The gauge has climbed more than 9% in 2016 and trades at its most expensive valuation in more than a year. In the same period, the MSCI World Index of developed-market shares has gained 2.4%.

Futures on stock gauges from Japan to Australia foreshadowed gains for Friday, with contracts on the Nikkei 225 Stock Average up 1.2% in Chicago. Futures on Hong Kong’s Hang Seng and Hang Seng China Enterprises gauges climbed at least 0.4%.

JPY weakened 0.8% to 105.35 per dollar, after earlier strengthening as much as 0.5%. Former Federal Reserve chief Ben Bernanke met Japanese leaders in Tokyo this week after earlier in the year floating the idea of helicopter money - which involves the central bank directly funding government spending - with one of Abe’s key advisers.

The pound strengthened 1.5% to $1.3343 after the BOE’s surprise decision to keep the key rate at 0.5%. While signaling more stimulus will come in August to aid the post-Brexit economy, British policy makers stopped short of detailing what those might be.

South Africa’s rand climbed 1.8%, while the ruble gained 1.6% as all but one of the 24 developing-nation currencies tracked by Bloomberg strengthened against the dollar.

West Texas Intermediate crude rose 2.1% to $45.68/barrel, after tumbling 4.4% on Wednesday as US data showed crude stockpiles fell for an eighth week, the longest declining streak since June 2015.

The LME Index of six base metals rose to the highest level since October 12 as nickel climbed on potential supply disruptions and copper advanced on speculation central bank efforts to spur economic growth will boost demand for metals.

Gold declined 0.6% to $1,335.23/oz in the spot market, after gaining 0.7% in the prior session.

Sovereign debt fell in the US, the UK, Japan and Germany amid the revival in risk appetite and disdain for negative-yielding debt.

Yields on Treasury notes due in a decade rose six basis points, or 0.06%, to 1.54%, while rates on similar maturity Japanese debt increased by two basis points to minus 0.26%.

Yields climbed five basis points in Germany to minus 0.04%. UK bonds fell, sending the rate on 10-year gilts up five basis points to 0.79%, while two-year yields rose three basis points to 0.13%.

Source: Bloomberg,

US earnings
Friday: Earnings: Citigroup, Wells Fargo, US Bancorp, PNC, Shaw Communications

Local markets and commodities

  • S&P/ASX 200 Index futures rise 0.1%; futures relative to estimated fair value suggest an early gain of 0.5%.
  • Bank of New York Australia ADR Index +0.6%, BHP Billiton ADR +0.1% to ~A$20.28 equivalent, 0.3% discount to last Sydney close, Rio Tinto ADR +1% to A$43.85 equivalent, 13% discount to last Sydney close.
  • Gold dropped to a two-week low as high-flying equities, fueled by better-than-estimated earnings that pointed to economic resilience, damped the metal’s appeal as a haven. Gold futures for August delivery dropped 0.8% to settle at $1,332.20 an ounce on Comex, after touching $1,320.40, the lowest intraday since June 30.
  • Gold is still up 26% this year as the fallout from the Britain’s vote to exit the European Union and the expectation of Japanese and UK stimulus boosted the appeal of the metal as a store of value. Lower rates benefit gold because it doesn’t pay interest like competing assets such as bonds or equities. Silver futures for September delivery fell 0.4% to $20.322 an ounce on the Comex. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil fell in New York amid forecasts crude may slide toward $40/barrel on oversupply concerns. West Texas Intermediate crude for August delivery fell as much as 27 cents to $45.41/b on the New York Mercantile Exchange. The grade rose 93 cents to settle at $45.68 on Thursday. Brent for September settlement increased $1.11, or 2.4%, to $47.37/b on the London-based ICE Futures Europe exchange on Thursday. The global benchmark crude closed at a 95-cent premium to WTI for September delivery. Analysts from BNP Paribas SA to JBC Energy GmbH warned prices may sink towards $40/barrel amid a global glut of supply and weakening demand. Oil has traded between about $44/b and $52/b since early June after almost doubling from a 12-year low in February amid a spate of supply disruptions and falling US output. The fuel surplus means American refiners may process less oil even as crude supplies remain more than 100 million barrels above the five-year average for this time of the year. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore fell 68 cents, or 1.2%, to $58.47/tonne, according to a price index compiled by Metal Bulletin. ABN Amro stated in a report that stockpiles held in ports and steel plants are high, which means that iron ore will remain plentiful in China for the time being. Imports of iron ore should flatten off at some point because if China cuts its steel production as promised, demand for iron ore will decrease, the bank said in a note on yesterday. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Zinc for delivery in three months rose 0.5% to settle at $2,189/t on the London Metal Exchange. Prices touched $2,210.50 on Wednesday, the highest since May 2015 as supply concerns mount on the outlook for mine closures. The metal is up 36% this year, heading for the biggest annual gain since 2009, following the closure of two of the world’s largest mines, MMG’s Century and Vedanta Resources Lisheen. Prices may rise to $2,500/t over the next six months, or 14% above today’s price, as production trails demand, according to Goldman Sachs Group Inc. Copper futures for September delivery gained 0.1% to $2.243 a pound on the Comex in New York while on the LME, aluminium, copper, lead, tin and nickel also advanced. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Other news: AGL Energy (AGL): Citi may help advise on, fund potential Alinta deal, AFR says; BHP (BHP): Says Samarco JV unlikely to resume ops in 2016; BlueScope Steel (BSL): Rose to 5-year high late yesterday after saying 2H Ebit was better than expected

Broker upgrades and downgrades

- TFS (TFC): Raised to B+ from B at S&P; outlook stable


Copper remained below the Wednesday high 227.75 as the upward momentum seems to have stalled for now.

The resistance level 0.7650 also held for AUDUSD and the support level remains at 0.76 which crosses the downtrend (from April high).

The Australian employment figures (7,900) fell short of the forecast 10,100 but the full time numbers looked strong. Today’s focus would be on the Chinese GDP and industrial production at midday but the US CPI numbers (2230 AEDT, 1230 GMT) would be the major data to monitor.

The 200 DMA appears to be strong as US dollar index (DX) is forming a double top at 96.80. Yesterday’s low 1,320 on gold (XAUUSD) was 100% range extension of the rounding bottom and this level became the support level for now, while we maintain our bullish exposure on gold.

AUDUSD monthly report
 XAUUSD monthly report
Source: Both graphs, Saxo Bank - create your own charts with SaxoTrader. Click here to learn more 
AUS200.i and US500.i

The AUS200 broke above the key resistance level 5,430 in the SYCOM sessions following the strong gains from the US sessions. Today’s close could be interesting as the weekly close above 5,430 should signal further continuation of the recent upside momentum although we believe profit taking is overdue.

The bond prices including US 10-year treasury (ZN) are falling and traders seem to be shifting to the equity markets. The RSI broke the downtrend and the US500 extended the majority of the gains in the European sessions to make a fresh record high 2,174, but failed to maintain the rally as it sold into the close.

We still yet to see any sell signal on the US500 but we see a potential reversal in the JP225 as it is now trading at the intersection of the uptrend (from Feb low) and the downtrend (from Dec high).
AUS 200 monthly graph
 US 500 monthly graph

 JP225 monthly chart

Source: All charts, Saxo Bank - create your own charts with SaxoTrader; click here to learn more

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

-- 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


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