Article / 21 January 2018 at 23:17 GMT

Today's Trade: ASX opens higher as it shrugs off US shutdown

Trading Desk / Saxo Capital Markets
Australia
  • The ASX looks set to open higher, shrugging off the US government shutdown
  • NAB may float its funds management, super and financial advice operations
  • All three major US stock indices hit fresh records in the past week
  • Germany’s Social Democrats backed formal coalition talks with Chancellor Merkel
  • Iron ore futures reversed three days of losses, rallying 2.5%

Overnight

  • The euro advanced on optimism Germany’s Angela Merkel has made a breakthrough toward her fourth term after months of stalemate, while the dollar recovered from earlier lows as the federal government shutdown continued. 
  • Asian equities were set for small gains when trading starts
  • Germany’s Social Democrats backed formal coalition talks with Chancellor Merkel, boosting the euro.
  • The greenback edged higher with the House and Senate back in session Sunday amid a spending-bill impasse in Congress. 
  • Foreign exchange traders are also watching China’s appetite for currency strength as the yuan rallies beyond the symbolically key level of 6.4 per dollar for the first time since December 2015. 
  • Futures on equity gauges in Japan, Australia and Hong Kong pointed to a higher open.
  • The S&P 500 rose to a fresh record as investors focused on corporate earnings and largely brushed off the threat of a US government shutdown.
  • The index is up 5.1% in 2018, its best 13-day start to a year since 1987. The recent leg higher has been marked by investors’ fervor for stocks, propelling what some analysts are referring to as a “melt-up,” which is commonly defined as a period of sudden stock-market gains.
  • The start of fourth-quarter earnings season is also assisting in lifting major indices, as investors have embraced better-than-expected results and optimistic corporate guidance.
  • On Friday, financial companies rose after several regional banks reported fourth-quarter results. Citizens Financial Group and Regions Financial both added more than 2% after reporting their latest quarterly earnings.
  • The gains helped lift the S&P 500 by 12.27 points, or 0.4%, to 2810.30, while the Nasdaq Composite rose 40.33 points, or 0.6%, to 7336.38.
  • The Dow Jones Industrial Average eked out a gain, rising 53.91 points, or 0.2%, to 26071.72, despite declines from components American Express and International Business Machines.
  • American Express fell $1.83, or 1.8%, to $98.03 after the financial services company recorded its first quarterly loss in more than 25 years and said it would suspend its share-buyback program. IBM’s shares fell $6.75, or 4%, to $162.37 even after the technology firm narrowly topped earning expectations.
  • All three major US stock indices hit fresh records in the past week, with the Dow industrials barreling through 26,000 on Wednesday, notching its fastest climb between 1000-point milestones on record.
  • Bond yields also climbed during the week. On Friday, the yield on the benchmark 10-year US Treasury note ticked up to 2.639%, its highest closing level since July 2014.

US earnings

  • Monday: Netflix, TD Ameritrade, UBS, Halliburton, Zions Bancorp, Wintrust Financial, Steel Dynamics
  • Tuesday: Procter & Gamble, Johnson & Johnson, Travelers, Fifth Third, Kimberly-Clark, State Street, United Continental, Capital One, Canadian National Railway, Huntington Bancshares, Total Systems
  • Wednesday: Ford, Abbott Labs, Comcast, General Electric, Novartis, General Dynamics, Illinois Tool Works, Baker Hughes, United Technologies, Ameriprise, Raymond James, F5 Networks, Northern Trust, Stanley Black & Decker, Discover Financial, Ethan Allen, Legg Mason
  • Thursday: 3M, Caterpillar, Celgene, LVMH, Biogen, Union Pacific, Starbucks, Intel, Northrop Grumman, American Airlines, Freeport-McMoRan, Alaska Air, Fiat Chrysler, Raytheon, Southwest Air, Sherwin-Williams, JetBlue, Celanese, Intuitive Surgical, Diageo, Western Digital, KLA-Tencor
  • Friday: Honeywell, Colgate-Palmolive, AbbVie, NextEra Energy, Air Products, Lear, Rockwell Collins, Gentex, PolyOne

Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

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 National Australia Bank may spin off and float its funds management, superannuation and financial advice operations. Photo: Shutterstock


Local markets and commodities

  • S&P/ASX 200 Index futures are up 0.5% to 5980. Futures relative to fair value suggest an early gain of 0.5%
  • Bank of New York Australia ADR Index is up 0.4% to 295.5, BHP Billiton ADRs are up 0.6% to A$31.04 equivalent, a 1.1% premium to last Sydney close, Rio Tinto ADRs are down 0.3% to A$70.10 equivalent, a 10.1% discount to last Sydney close
  • Gold prices rose half a per cent on Friday as the dollar laboured near a three-year low amid heightened fears of a US government shutdown, but the precious metal was still on track for its first weekly drop in six. 
  • Capping gains in gold, bond yields have been rising this week on expectations that strong economic data globally will encourage the US Federal Reserve to press ahead with monetary tightening. Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 1.42% to 840.76 tonnes on Thursday from Wednesday. 
  • Silver advanced 0.55% to $17.023 per ounce, while palladium gained 0.27% to $1,101.72, but both metals, like gold, were set for their first weekly drop in six. Goldies rose 0.5% in Toronto on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil prices posted their first weekly loss in five weeks, as a bounce-back in US production outweighed ongoing declines in crude inventories. US West Texas Intermediate (WTI) crude futures ended Friday's session down 58 cents at $63.37/barrel. WTI marked a December-2014 peak of $64.89/barrel on Tuesday. 
  • Brent crude futures fell 70 cents, or 1%, to $68.61/barrel. On Monday, they hit their highest since December 2014 at $70.37. In recent news over the weekend, Saudi Arabia’s energy minister said Sunday that Opec and other big-oil producing allies like Russia should find ways to cooperate beyond their petroleum-production limits this year. 
  • Falih – the de facto leader of Opec – gave the most explicit call for the 14-nation cartel and 10 non-member allies to keep supporting the oil market into 2019. Oil prices have risen from around $45/barrel in June to over $70/barrel this month in part because of the group’s agreement to reduce the world’s oil production by about 1.8 million barrels/day, or nearly 2% of global output. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore futures reversed three days of losses, rallying 2.5% as Chinese traders appeared keen to pick up their purchases as they look ahead to the Spring Festival. However, with inventories still high the restocking was relatively slow. Stockpiles of iron ore at Chinese ports hit another record high. According to Steel home data, they rose 1.1% last week to 154.4 million tonnes. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Base metals were mixed, despite a weaker USD. A huge surge in trading in the copper market wiped out the day’s gains in the space of 10 minutes. 
  • Aluminium fell on ongoing concerns about rising Chinese output. However, zinc surged to its highest levels since 2007 as inventories continue to fall. Stocks in LME warehouses are now at their lowest level since 2009. Cancelled warrants, orders to withdraw metal from the warehouses also rose sharply by 42% to 81,575 tonnes. Copper ended 0.5 % lower at $7041/tonne, nickel closed up 2% to $12,720 and tin finished 0.9% higher at $20,600. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • National Australia Bank (NAB AU): Is Said to Mull IPO of Funds Mgmt: AFR
  • Quintis (QIN AU): Quintis Appoints KordaMentha as Administrators, AFR Reports

Broker upgrades and downgrades

  • Hotel Property (HPI AU): Downgraded to Neutral at JPMorgan; PT A$3.30
  • Netwealth Group (NWL AU): Rated New Neutral at Credit Suisse; PT A$6.15
  • Orocobre (ORE AU): Downgraded to Market Perform at Cormark
  • Rio Tinto (RIO AU): Upgraded to Reduce at AlphaValue

Australian events

  • Monday: Macquarie Atlas Roads Group - Q4 2017 Sales and Revenue Release - Traffic Statistics
  • Tuesday: Qrtly: St Barbara Ltd & Lynas Corp Ltd, Q2 2018 Earnings Release: ResMed Inc
  • Wednesday: Qrtly: Santos Ltd, AMG: Australian Pharmaceutical Industries Ltd
  • Thursday: Qrtly: Northern Star Resources Ltd

USDCAD

Despite a 25 basis point rate hike from the Bank of Canada last week, USDCAD is showing resilience as it looks to have formed a double bottom at the 1.2360 area, which coincides to a 61.8% retracement (Sep 17 low 1.2061 and Oct 17 high 1.2916). Outside day reversal pattern last Friday could also signal a potential reversal in the near term, therefore we look to add bullish exposure on USDCAD. The key focus would be the CPI numbers release on Friday night.

USDCAD monthly
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more 

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– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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