Article / 29 February 2016 at 0:08 GMT

Today's Trade: ASX opens on the front foot

Trading Desk / Saxo Capital Markets
Australia

By Saxo Capital Markets

  • Moves expected in the USD in the wake of strong GDP data
  • Big miners and banks climb in a generally upbeat open
  • US equities markets posted their second consecutive week of gains
  • Slew of economic data today and the RBA's decision tomorrow

Overnight and early trading

Shares have started the week on the front foot, as the big miners and banks climb in a generally upbeat open.

The ASX /S&P 200 was up 22 points, or by 0.4% at the start of trade. The big four banks climbed higher and Woolworths has climbed 1% in the aftermath of Friday's result, with the investment community looking pretty divided on the supermarket giant's outlook.

At 1023 AEDT (0023 GMT) BHP was up 1.5% and Rio 1.2% after a good Friday night of trading in London. But a fall in the iron ore price has likely helped pushed Fortescue down 1%

In Friday trading:

The US equities markets posted their second consecutive week of gains, although stocks closed mixed on Friday. The Dow Jones Industrial Average ended down 57.32 points, or 0.3%, to 16,639.97, putting its weekly gain at 1.5% and its year-to-date decline at 4.5%.

The S&P 500 fell 3.65 points, or 0.2%, to 1948.05, while the Nasdaq Composite rose 8.27 points, or 0.2%, to 4590.47. Both the Dow and the S&P 500 futures reversed at the 50% all time 2015 top to the recent February low retracement - see chart below.

Financials were the second best performer on the S&P500. They closed up 0.66%, while both the SPDR S&P Regional Bank ETF (KRE) and Bank ETF (KBE) outperformed with gains of about 2%. Utilities led sector declines with losses of 2.7%.

WTI slipped 0.9% to $32.78/barrel, although for the week it gained 3.2%.

The core personal consumption expenditures price index, which excludes food and energy, (the Fed's preferred inflation measure) showed a 1.7% rise in the 12 months to January, the largest since July 2014 which buoyed markets expectations of a rate rise.

US GDP, the broadest measure of goods and services produced across the economy, rose at a 1% annual rate in the fourth quarter, the Commerce Department said on Friday. It was better than the previous estimate of 0.7% growth and economists’ expectations of 0.4% growth.

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US GDP is growing ahead of expectations and consumption is showing a revival. Photo: iStock
 
Safe haven assets declined as a result: The yield on the 10-year Treasury note rose to 1.766%, from 1.699% Thursday, as prices fell. Gold fell 1.5% Friday to $1,219.80/oz.

The Dow transports gained 1.6% for their sixth-straight week of gains, the first such win streak since the seven week of gains which ended November 28, 2014.

The CBOE Volatility Index (VIX) was near 19.8.

Europe saw a strong finish to the week: the Stoxx Europe 600 rose 1.5% Friday, capping its second week in a row of gains. The Dax closed just shy of 2%, the CAC was up 1.56% and the FTSE rallied 1.38%.

Oil stocks jumped: Tullow Oil lifted 10.69%, Shell rallied 3.37% and BP finished 3.28% higher. The top performer in Europe though was the basic resources index. Mining heavy weights Anglo American rallied 6.74% whilst Glencore added 7.95%.

In earnings, Royal Bank of Scotland reported a full-year loss of £1.97 billion ($2.76 billion), narrowing from the £3.47 billion recorded the year before.

RBS, which is owned partly by the government after being bailed out during the financial crisis, has not turned a profit since 2008. The bank's stock tanked as much as 10% before closing down over 7%.

Local markets and commodities


  • S&P/ASX 200 Index futures +0.1%, futures relative to estimated fair value suggest little changed.
  • Bank of New York Australia ADR Index -1.2%. BHP Billiton ADR -1.2%. Rio Tinto ADR -0.6%.
  • Spot gold closed the week down marginally to $1,223. Volatility is still high with this precious metal with the day’s trading range spanning $29. Australia gold output climbs to 12-year high. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil was only slightly weaker with WTI down 0.6% to $32.78 while Brent was up just 0.1% to $35.10. U.S. producers are closing more and more oil rigs in an effort to cut capital expenditure and remain competitive with their best wells. Meanwhile the planned meeting with Saudi Arabia and Russia seem to also be giving the market just enough confidence. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore has seen a solid sell off for the second day, down 2.9% to $48.29. This is now the largest two-day drop since July 8. This comes even after the government stated it wanted to support the housing market. As it stands, China has enough empty housing for 9 million families. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals were generally up as the Chinese central bank stated it still had more ammunition in its back pocket to support markets. Copper closed the week at $4,706 and up 2.1% for the day. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • Australia Q4 inventories seen rising 0.1% q/q, according to a survey of economists compiled by Bloomberg; due 1130 AEDT (0130 GMT).
  • Australia 4Q company profits seen falling 1.8%, according to a survey of economists compiled by Bloomberg; due 11:30 AEDT.
  • Australia January private sector credit seen rising 0.5%, according to a survey of economists compiled by Bloomberg; due 1130 AEDT. 
  • RBA cut bets build as AUD gains combine with worst wage rises.
  • APA Group (APA): CEO considering renewable energy deals: AFR.
  • Recall (REC): Scheduled to release 1H results; NOTE: Adj. net income est. A$38.4m (3 analysts).
  • Slater & Gordon (SGH): Scheduled to release 1H results; NOTE: Feb. 24: Shares suspended pending financial results; Shares -88% past 12 months vs ASX 200 -16%.

Stock to watch: Pilbara Minerals (PLS)

PLS is a small cap miner with a focus on lithium. At a time when miners are out of favour and we foresee a further market selloff, a company like PLS could defy gravity.

The price of lithium has skyrocketed in the past six months as the likes of Tesla, Toyota and Honda source suppliers for their hybrid battery cars. Tesla in particular is investing substantially in home storage batteries at a level never seen before.

The daily chart of PLS tells the story of anticipation. An upward trend has emerged after years of tracking sideways between $0.025 - $0.05. Now at $0.40 it has formed a double top and will need to close above this market before it were to look at making its next move.

The question we propose is this, will the likes of lithium producers be the next big thing like infant formula was in 2015 and potash was in 2010?

Pilbara Minerals monthly chart

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Source: Saxo Bank

Performance

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Data points

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Broker upgrades and downgrades

- Alumina (AWC): Raised to overweight vs equal weight at Morgan Stanley
- Cabcharge (CAB): Cut to hold vs buy at Morningstar
- Graincorp (GNC): Cut to sell vs hold at Bell Potter
- Platinum Asset Mgmt (PTM): Raised to neutral at Credit Suisse
- Regis Healthcare (REG): Cut to hold vs add at Morgans
- OZ Minerals (OZL): Cut to hold vs buy at Argonaut
- Sky Network TV (SKT): Cut to underweight vs neutral at JPMorgan
- Sky Network TV (SKT): Cut to neutral vs outperform at First NZ
- Woolworths (WOW): Raised to outperform vs neutral at Credit Suisse

AUDUSD

The US dollar index rallied to close above the previous long-term uptrend on the back of the better than expected US GDP numbers. After AUDUSD found the solid resistance again at 0.7250.

It is expected to remain under further selling pressure ahead of tomorrow’s RBA decision and the Chinese Caixin manufacturing PMI data. Furthermore, the daily candlesticks of both copper and crude oil indicate signs of reversal.

The resistance level is now 0.72 handle but the uptrend is still intact, therefore we need to see another daily close below 0.71 handle to confirm further declines.

AUDUSD monthly chart

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Source: Saxo Bank

AUS200.I

The price actions in AUS200 have been choppy in the last three days as 4,900 remained as a key resistance level while the support level appears to be strong at 4,830.

The overnight high of 1,969 in e-mini S&P 500 seems quite critical as it is the 50% retracements between the all time high of 2,134 and the double bottom level 1,803. The performances of our big four banks would be crucial as they have been under severe downward pressure last week.

AUS 200 monthly chart
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E mini S&P 500 monthly chart
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Source: Saxo Bank - create your own charts with SaxoTrader. Click here to learn more 

Information sources for Today's Trade: 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 our daily morning call on Periscope at 9:45am: #SaxoAPAC

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