Article / 15 January 2016 at 0:14 GMT

Today's Trade: ASX relieved by a sea of green

Trading Desk / Saxo Capital Markets
Australia
  • ASX is enjoying a relief rally with a sea of green across the board
  • BHP jumps 5% despite announcing a $7 billion impairment on its US shale assets
  • The ASX 200 adds 82 points, or 1.7%, to 4987 in the first 10 minutes of trading
  • Mining and energy names enjoy a boost after a commodities rallied overnight

By Saxo Capital Markets

Overnight and early trading

The Australian market opened higher this morning after Wall Street rallied strongly following gains in Chinese sharemarkets yesterday.

At the 1015am AEDT, (0015 GMT) official market open, the benchmark S&P/ASX200 index was up 77.6 points, or 1.58%, to 4987.

The US S&P 500 crossed a key technical level overnight as it finished 1.7%, a rebound in oil prices boosting energy companies, while yesterday a volatile session in China saw the Shanghai Composite Index finish up 2% after falling as much as 2.8% in earlier trading.

In overnight news:

  • Driven by the decent bounce in the price of oil (WTI gained 2.4% to $31.20 a barrel), US stocks rallied in a broad stock rally which saw the Dow Jones Industrial Average put in its biggest one-day gain of the year, rising 228 points, or 1.4%, to 16,379. The S&P 500 rose 32 points, or 1.7%, to 1,922, while the Nasdaq Composite gained 89 points, or 2%, to 4,615
  • Leading the rally were some of this year’s underperformers, from oil stocks to miners and to biotechnology stocks. Energy stocks outperformed, clocking its biggest gains in the S&P 500 as the energy sector advanced 4.5%. One company which stood out was Williams, which rocketed 34% following an 18% decline on Wednesday. Oil players Chevron and Exxon Mobil were the Dow’s top gainers, rising 5.1% and 4.6%, respectively.
  • The Nasdaq Biotechnology Index rallied 4% however remains down 14% this year. Copper miner Freeport-McMoRan gained 12% and remains 38% lower this year Markets also welcomed reporting from JP Morgan Chase, the biggest US bank by assets, with its shares gaining 1.5% which lifted the broader S&P 500 financials index by 1%. JP Morgan reported a net income of $5.4 billion, earnings per share of $1.32, on revenue of $23.7 billion which beat street estimates.
  • In economic news, initial jobless claims rose to 284,000 in the week ended January 9, the Labor Department said Thursday.
  • In other news, St Louis Federal Reserve President James Bullard said stated night that a continued decline in inflation expectations may change his outlook for further Fed rate hikes. Bullard is a voting member of the central bank's policy-making committee.
  • Over in Europe stocks clocked decent losses however were well off their lows with the Stoxx Europe 600 down 1.5% after falling 3% earlier in the session. The Dax closed 1.67% lower, the CAC dropped 1.80% and the FTSE lost 0.72%.
  • In the spotlight in Europe was the autos sector which was the key underperformer. Shares of French carmaker Renault tumbled as much as 19% before closing 10.3% down, after confirming its offices were searched last week regarding a fraud investigation Shares in Italian auto maker Fiat Chrysler (FCA) fell almost 8% by the close, after the owner of two Chicago-area dealerships filed a lawsuit accusing the company of inflating sales, adding to the legal woes hitting the sector. Both reports had a knock-on impact on other autos stocks, including Peugeot Citroen, down 5%, while Volkswagen and Daimler were both off more than 3.5%.
  • In European earnings news, Britain's biggest supermarket chain Tesco said group like-for-like sales in the six weeks ending January 9, the key Christmas period, were up 2.1%, sending shares up over 6%. Switzerland's Richemont - the owner of brands including Cartier and Piaget - said sales in the three months to December fell 4% due to weakness in Europe. Shares in the company fell more than 1%.

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Commodities have bounced back, but is it just another temporary spike? Photo: iStock

Local market and commodities

  • BHP Billiton ADR was up +7.4% overnight and was set for largest rise since Novembver 2011 to A$15.66 equivalent, 5.2% premium to last Sydney close. Rio Tinto ADR was up +6.4%, set for biggest one-day advance in three months to A$36.26 equivalent, 6.7% discount to last Sydney close.
  • Spot gold has suffered a 1.7% fall on the bounce of global equities in the US Holding flat during the European fall in stocks, gold sold off from $1,095 to the depths of $1,071 with a small recovering after NYSE closing bell. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil has lifted after yesterday’s heavy fell off. WTI and Brent rose 1.9% and 3.2% to $31.14 and $31.00. Iran is at the gates waiting for world sanctions to be lifted. They will instantly bring half a million barrels to market with another half million in six months according to the Iranian Oil Minister. However if they so wished, they could bolster supply by 4m barrels/day before the end of 2016. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore bounced off yesterday’s strong sell off, however it’s not anticipated to be a recovery, only opportunistic buying. It appears a number of steel companies are undergoing corporate credit downgrades and with it, recognition of weaker balance sheets to fund higher iron ore pricing in the long term. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals were up across the board with aluminium leading the way, rising 1.3% to $1,482. Copper climbed 0.6% to $4,415. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • In other news: Australia's November home loans seen at -0.5% month on month - data to be released at 1130 AEDT (0130 GMT). Sydney time; Alumina (AWC): Alcoa investors awaiting split payoff get gloom in 2016 outlook; Ansell (ANN): Files patent infringement suit vs Reckitt Benckiser; BHP Billiton (BHP): Dividend and capex cuts needed: Citi; Oil Search (OSH) raised to outperform at RBC Capital; PT A$7.60; Recall (REC): Iron Mountain says CMA to refer Recall buy to phase 2 review; Rio (RIO): Freezes pay from CEO down as commodity collapse to persist; Wesfarmers (WES): Buying Homebase would reduce rating cushion: Moody’s

Stocks to watch

Myer (MYR): The retailer has been recovering since its all-time lows in September, when it was recognised the poor sentiment over the stock had been overdone. With a new CEO and strategy installed during 2015, MYR has been given a chance to turn things around. Until this strategy can be verified as working (which may take one to two years), the stock is trading purely on sentiment.

Yesterday MYR fell to its 100 Day Moving Average as well as touched its 50% Fibonacci retracement level. Both strong points of support along with the US strong lead, we expect MYR to jump more than the market as a whole for a short term trade.

Myer monthly share price chart
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Source: Saxo Bank

Data points

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Open positions

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Broker upgrades and downgrades

  • Commonwealth Bank (CBA): Raised to neutral vs sell at Goldman
  • BHP Billiton (BHP): Buy BHP after share drop at Citi
  • Vicinity Centres (VCX): Raised to buy vs neutral at UBS
  • Bendigo & Adelaide Bank (BEN): Cut to sell vs neutral at Goldman
  • Santos (STO): Cut to sector perform at RBC Capital; PT A$3.35

AUDUSD

The employment number (1000 jobs lost) was worse than last two months, but it was mainly driven by the part time component as the full time employment was a decent outcome with 17,600. 

AUDUSD bounced off the support level 0.69 handle as the copper and iron ore made a strong rebound. The 0.70 handle would be the key resistance level and if we see a daily candlestick with a close above it, then a further rally would be very likely towards the next resistance levels 0.71-0.7120

AUDUSD monthly chart
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Source: Saxo Bank

AUS200.I

The ASX/S&P 200 index reached a two-and-a-half-year low yesterday, while the SPI futures is still yet to test the last year’s August low of 4,733 as the index made reversed upwards after failing to touch 4,800.

The positive sentiments for the major indices seem to have begun when the Shanghai Composite index closed positive up 2% above the psychological level 3,000 despite gapping down on the open near the August low of 2,850 and this level would be the double bottom for now.

We expect AUS200 to be supported by the big miners on the back of the strong rebound of the commodity prices but may see some choppy price actions between the resistance level at 5,000 and the support level 4,860.

AUS200.I monthly chart

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Source: Saxo Bank - create your own charts with SaxoTrader. Click here to learn more 

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 our daily morning call on Periscope at 0945 AEDT: #SaxoAPAC

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