Article / 24 July 2017 at 1:08 GMT

Today's Trade: ASX returns to risk-off mode

Trading Desk / Saxo Capital Markets
Australia
  • Sharemarket returns to risk off, with investors jettisoning main shares
  • S&P/ASX200 index breaks key support from 200 DMA
  • Gold miners are enjoying strong support, adding 1.4% as a group

By Saxo Capital Markets

Overseas and early trading

The benchmark ASX 200 index had fallen around 50 points in early trading, or 0.9%, at 5672, with 1% losses in the major four banks.

Resources were also suffering this morning after oil dropped at the end of last week and iron ore retreated further. The ASX is now testing key support. Most of the major miners were down this morning, but gold miners rose as a sector by 1.4% - signs of investors heading for safe havens.

Stocks in Asia were set for a small drop ahead of a week packed with earnings results and a Federal Reserve interest rate decision.

The dollar remains near a 14-month low and the EUR is holding on to recent gains with the greenback near to a technical level that some say will precede more losses.

Equity-index futures in Japan, Hong Kong and South Korea were all lower and oil extended declines before an Opec meeting on Monday.

Earnings season and changes in central bank policy are providing the latest tests for the bull market in equities that’s propelled the value of global shares to $78 trillion.

Results at industry bellwethers from Amazon.com to GlaxoSmithKline and Credit Suisse Group are due this week.

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 Market fears? Gold miners are the only shares being bought with zeal. Photo: Shutterstock

The Fed is expected to stand pat, with investors looking to the accompanying statement for clues on how officials plan to start reducing the balance sheet.

The S&P 500 inched lower Friday but held on to a weekly gain as signs of health in corporate profits boosted shares.

The Dow Jones Industrial Average fell 31.71 points, or 0.1%, on Friday to 21,580.07, finishing the week down 0.3% and snapping a two-week streak of gains.

The S&P 500 declined 0.91 point, or less than 0.1%, on Friday to 2472.54, and the Nasdaq Composite declined 2.25 points, or less than 0.1%, to 6387.75.

Both the S&P 500 and Nasdaq ended higher for the week - up 0.5% and 1.2%, respectively - and near records, though Friday’s declines ended the Nasdaq’s 10-session winning streak. It was the tech-heavy index’s longest such streak since February 2015.

Losses in energy shares weighed on the S&P 500 Friday, as US crude for August delivery fell 2.5% to $45.77/barrel amid concerns that oil exporters won’t stick to output cuts. Oil dropped 2.1% for the week.

Energy stocks in the S&P 500 fell 0.9% Friday and are down roughly 14% in 2017.

Technology stocks in the S&P 500 slipped less than 0.1% Friday, concluding a week in which the index’s tech sector reached a new high for the first time in almost 20 years.

Tech shares have gained 23% this year, making the sector the best-performer in the S&P 500.
Some analysts said tech stocks remain attractive because of the ability of those companies to increase earnings even in times of tepid economic growth.

Microsoft shares slipped 43 cents, or 0.6%, to $73.79 Friday, despite posting a jump in profit after the market closed on Thursday that beat analysts’ projections.

Earlier in the week, shares of Netflix , which is classified as a consumer stock in the S&P 500 but often grouped with high-flying technology firms, had their best day of the year after the streaming giant beat its subscriber-growth estimate.

Facebook and Amazon.com have flirted with share-price milestones this past week ahead of coming earnings reports. Amazon, also technically a consumer stock, ended with a rise of 2.4% for the week.

It influenced major stock moves on Thursday after Sears Holdings announced it would sell Kenmore appliances directly on the e-commerce giant’s website. The news dragged down other appliance sellers, such as Home Depot and Lowe’s, on Thursday.

Earnings reports drove some of the biggest stock moves in Friday’s trading.

The shares of eBay dropped 57 cents, or 1.5%, to 36.61 Friday after the e-commerce company late Thursday reported earnings that were largely in line with Wall Street’s expectations.

Shares of Dow component General Electric declined 78 cents, or 2.9%, to 25.91 after the company reported a smaller-than-expected fall in earnings. Many analysts are skeptical that the industrial giant can meet its future financial targets.

Investors also kept a close eye on central-bank meetings in Europe and Japan this past week. Many expect global central banks to move slowly when withdrawing their monetary stimulus because of weak economic growth, providing favorable conditions for stocks and bonds.

The yield on the 10-year US Treasury note fell to 2.232%, from 2.266% Thursday, posting its largest two-week decline since March. Yields fall as bond prices rise.

Utilities shares, known as bond proxies because they pay relatively high dividends, were the best-performing S&P 500 sector on Friday, rising 0.8% to post a weekly gain of 2.6%.

The EUR rose 0.3% against the dollar Friday to $1.1666, for its highest late New York level since January 2015, a day after leaping 1% when European Central Bank president Mario Draghi reaffirmed his confidence in the Eurozone economy.

The US Dollar Index ended down 0.3% Friday, recording its lowest close since September.
Elsewhere, European stocks were broadly lower, dragged down by a fall in auto and construction stocks. The Stoxx Europe 600 declined 1%.

Source: Bloomberg, TradingFloor.com, WSJ.com

International earnings 

Monday: Google, TrustCo Bank Corp NY
Tuesday: AT&T, McDonald’s, General Motors and Caterpillar.
Wednesday: Nintendo, Facebook, Coca-Cola, Ford Motor and Boeing.
Thursday: Deutsche Bank AG, Royal Dutch Shell Plc and Twitter
Friday: Credit Suisse Group AG, Nomura Holdings Inc., Exxon Mobil Corp., Chevron Corp., UBS Group AG, Barclays Plc and BNP Paribas SA

Local markets and commodities

  • The S&P/ASX 200 Index futures contract falls 0.4%; futures relative to estimated fair value suggest an early decline of 0.5%.
  •  Bank of New York Australia ADR Index -1.2%, BHP Billiton ADR -1.1% to A$24.53 equivalent, 0.2% premium to last Sydney close, Rio Tinto ADR -0.9% to A$55.83 equivalent, ~11% discount to last Sydney close.
  • Gold prices rose for the sixth session in a row Friday, as the dollar weakened and investors closed out bearish positions. Gold for August delivery settled up 0.8% at $1,254.90/oz on the Comex division of the New York Mercantile Exchange. Gold prices have been buoyed by a weaker dollar in recent weeks. The safe-haven metal has also benefited from geopolitical uncertainty this year, as the Trump administration has run into challenges pushing through key legislation. The Gold stocks in Toronto rose 0.14% on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil dropped the most in two weeks as a report that OPEC’s July supply will be the highest this year fueled worries over a global glut. Futures tumbled 2.5% in New York on Friday, erasing gains from earlier this week. Supply from Opec is set to exceed 33 million barrels a day this month as members including Saudi Arabia and Nigeria increase shipments, according to tanker tracker Petro-Logistics. This calls into question the effectiveness of Opec's deal to reduce output and help rebalance the market as producers gather in St. Petersburg, Russia.
  • Oil’s fleeting rallies have been held back by concerns that growing output in the US, Libya and Nigeria is offsetting other producers' curbs, slowing the effort to shrink stockpiles. Earlier in the week, government data showed US crude production rose to the highest level since July 2015 and Opec member Ecuador said it would increase its production by year-end in order to raise revenue. West Texas Intermediate for September delivery declined $1.15 to settle at $45.77/b on the New York Mercantile Exchange, the lowest level in more than a week. Total volume traded was about 14% below the 100-day average. Futures have hit a wall every time they approached $48 this month. Brent for September settlement fell $1.24 to end the session at $48.06 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.29 to WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore prices eased lower as the continued unwind of long positions in futures markets in China pushed physical traders to the side-lines. Spot iron ore dropped 1.3% or $0.91 to close at $67.14/tonne. Rebar and hot rolled coil prices on Shanghai Futures Exchange have fallen over 5% over the course of the week, as concerns over US tariffs on Chinese steel weighed on the market. Stockpiles of iron ore at Chinese ports rose slightly last week. According to SteelHome data, they increased by 0.5% to 140.5mt. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper hit a 4-1/2 month peak, fuelled by strong growth in top copper consumer China, a weak US dollar and worries about supply disruptions. Three-month LME copper closed up 0.8% at $6,004/t, having hit its highest since March 1 at $6,051/t. Copper inventories in Shanghai Futures Exchange-monitored warehouses fell 4.9% from last Friday to their lowest since January. Aluminium closed down 0.1% at $1,915/t.
  • Indonesia exported 403,201 tonnes of nickel ore in the first six months of 2017, when a complete ban on exports was lifted. Philippine President Rodrigo Duterte said the government will draft a new law for the country's mining industry. Worries over supply from the Philippines have faded since the country's firebrand environment secretary was replaced in May. LME nickel ended up 0.3% at $US9520 a tonne. Zinc closed up 1% at $US2753, lead closed up 1.2% at $US2239 while tin ended up 0.8% at $US20,225. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In other news: Newcrest Mining Ltd.’s 4Q gold production sinks after quake damages Cadia mine, the company said in statement this morning. Lihir project sees record quarterly gold production and record mill throughput rate of 14.5m tons a year. Cadia FY gold output 620k oz vs target of 730k-820k oz; BHP Billiton (BHP): Don’t count on iron ore collapse in 2018, AMP Capital says; CSL (CSL): Gets orphan-drug exclusivity for Haegarda; Iluka (ILU): 2Q production report; National Australian Bank (NAB): New corporate head bets on infrastructure, debt for growth;Pepper Group (PEP): Is said to be mulling PrimeCredit IPO pitches: AFR; Westpac Banking (WBC): Enters talks with Charter Hall over sale of Hastings; Whitehaven (WHC): European 2018 coal posts biggest weekly gain since February.

Australian calendar

Monday
June 2017 Sales and Revenue Release: Newcrest Mining Ltd, Iluka
Tuesday
June 2017 Sales and Revenue Release: St Barbara Ltd, Independence Group NL
Thursday
Macquarie Group Ltd (AGM), GUD Holdings Ltd (2017 Earnings Call), CYBG PLC (Q3 2017 Sales and Revenue Release)
June 2017 Sales and Revenue Release : Beach Energy Ltd, Fortescue Metals Group Ltd
Friday
Westpac Banking Corp: Business Update Call
Iron Mountain Inc: Q2 2017 Earnings

Broker gradings

- Aurelia Metals (AMI): Raised to buy at Hartleys Ltd, PT A$0.43
- Myer (MYR): Cut to hold at Morningstar
- Perpetual (PPT): Cut to underweight at JPMorgan, PT A$46.50
      

DXY, EURRUB, USDCAD, AUS 200, JP225

The US Dollar index was once again punished all throughout last week with the final 76.4% retracement at 94.70 failing to hold losses. The market is now left eyeing the 200 weekly moving average at 92.24 which sits just above the 2016 all time low at 91.88.

The USD now also threatens the 2015 / 2016 base that was formed and this remains as final defence for the US dollar index however, the 200 weekly moving average at 92.24 should lend strong support in the week ahead and we set up a long trade slightly above here at 92.30 with a stop under 91.88 or a 0.45% move.

To the topside we go onto target the 95 handle or just under 3% in gains.
 
The EURRUB last week saw its high come in at some challenging levels as seen in history but more interesting is the EURRUB reversal price action it develops this year to date as it forms an inverse head and shoulder formation and the high we saw last week happened to be that 100% inverse head and shoulder target. Now if this level happens to hold another attempt of gains this week, we would expect to see profit taking to drive the pair lower over the coming sessions.
 
USDCAD extended losses despite negative CPI prints last Friday. This signals selling pressure is strong and recent US dollar weakness continues to exist. Next support level would be 2016 low 1.2460 while the major support zone would be 1.23-1.2360 where long term uptrend meets 200 weekly MA.
 
AUS200 continues to show sideway price actions and it looks like it would test the 200 DMA if it struggles below 5,700. While we see a lack of upside momentum, key support level is expected to remain at 5,650.
 
The JP225 has been hovering near the psychological level 20,000 in the past seven weeks without clear directions. It usually has a high correlation to USDJPY but we are seeing a clear divergence as JPY has been rising sharply higher in the last two weeks. We would look to sell JP225 as long as it keeps making lower weekly highs.
 
Today's Trade 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.


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