Article / 19 March 2018 at 23:02 GMT

Today's Trade: ASX set for lower open on tech slump

Trading Desk / Saxo Capital Markets
Australia

  • The ASX is set to open lower following the sharp losses in tech stocks overnight 
  • Facebook shares suffered their largest decline in four years
  • Iron ore fell 3.4% to $67.45/tonne
  • Gold prices turned positive on weakness in equity markets


By Saxo Capital Markets (Australia)

Overnight

Stocks in Asia are poised to follow US equities lower after a selloff in technology shares bruised trader sentiment before a key Federal Reserve policy meeting. 

Futures signalled declines on equity indices in Japan, Australia and Hong Kong.

Facebook shares suffered their largest decline in four years, jolting investors who have rallied behind a handful of hot technology firms and raising fresh questions about the resiliency of a nine-year-old bull market in US stocks. Its shares tumbled 6.8%, wiping out $36.4 billion in market value, following news that a firm tied to US President Donald Trump’s 2016 election campaign gathered data from millions of Facebook profiles without authorisation. 

The Dow Jones Industrial Average dropped 335.60 points, or 1.3%, to 24,610.91, falling back into negative territory for 2018 following a 25% gain last year.

Together, Facebook, Amazon, Netflix and Google parent Alphabet – young firms closely associated with the Silicon Valley technology scene and deemed to be “disruptors” of rival firms engaged in media, travel, online shopping and other businesses – shed roughly $76 billion in market value. The Facebook news raised concerns among analysts and investors about the company's capacity to handle customer data in a way that will enable it to continue to make money while protecting user privacy.

The so-called FANG shares have grown to such a size ($2.2 trillion collectively) and have been responsible for such a large proportion of market indexes’ gains over the past year that some investors are worried their decline could rattle sentiment anew. US shares have been shaken this year by their first correction, or decline of 10% or more, in two years, and indexes have been struggling to regain momentum since the Dow Jones Industrial Average’s last record high on January 26.

Meanwhile, investors remained on edge about interest rates rising further this week with the conclusion of the Federal Reserve’s two-day policy meeting Wednesday, and about the prospect for a possible escalation in trade tensions. All 11 major S&P 500 sectors finished the day lower, with energy, healthcare and materials companies were among the biggest decliners after tech.

All 30 Dow components traded lower except Boeing, which rose fractionally. The S&P 500 fell 39.09 points, or 1.4%, to 2712.92, falling for the fifth time in six sessions, while the Nasdaq Composite dropped 137.74 points, or 1.8%, to 7344.24. The tech-heavy index had recovered its February losses in recent weeks and set a new record high a week ago.

It was the biggest decline for the S&P 500 and Nasdaq since February 8, while the Dow suffered its biggest fall since March 1.

Technology stocks have been a key pillar of support for a stock market that has been struggling to maintain its upward momentum since the Dow industrials and the S&P 500 entered into correction territory in February.

Fears that the Federal Reserve could raise interest rates more quickly than expected to keep inflation in check and concerns over whether the Trump administration’s protectionist policies will spark a trade war have roiled stocks over the last month. The Dow is down 7.5% from its record high.

Valuations among tech’s biggest names were stretched even further, as companies like Microsoft, Apple and Cisco have contributed nearly a fifth of the S&P 500’s gains for the year so far, according to S&P Dow Jones Indices. Including Amazon and Netflix, two tech companies that sit alongside other consumer-discretionary stocks in the S&P 500, those five companies make up nearly half of the broad index’s gains for the year.

The market’s tilt toward tech has been a major concern among money managers who say the overreliance on one particular sector has made major indexes more vulnerable to a selloff similar to Monday’s.

Shares of Alphabet fell $34.35, or 3%, to $1,100.07, while PayPal Holdings shed 1.86, or 2.3%, to 80.30. Netflix, meanwhile, fell 4.97, or 1.6%, to 313.48, while Amazon stumbled 26.75, or 1.7%, to 1,544.93.

Futures contracts gave a 94% chance to the Fed raising interest rates by 0.25 of a percentage point Wednesday to a range between 1.5% and 1.75%, according to data by CME Group. This would be the first time borrowing costs go up in 2018, and investors are trying to gauge whether Fed Chairman Jerome Powell will raise rates three more times this year, or only two.

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


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 Gold prices turned positive on weakness in equity markets. Photo: Shutterstock


                                                                                    
Local markets and commodities

  • S&P/ASX 200 Index futures are down 0.6% to 5925. Futures relative to fair value suggest an early decline of 0.4%.
  • Bank of New York Australia ADR Index is down 1.5% to 267.7, BHP Billiton ADRs are down 2.7% to A$28.64 equivalent, a 2.0% discount to last Sydney close, Rio Tinto ADRs are down 1.8% to A$66.88 equivalent, a 12.7% discount to last Sydney close
  • Gold prices turned positive on weakness in equity markets after touching their lowest in more than two weeks on Monday ahead of a US central bank meeting that could raise interest rates and signal three more increases this year. 
  • Spot gold rallied to $1,319 after printing its lowest levels since March 1. US gold futures for April delivery settled up $5.50, or 0.4%, at $1,317.80/ounce. The two-day Federal Open Market Committee meeting begins tonight, with the US Federal Reserve expected to raise interest rates for the first time this year on Wednesday. Gold stocks listed in Toronto eked out a small gain of 0.19% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Crude closed lower for the first time in four sessions as equities declined around the world against the backdrop of surging oil-production growth from US shale drillers. West Texas Intermediate for April delivery, which expires on Tuesday, dropped 28 cents to settle at $62.06/barrel on the New York Mercantile Exchange. Total volume traded was about 30% below the 100-day average. 
  • Front-month futures traded at a 7-cent discount to the second-month WTI contract after earlier widening to as much as 10 cents. When upfront supplies sell for less than later-dated barrels – a market condition known as contango – it’s typically a bearish signal because it makes it more profitable to stow crude in storage. 
  • Brent for May settlement fell 16 cents to end the session at $66.05 on the London-based ICE Futures Europe exchange. The global benchmark held a $3.92 premium to WTI for the same month. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore is losing altitude fast as investors fret about record holdings at China’s ports and concern that demand may disappoint. Chinese iron ore prices fell 4.5% in their biggest daily drop in almost 10 months, closing at their lowest level since November on high inventories and a weak domestic steel market. 
  • In Singapore, the most-active SGX AsiaClear contract lost 3.8% to close at the lowest since December 7. Prices have sunk 16% from the multi-month peak in February. After racking up three weeks of losses, iron ore’s at risk of sliding back into a bear market, hurting top producers including Rio Tinto Group, BHP Billiton Ltd. and Vale SA. 
  • According to a survey by consultancy SteelHome, iron ore inventories at 47 Chinese ports stood at 159.18 million tonnes on March 16, having increased by 600,000 tonnes from the previous week. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper slipped in pre-Fed caution: Copper eased and aluminium briefly touched its lowest since mid-December as cyclical assets broadly weakened.  
  • Copper lost 0.5%, extending losses seen last week as hedge funds cut net-long copper positions amid burgeoning stockpiles. LME nickel also suffered a loss, down 1.1% to settle at $13,480/ton in London, as the number of Chinese cities reporting stronger house prices fell to the lowest level in five months in Feb. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Ex-Dividend: Crown Resorts
  • In reporting this morning, TPG Telecom raised its earnings guidance amid corporate unit growth, and raises its underlying Ebitda forecast to A$825m-A$830m vs prev. target A$800m-A$815m; Affirms BAU capex target A$270m-A$310m. Mobile network construction in Australia, Singapore progressing well, capex remains in line with forecasts. 1H net A$198.7m, down 11.3% y/y. Underlying profit A$217.7m, up 4.9% y/y. Faced headwinds in 1H from shift of DSL customers to lower margin NBN services, loss of gross profit from home phone services. EPS A$0.215, down 18.6% y/y, Ebitda A$418.2m, down 11.7% y/y. Rev. A$1.252b, up 0.8% y/y. 4 buys, 6 holds, 4 sells; avg PT A$6.08: Bloomberg data. Shares down 8.1% YTD vs ASX 200 Index down 1.7%
  • Vitol to Consider A$2b Viva Energy IPO of Refinery, Fuel Import Terminals: AFR 
  • APA Group (APA AU): APA Starts Entitlement Offer Retail Shortfall Bookbuild: Terms
  • Amcor (AMC AU): Among APAC Stocks That Are Forming Major Technical Chart Patterns
  • Aveo Group (AOG AU): Plans New Project on Sunshine Coast: AFR
  • Liquefied Natural Gas (LNG AU): Magnolia LNG Needs 4 Million Tons in Contracts to Reach FID: CEO
  • Oil Search (OSH AU): Exxon Proposes It Operates Expanded PNG LNG Project
  • Rio Tinto (RIO AU): This Rio Sale May Be More Than Australia Can Swallow: Gadfly

Broker upgrades and downgrades

  • Nine Entertainment (NEC AU): Nine Entertainment Cut to Neutral at Credit Suisse; PT A$2.35; Downgraded to Sell at Morningstar
  • Seek (SEK AU): Downgraded to Reduce at Morgans Financial; PT A$19.07

Australian stock to watch: Westpac (WBC)

Westpac (WBC) is on the verge of breaking the nine-year uptrend that started in early 2009.  Yesterday WBC a printed 52-week low as it momentarily broke below the 2017 low of $27.40.  WBC is clearly one of the most underperforming stocks out of the big four banks. Price actions over the past four months were nothing but weakness. Focus will be the quarterly close as well as the monthly close next week to determine the validity of further declines.  Even if the long-term uptrend is breached, the key support level would stay valid at $27.50.

Westpac yearly

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Source: Bloomberg


USDCHF

The VIX spiked again above 20 for the first time in almost two weeks as major equity indices declined more than 1% across Europe and US.  Gold (XAUUSD) and US treasuries continue to trade sideways heading into the FOMC expected rate hike this week. USDCHF appears to be forming an ascending wedge thus there is a scope for downside risk if the uptrend of the wedge is breached, although USDCHF currently remains resilient as it managed to show two consecutive weekly closes above the 0.95 handle. 


USDCHF monthly

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Source: Saxo Trader

– 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. Saxo Capital Markets (Australia). 

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