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The Asia-Pacific session saw investors step in to pull the Nikkei 225 index out of a week of declines in which it briefly breached the 22,000 level. EURUSD, meanwhile, continues to look robust despite a lack of support from other major dollar pairs.
Article / Tuesday at 22:51 GMT

Today's Trade: ASX set to open lower

Trading Desk / Saxo Capital Markets
Australia
  • Local markets are on track to open lower following Wall St leads
  • Nickel fell more than 5%, leading a broad-based pullback in base metals prices 
  • Uncertainty over the fate of US tax cuts prompted some safe-haven buying of gold
  • US crude oil posted its biggest one-day drop in more than a month

By Saxo Capital Markets (Australia)

Overnight
 
  • US stocks slipped amid signs of a commodities glut and uncertain prospects for American tax cuts, while the dollar lost the most since September as the American yield curve flattened further ahead of inflation data. The S&P 500 Index fell for the third time in four days.
  • Shares of oil-and-gas firms, chemicals companies and miners dragged down major US stock indices overnight.
  • The declines tracked a slump in commodities prices, with US crude oil posting its biggest one-day drop in more than a month.
  • The Dow Jones Industrial Average shed 30 points, or 0.1%, to 23,409, while the S&P 500 slid 0.2%. The Nasdaq Composite fell 0.3%
  • The energy and materials sectors were among the biggest decliners in the S&P 500.
  • US crude slid 1.9% to $55.70/barrel after the International Energy Agency said the oil price rally could be short-lived and global oil demand would be weaker than expected this year and next.
  • The move pressured energy shares, with Range Resources and Newfield Exploration both falling more than 6% each. Energy companies in the S&P 500 were down 1.5%.
  • Meanwhile, metals miner Freeport-McMoRan, which was off 4.4%, and chemical company Albemarle – down 4% – contributed to a broad decline among material companies.
  • Utilities in the S&P 500 continued to move higher. The sector, considered by some investors to be a relatively stable income-producing investment, gained about 1.2% Tuesday after rising 1.2% a day earlier.
  • Despite major indices notching slight gains on Monday, the Dow industrials and S&P 500 have traded lower three out of the past four sessions, in part because of investors’ concerns about how Republicans will proceed with their tax overhaul. That has coincided with signs of stress in high-yield debt and the winding down of the third-quarter earnings season.
  • The Stoxx Europe 600 reversed early gains to edge down 0.6% to its lowest close since September in its sixth consecutive session of declines.

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

...
 Nickel fell more than 5%, leading a broad-based pullback in base metals prices after weak economic data from China sparked concerns about demand. Photo: Shutterstock

Local markets and commodities

  • S&P/ASX 200 Index futures are down 0.4% to 5,950. Futures relative to fair value suggest an early decline of 0.5%
  • Bank of New York Australia ADR Index is down 1.9%, set for biggest fall since August 10, to 268.1, BHP Billiton ADRs are down 2.5% to A$27.26 equivalent, a 2.5% discount to last Sydney close, Rio Tinto ADRs are down 2.4% to A$62.90 equivalent, a 13.9% discount to last Sydney close
  • Gold rose slightly on Tuesday, as a weakening US dollar and sluggish stock market helped pull the precious metal off a one-week low hit in early trade, while traders also said uncertainty over the fate of a US tax cut prompted some safe-haven buying of gold. 
  • Spot gold was up 0.34% at $1,281.94/ounce, after heading as low as $1,270.56 in earlier trading. US gold futures for December delivery settled up 0.3% at $1,282.90/ounce. Gold touched a session low of $1,270.56, its lowest since November 6, after US Treasury yields touched fresh highs as investors priced in a rate hike next month. Higher bond yields reduce gold's appeal. 
  • Gold stocks in Toronto were largely unchanged overnight falling 0.01%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Crude took a step back now that 2018 isn’t looking so hot anymore. Futures tumbled 1.9% in New York, the biggest decline in more than a month after touching 2015 highs last week. Hopes that a potential extension of Opec's supply curbs will help support the market next year were tempered on Tuesday when the International Energy Agency said the recent recovery in oil prices coupled with milder-than-normal winter weather is slowing demand growth. 
  • Crude rallied above $57/barrel in New York last week to the highest level since June 2015 as tensions in the Middle East raised concerns about the potential for supply disruptions. Prices also found support from expectations that Opec will extend output cuts scheduled to expire in March. That was before the IEA warned that the supply surge from US shale fields will be bigger than anything the oil and natural gas industry has ever seen. 
  • West Texas Intermediate for December delivery fell $1.06 to settle at $55.70/barrel on the New York Mercantile Exchange. Brent for January settlement dropped 95 cents to end the session at $62.21 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $6.32 to January WTI. 
  • The IEA reduced its demand estimate for next year by 200,000 barrels/day to 98.9 million b/d, according to projections in its report. Forecasts for demand growth next year
  • also fell by 100,000 b/d to 1.3 million a day. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore prices managed to buck the wider trend in commodity markets and end the day higher. Both spot and futures prices pushed higher as traders brushed aside concerns about economic growth in China. Instead, they remain focused on the impact of steel production curbs heading into the winter. 
  • Despite these restrictions, steel production remains relatively strong. Data released yesterday showed that October output rose slightly from the previous month to 72.36mt. This was also up 5.6% compared with same time last year. This saw steel prices push higher, with steel rebar and hot-rolled coil up between 0.5-1% on the Shanghai Futures Exchange. 
  • Spot iron ore added 1.6% or $0.98 to close at $63.17. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Nickel fell more than 5%, leading a broad-based pullback in base metals prices after weaker-than-expected economic data from China sparked concerns about demand. Three-month nickel on the London Metal Exchange closed down 5.7% at $11,780/tonne, its biggest one-day drop since March 2016. 
  • The three-month zinc price on the London Metal Exchange has increased by more than 25% so far this year, with the price closing the official session at $3213/tonne on Monday. This compares with a closing price of $2522/tonne on January 3, the first trading day of the year. 
  • China's aluminium production fell for the fourth consecutive month in October, according to data published by the country's National Bureau of Statistics on Tuesday. China produced 2.55 million tonnes of electrolytic aluminium in October, a year-on-year decrease of 7.5% and 2.3% lower than the 2.61 million tonnes produced in September. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • ANZ Bank (ANZ AU): KWAP CEO Says No Longer Pursuing ANZ’s Stake in AmBank: Reuters
  • Aurizon (AZJ AU): Aurizon Likely to Reduce Risks from Potential WICET Deal: S&PGR
  • AusNet (AST AU): 1H Results Expected; Note: 2-Analyst Rev. Est. A$1.01bn
  • Aveo Group (AOG AU): Annual Meeting Scheduled
  • BHP Billiton (BHP AU): BHP- Vale, Prosecutors Are Said to Present Spill Plan This Week; Samarco’s First Mining Permit Could Be Approved Later This Month
  • DuluxGroup (DLX AU): FY Results Expected; Note: FY Adj. Net Income Est. A$139.2mln (9 analysts)
  • Navitas (NVT AU): Annual Meeting Scheduled
  • Pact Group (PGH AU): Annual Meeting Scheduled
  • Paladin Energy (PDN AU): Utilities Pour Salt on Miners’ Wounds as Uranium Supplies Swell
  • Western Areas (WSA AU): Nickel Plunges in Metals Selloff as Mood Turns Sour in Shanghai
  • Woodside (WPL AU): Hess’s Equus Exit Opens Option of North West Shelf LNG Deal

Broker downgrades

  • Abacus Property (ABP AU): Downgraded to Neutral at JPMorgan; PT A$3.80
  • Orocobre (ORE AU): Orocobre Downgraded to Hold at Deutsche Bank
  • Healthscope (HSO AU): Downgraded to Neutral at JPMorgan; PT A$1.95
  • Incitec (IPL AU): Downgraded to Underperform at Credit Suisse; PT A$3.49

Australian companies calendar

  • Wednesday: AGM: Aveo Group, Pact Group Holdings Ltd, Navitas Ltd. Earnings: AusNet Services, DuluxGroup Ltd
  • Thursday: AGM: Commonwealth Bank of Australia, News Corp, Goodman Group, Mirvac Group, Platinum Asset Management Ltd, Ramsay Health Care Ltd, Seven Group Holdings Ltd, BHP Billiton Ltd, Vicinity Centres, Harvey Norman Holdings Ltd, Northern Star Resources Ltd, Costa Group Holdings Ltd, Wesfarmers Ltd
  • Friday: AGM: ResMed Inc, LendLease Group

Crude oil futures, AUDCAD, NZDUSD and AUDJPY

Crude oil futures tumbled overnight as the International Energy Agency lowered its forecast for demand, calling into question a key element of oil’s recent rally. Prices saw selling ahead of its 200-weekly moving average last week, and overnight’s fresh low forced oil to close below the $55 handle. 

The market will be keenly eyeing the $55 area to potentially hold prices from further losses given that these levels translated to the 2016 Q4 high as well as the 2017 Q1 resistance. Further below here lies the 2015 – 2016 original downtrend as next reasons to find support.

Crude oil weekly
1
Source: SaxoTrader
 
Since a triple top was formed at 1.0335 during November 2016 and May 2017, AUDCAD has been under selling pressure. However, the 0.97 handle remains as a valid support level. AUDCAD failed to have a daily close below 0.97 in the last two months, therefore we favour going long near 0.97.

AUDCAD monthly
2
Source: SaxoTrader
 
A bearish flag is seen in the kiwi dollar (NZDUSD) and yesterday the lower support line was breached at the 0.69 handle. The double bottom (at 0.6817) should continue to act as a key support level but we are expecting a further decline in the near term.

NZDUSD monthly
3

Source: SaxoTrader 

AUDJPY is fast approaching its 2016-17 trendline, which interestingly intersects the 200DMA at the 86 handle. Another reason for interest at this uptrend is served by the 50% retracement between the June low to September high as well as the cluster of noise seen in August. 

Prices also consolidate within a wedge and due to this alignment of reasons we exercise patience and monitor for a potential retest of this uptrend as this would offer a long opportunity at the 86 handle targeting the 87 handle as the first upside target followed by 87.80. The long position is void should we see two settlements or more below the one-year uptrend.

AUDJPY monthly
4
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more 

Today's data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– 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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