Today's Trade: ASX shows caution ahead of big meets
- The ASX has added 0.2 % to 5315.5, while the broader All Ords is up 0.2%
- CBA is down 0.4%, Westpac 0.3%, while NAB and ANZ are posting small gains
- Investors await crucial updates from US and Japanese central bankers
By Saxo Capital Markets
Overnight and early trading
At the 1015 AEST (0015 GMT) official market open, the benchmark S&P/ASX 200 index lifted 11.5 points, or 0.22%, to 5,315.5, while the broader All Ordinaries index added 11.8 points, or 0.22%, to 5,409.1.
In overseas markets, bonds climbed, while US stocks ended little changed for a second day, as the countdown to policy decisions from the Federal Reserve and the Bank of Japan entered its final stretch. Oil rose.
Treasuries halted a two-day decline as traders saw 22% odds of an interest rate hike from the Fed on Wednesday.
The S&P 500 Index advanced less than 0.1% as about 100 more stocks fell than rose. The yen extended what’s shaping up to be the best performance among major currencies this year, climbing for a second day amid speculation the BoJ is running out of ammunition to spur inflation through monetary easing.
Traders have reduced bets on a Fed rate hike in September after US employers added fewer jobs than forecast and growth in the services industry slowed.
Meanwhile, a narrow majority of economists surveyed by Bloomberg News expect the BoJ to announce an expansion of its already unprecedented easing program come Wednesday.
Such a forecast could be interpreted as a sign that a hike is coming at the December meeting, instead of at the November gathering, which comes a week before the US presidential election.
That said, the Fed regularly emphasises that politics are not a consideration in their decision-making.
Wagers that the BoJ may move to lift long-term yields helped push US notes due in three decades to a 4.4% loss this month through September 19.
By doing neither at recent meetings, the bank fuelled bets that its tools are losing their potency. Whether the BoJ decides to widen the gap between long- and short-term yields, or to cut rates, currency strategists say the biggest threat to the yen would be signs of hawkishness from Fed chair Janet Yellen, who speaks after the decision on Wednesday.
the yen would be signs of hawkishness from Fed chair Janet Yellen. Photo: iStock
Mexico’s peso led losses among the most-traded currencies, sinking to a record and testing the central bank’s willingness to intervene.
About 5.9 billion shares traded hands on U.S. exchanges, 13% below the three-month average.
Consumer staples and drugmakers paced Tuesday’s advance, with biotechnology shares rallying after Allergan agreed to buy Tobira Therapeutics for as much as $1.7 billion.
Lennar led a decline in homebuilders after data showed US housing starts dropped more than forecast in August.
LEG Immobilien AG led a rally in real estate stocks after Societe Generale SA recommended buying shares in the German property company. The MSCI Emerging Markets Index rose for a second day.
Futures on Hong Kong’s Hang Seng China Enterprises Index added 0.3%, while those on Australia’s S&P/ASX 200 Index dropped 0.2%. FTSE China A50 Index futures gained 0.1%.
Opec may formalise this month’s talks as it seeks ways to cut crude supplies by 1 million barrels a day to re-balance markets and stabilise prices, Algerian Energy Minister Noureddine Bouterfa said.
Prices dropped earlier in the session as Nigeria and Libya said they were boosting production.
Gasoline slumped after the projected restart of Colonial Pipeline’s Line 1 was moved forward to Wednesday.
Local markets and commodities
- The S&P/ASX 200 Index futures -0.2%; futures relative to estimated fair value suggest little early change.
- Bank of New York Australia ADR Index +1.2%, BHP Billiton ADR +1.9% to A$20.57 equivalent, broadly in line with last Sydney close, Rio Tinto ADR +0.4% to A$40.92 equivalent, ~13% discount to last Sydney close.
- Gold prices held steady overnight ahead of much-anticipated monetary policy meetings from the US Federal Reserve and the Bank of Japan. Gold for December delivery settled up 40 cents at $1,318.20/oz on the Comex division of the New York Mercantile Exchange. The market was facing little fundamental news Tuesday, as investors awaited clues on whether ultra loose monetary policy would continue.
- Investors expect the Fed to leave rates unchanged, and attention will likely turn toward the potential for a rate rise in December. In Japan, investors are divided on whether the bank could further loosen monetary policy with a rate cut or a new round of bond purchasing. Lower interest rates tend to be bullish for gold, which doesn’t bear interest and struggles to compete when rates rise. Goldies in Toronto added 0.4% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil closed little changed after Algeria said Opec may turn its informal talks next week into a formal session. Gasoline fell after the projected restart of Colonial Pipeline’s Line 1 was moved forward to Wednesday. West Texas Intermediate for October delivery, which expired Tuesday, rose 14 cents to settle at $43.44/b on the New York Mercantile Exchange. The more-active November contract advanced 19 cents to $44.05. Total volume traded was 20% above the 100-day average.
- Brent for November settlement fell 7 cents to end the session at $45.88/b on the London-based ICE Futures Europe exchange. the global benchmark closed at a $1.83 premium to WTI for the same month. The 14-member group may hold a formal meeting as it seeks ways with other producers to cut crude supplies by 1 million barrels a day to re-balance markets and stabilise prices, Algerian Energy Minister Noureddine Bouterfa said.
- Gasoline surged last week after the unexpected shutdown of the Colonial Pipeline link that can carry more than 1 million barrels a day of gasoline from the Gulf Coast to the eastern US. Oil has swung between gains and losses since August’s rally on speculation Opec and Russia will agree next week in Algiers on ways to stabilise the market. The group’s members are close to a deal, according to Venezuelan President Nicolas Maduro, while Opec’s secretary-general Mohammed Barkindo said an extraordinary meeting is possible if ministers reach a consensus. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore snapped a six-day losing streak, adding 0.2% to $55.77/t. According to Liberum Capital, the world's top iron ore suppliers including Brazil's Vale will add almost 50 million tons of supply in the 12 months to next June, undermining prices and feeding a global glut. Suppliers that also include Australia's BHP Billiton, Rio Tinto Group and Gina Rinehart's Roy Hill operation are set to supply 686 million tonnes in the first half of 2017, from 677.8 million this half and 636.3 million in the opening six months of 2016, Liberum said in a report. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Zinc led gains among most base metals and mining stocks climbed to a three-week high as the dollar weakened before major central bank meetings. Zinc extended a rebound from a one-month low, rising as much as 1.3% in London, while copper erased an earlier loss. The FTSE 350 Mining Index advanced for a second day, led by BHP Billiton, the world’s biggest miner.
- Zinc for the delivery in three months was up 1.2% at $2,277/t on the London Metal Exchange. Prices have rallied 41% this year, the most among the bourse’s six main metals, amid expectations for a supply shortage. Lead, nickel and tin also rose on the LME, while aluminum was little changed. Copper lost 0.1% to $4,772.50/t, after earlier falling as much as 0.6%. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- In other news: APA Group (APA): Lower debt ratio will help to finance future acquisitions: BI; AusNet (AST): Metering charges have been down; Bluescope (BSL): Outlook to positive from stable at S&P; Trades ex-div: Carsales (CAR), Macquarie Atlas (MQA), Webjet (WEB); Charter Hall (CHC): Buys A$197m Campbelltown Mall for new partnership; CSL (CSL): Shire isn’t looking for more Dyax-sized deals ‘near term’; Emeco (EHL): In talks with 2 co.’s on potential roll-up: AFR; Fonterra (FSF): Increases forecast milk payout as global glut wanes; Goodman Group (GMG): Greg Goodman will cease to be a director of Goodman Logistics; New Hope (NHC): Sees thermal coal demand climbing toward end 2017; Nufarm (NUF): FY results expected; NOTE: Adj. net income est. A$100.5m (11 analysts); Vita Group (VTG): CEO said to sell 10m shrs in block trade: AFR.
- Orora (ORA): Raised to hold vs sell at Morningstar
Stock to watch
The recent price actions suggest that further rally is likely towards the 200 Day Moving Average if we see a breakout above the upper line of the channel and the breakout level is confirmed if it pushes above the recent high $29.78 – last Friday’s high.
Westpac monthly chart
The obvious focus today will be the BoJ meeting this afternoon and the FOMC rate decision tomorrow morning at 0400 AEDT (0600 GMT).
USDJPY looks weak as it appears to have broken the uptrend (from Aug low) but 99-100 continue to remain as massive support levels.
The recent comments from Yellen and Fischer have been quite optimistic about the rate hikes and so the USD has been firming up and the momentum looks to be heading to the upside.
A rate hike would be a surprise to us while any less hawkish comments may reverse the US dollar to the downside.
AUDUSD monthly chart
The overnight high of AUS200 coincided with the SPI futures 5,300 but AUS200 may extend the gains if our banks continues the recent positive run to the upside.
In the Asian session, Nikkei would be the major index to monitor as BOJ’s announcements on the monetary policy are expected to influence the overall sentiments.
AUS 200 monthly chart
Today's trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters