Article / 21 September 2016 at 1:13 GMT

Today's Trade: ASX shows caution ahead of big meets

Trading Desk / Saxo Capital Markets
Australia
  • 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

The ASX is enjoying  a modest rise at the open, but caution is in the wind. Not much action is expected on the bourse as traders brace for updates from the Bank of Japan and US Federal Reserve across the next 24 hours.

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.

Crude advanced after Algeria said Opec may turn informal talks next week into a formal meeting. US natural gas futures surged, while gasoline tumbled. Nickel jumped.

Global markets have oscillated amid an uptick in volatility the past two weeks, with concern mounting that central banks are becoming less committed to stimulus amid persistently mixed economic data.

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.

Traders are also awaiting the Fed’s fresh “dot plot” projections, which will probably show policy makers see one 25 basis point rate increase by the end of the year.

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.

Yields on Treasuries due in a decade fell two basis points, or 0.02%, to 1.69% at 1600 in New York, trimming their advance in September to 11 basis points.

The extra yield investors demand to own 30-year rather than five-year securities narrowed for a third straight day. The measure of the yield curve had previously steepened for 11 consecutive sessions.

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.

Longer-dated bonds led an advance across the euro area. The securities pared losses that last week pushed yields on Germany’s 30-year debt relative to the nation’s shorter-term notes to the most since June.

10-year gilts rose the most in six weeks amid increased demand at an auction of longer-dated gilts and as investors offered fewer securities to the Bank of England in its latest buyback operation.
     
The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, rose 0.1% following Monday’s 0.2% retreat.
     
The yen gained 0.2% to 101.70 per dollar, leaving it up 18% this year. Japan’s currency is set for three straight quarters of gains - the longest rally since 2011 - after the BoJ left its bond-buying program unchanged in July and adopted negative interest rates in January.
     
For many, the biggest unknown this week is whether the BoJ is willing to increase the record scale of its asset purchases or cut rates further into negative territory.

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.

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Bank of Japan governor Haruhiko Kuroda: Currency strategists say the biggest  threat to
the yen would be signs of hawkishness from Fed chair Janet Yellen. Photo: iStock


     
South Africa’s rand extended its longest winning streak since June, and Brazil’s real climbed after President Michel Temer reinforced his commitment to reforms aimed at restoring growth.

Mexico’s peso led losses among the most-traded currencies, sinking to a record and testing the central bank’s willingness to intervene.
     
GBP fell to a one-month low versus the dollar as European Union leaders hardened their rhetoric over the consequences of Britain voting to leave the bloc.
     
The S&P 500 closed steady at 2,139.76, paring gains of as much as 0.6%. The US benchmark, which was basically unchanged on Monday, is trading at 18.3 times estimated earnings, its most expensive level since 2002.

About 5.9 billion shares traded hands on U.S. exchanges, 13% below the three-month average.
The CBOE Volatility Index (VIX) finished up 2.51% at 15.92.

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.
     
European stocks erased gains as banks retreated, with Italian lenders Banca Popolare di Milano and Banca Popolare dell’Emilia Romagna falling 4.3% or more.

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.
     
Most Asian index futures foreshadowed gains for Wednesday, with contracts on Japan’s Nikkei 225 Stock Average rising at least 0.2% in Osaka, Chicago and Singapore.

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%.
     
West Texas Intermediate oil for October delivery, which expired Tuesday, rose 0.3% to $43.44/barrel on the New York Mercantile Exchange.
     
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.
     
US natural gas futures rose to $3 per million British thermal units for the first time since May 2015 as late summer heat and production limits burned through a glut of shale supplies.

Gasoline slumped after the projected restart of Colonial Pipeline’s Line 1 was moved forward to Wednesday.
     
Nickel for three-month delivery in London rose for a third day, gaining 1.6% $10,310/tonne and touching its highest price since September 12. The London Metal Exchange LMEX Metal Index rose 0.5% to its highest close since August 22.

Information source: Bloomberg, TradingFloor.com

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.

Broker gradings

- Orora (ORA): Raised to hold vs sell at Morningstar
- TPG Telecom (TPM): Cut to reduce vs hold at Morgans Financial

Stock to watch

Since Westpac (WBC.xasx) formed a double bottom at $A27.70 back in February and June this year, WBC.xasx has been trading in a descending channel.

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
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AUS200 and AUDUSD

The USD is showing signs of strength again but at the same time AUDUSD seems resilient. The key resistance level still stays at 0.76 handle and the support level is at 0.7450.

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

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The price actions of the stock indices were subdued and looks cautious as we look ahead some key central banks meetings in the next 24 hours.

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
 
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Source: All charts, Saxo Bank - create charts with SaxoTrader. Click here to learn more 

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

Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call at 1030 AEST.

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