Article / 23 February 2016 at 1:07 GMT

Today's Trade: ASX shrugs off BHP's biggest ever loss

Trading Desk / Saxo Capital Markets
Australia

  • ASX shrugs off the gloom of BHP Billiton’s biggest loss in history
  • This is the iron ore miner's first dip into the red in 17 years
  • Iron ore extends its rebound, jumping back above $US50 to a four-month high
  • At 1015 AEDT  the ASX200 index was up 17.9 points, or 0.36%, at 5019.1
  • In the US, oil and metal prices gave energy stocks the momentum
  • AUDUSD rises to test the previous swing high of 0.7243

By Saxo Capital Markets

Early trading and overnight

BHP Billiton this morning unveiled a $5.669 billion first-half loss - it's biggest in history - and dramatically curtailed its dividend, abandoning its progressive payout policy which saw the miner promise to increase, or maintain, distributions.

The benchmark S&P/ASX200 was up 17.9 points, or 0.36% at the open while the broader All Ordinaries index gained 18 points, or 0.36%.

In a big day of earnings, QBE rose 13.1%, while Qantas is marginally lower despite a strong profit report. BHP, after easing early, is up 0.6% Rio is 1.1% up and Fortescue 1.4%, while energy stocks are also well higher.

Stocks soared overnight as European and US markets took a positive cue from Asian markets. The Dow Jones Industrial Average gained 229 points, or 1.4%, to 16621. The S&P 500 and the Nasdaq Composite rose 1.5%.

Rising oil and metal prices gave energy stocks the momentum to outpace other sectors: the energy sector topped 2.24% as US crude futures gained 6.2% to $31.48/barrel after the International Energy Agency said it expects US shale-oil production to fall in 2016 and the next year.
  • The biggest gainer in the S&P 500 was Chesapeake Energy which rallied 20% to $2.39.
  • Copper prices settled at a more than two-week high after China reported its imports of the metal rose last month which saw the Europe’s basic resources sector rose 6.6%.
  • The consumer discretionary sector was the second best performing sector, up 1.91% followed by materials which were led by gains from Freeport-McMoRan and Alcoa. Freeport closed up 14.6%, while Alcoa rose 13.2%.
  • Europe’s basic resources sector rose 6.6% and the Stoxx Europe 600 gained 1.7%. Shares in Anglo American rose nearly 11% in London, while BHP Billiton shares climbed nearly 9%.
  • The CBOE Volatility Index (VIX) fell below 20 to hit its lowest since December 31.
  • Over in Europe the Dax added close to 2% followed by the CAC which rose 1.79%. The FTSE lifted 1.47%.
  • The largest gains were seen in the basic resources sector which traded 6.3% higher. Oil and gas stocks closed up 3% and technology stocks were up 1.4%.
  • Miners Anglo American, Glencore, Rio Tinto and BHP Billiton were among the best performers on the FTSE, trading 8 to 11% higher. Jefferies raised the target price of Anglo-American shares to 275 pence from 215 pence on Monday and each stock benefited by the rebound in commodities.
  • In earnings, HSBC announced a 1% rise in pre-tax profit for 2015, as Europe's biggest bank by assets deals with volatile markets, ongoing cost-cutting efforts, and leadership uncertainties. Shares dropped 0.88%.

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 Worth another dig? Iron ore prices have surprised, climbing back to $50/tonne. Photo: iStock

Local markets and commodities

  • S&P/ASX 200 Index futures +0.7%, futures relative to estimated fair value suggest an early gain of 0.5%.
  • Bank of New York Australia ADR Index +3.6% to highest in 7 weeks. BHP Billiton ADR +5.8%. Rio Tinto ADR +6.3%
  • Spot gold is consolidating as it fell 1.5% to $1,209. Staying above its key $1,200 level gold appears to be taking moment to play catch-up and on its new levels and ready for its next jump north. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil performed strongly, with WTI and Brent up 4.2% and 3.4% to $31.48 and $34.62 respectively to its two week high. While the EIA has reported daily surplus level increased from 1.5 million barrels to 1.75m/b for 2016, it appears not to be holding back positive sentiment as a risk-on appetite takes hold. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore has jumped a staggering 6.2% to $51.52. The Chinese government in their policy making are looking to limit the land sale of tier 2-3 cities, with the intention of citizens soaking up the excess unsold properties built in recent times. The focus on the property market will lead again to further construction and support for steel. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals performed very well with copper up 1.4% and aluminium rising again this time by 1.7%. Copper prices have now climbed 6% in the past week as a risk on approach in the US equity markets flow through to all corners. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • ANZ Roy Morgan weekly consumer confidence survey due for release at 0930 Sydney time.
  • New South Wales said to mull exit of Ausgrid investment: AFR.
  • Caltex Australia (CTX): Scheduled to report FY results; NOTE: Dec. 17: Co. forecast 2015 historical cost profit A$560m-A$580m, RCOP ex-items A$615m-A$635m.
  • Healthscope (HSO): Scheduled to report 1H results; NOTE: 7 buys, 5 holds, 1 sells; avg PT A$2.70: Bloomberg data.
  • McMillan Shakespeare (MMS): Scheduled to report 1H results; NOTE: Nov. 25: Has potential for bolt-on buys in U.K.: GS.
  • Mighty River Power (MYT): Sees FY Ebitdaf NZ$480m-NZ$500m.
  • Infomedia (IFM): 1H net A$6m VS A$7m y/y.
  • Oil Search (OSH): Scheduled to report FY results; NOTE: Adj. net income est. $173.5m (14 analysts).
  • Panoramic Resources (PAN): Unaware of unannounced info that affected share price; NOTE: co. surged 40% yesterday.
  • Qantas Airways (QAN): Scheduled to report 1H results; Preview; Qantas sees comeback under Joyce as Virgin Australia lags: Chart.
  • QBE Insurance (QBE): Scheduled to report FY results; NOTE; Adj. net income est. $846.4m (10 analysts).
  • Scentre Group (SCG): Scheduled to report FY results; NOTE:: FFO/share est. A$0.226 (5 analysts).
  • Steadfast Group (SDF): Scheduled to report 1H results; NOTE: Aug. 26: Sees cash EPS growth slowing in FY16.
  • Spotless Group (SPO): Scheduled to report 1H results; NOTE: Dec. 2: Flags profit below ests, new business growth slows y/y; Outsourcing firms may make bid for Spotless: Australian (subscription req.).
  • Virtus Health (VRT): Scheduled to report 1H results

Stock to watch

APA on the weekly chart has been in a strong upward trend since 2009. From its high in 2015 it had retraced to the Fibonacci 23.60% retracement level which was also the 100 week moving average.

On the daily chart APA has formed a double bottom in September 2015 and again in January 2016. Earlier this month APA kissed its 50% Fibonacci retracement before retreating to its 23.60% retracement. Yesterday's low marketed the both the 100 Day Moving Average and 200DMA.

APA yearly chart

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APA monthly chart
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Source: Saxo Bank

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Broker upgrades and downgrades

- Cromwell Property (CMW): Raised to neutral at Credit Suisse
- Southern Cross Media (SXL): Raised to overweight at JPMorgan

AUDUSD

As iron ore continued to push higher to trade above $50, AUDUSD rose to test the previous swing high 0.7243 where the downtrend meets the uptrend of the previous pennant.

For AUDUSD 0.7250 is expected to be a crucial resistance level to determine the next direction for the pair. The strong gains in crude and copper are boosting the commodity currencies to the upside but we still remain bearish on the US dollar (DX) as it touched the long term uptrend which may act as a resistance level.

The support level for AUDSUD is 0.7180 and the daily close above the resistance level 0.7250 would signal further rally towards 0.74 handle.

AUDUSD monthly chart
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Dollar Index monthly chart

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Source, both charts: Saxo Bank
 
AUS200.I

The sentiments are looking very positive as the ASX 200 cash index (XJO) closed above the psychological level of 5,000 yesterday and VIX extended the losses for the sixth day in a row from 29.45 to 21.06.

In the SYCOM session, the AUS200 pushed as high as 5,036 but we are expecting an open back to the 5,000 level as the S&P500 lost about 10 points or so in the last hour of the close.

Although the current upward momentum seems bullish, the recent rally in the index has been driven with the declining volume and the gold is forming a bullish pennant. The support level is 4,985 and the resistance level is at 5,073.

AUD 200 monthly chart
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XAUUSD monthly chart

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Source: Saxo Bank - create your own charts with SaxoTrader. Click here to learn more 

Today's trade information 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. Watch its daily morning call on Periscope at 0945: #SaxoAPAC.

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