Today's Trade: ASX shrugs off coup concerns with early lift
- The ASX200 opened slightly higher, led by the big-four banks
- Oil prices rose as Chinese data boosted expectations for demand
- Zinc marched to a peak of $2235/tonne, the strongest since May 29 last year
By Saxo Capital Markets (Australia)
Overnight and early trading
The ASX200 opened slightly higher, shrugging off the attempted coup in Turkey on the weekend. At the start, the ASX200 was up 0.1% to 5437 with the big-four banks leading the way. The miners, BHP and Rio Tinto were both down around 0.5%.
US stocks were little changed Friday as the S&P 500 Index halted its longest rally in four months, while investors weighed the potential for further gains with equities near records and corporate earnings projected to drop for a fifth quarter. The benchmark index ended a succession of fresh highs this week as Wells Fargo & Co dragged on the gauge, losing 2.5% after its quarterly results disappointed. Also weighing, Amazon.com sank for a fourth day, the longest in four months. Raw materials rose for an eighth session, the most since October.
The S&P 500 fell 0.1% to 2,161.74, after setting fresh highs in the prior four days, the longest such streak since 2014. The Dow Jones Industrial Average rose 10.14 points to 18,516.55, notching a record for a fourth day. The Nasdaq Composite Index slipped 0.1%. About 6.1 billion shares traded hands on US exchanges, 15% below the three-month average.
The benchmark index capped a third week of gains, up 1.5%, as investors overcome concerns about the UK’s vote to leave the European Union amid speculation the Federal Reserve will refrain from raising interest rates this year while other central banks take steps to limit the Brexit fallout. Still, money managers, including BlackRock chief Laurence D. Fink, say the rally may not be justified and won’t last unless earnings pick up.
Analysts project a 5.8% earnings decline at S&P 500 firms in the second quarter, which would make it a fifth-straight drop, the longest streak since 2009. Netflix, Goldman Sachs Group, Microsoft and Intel are among those scheduled to report results next week.
The S&P 500 on Friday capped its longest winning streak since March, but fell short of extending it to the lengthiest in two years. The recent advance has pushed the US benchmark to 20 times reported earnings, the first time its valuation has crossed that threshold since 2009, data compiled by Bloomberg show. US shares have added almost $2 trillion since June 27 as the S&P 500 climbed 8.1%.
The CBOE Volatility Index fell 1.2% to 12.67, extending an 11-month low. The measure of market turbulence known as the VIX posted a third weekly decline, the longest since March.
Six of the S&P 500’s 10 main groups fell, with consumer discretionary shares losing 0.5%, while financial and technology companies declined at least 0.1%. Raw-materials producers rose 0.4% to extend gains to an eighth day, and utilities added 0.3%.
Financials halted their longest rally since November 2014 amid declines in Wells Fargo and Citigroup. Citi erased a 1.3% gain to slip 0.3%, after its quarterly profit dropped 17% on lower revenue from consumer banking. Still, its earnings exceeded estimates. Wells Fargo fell the most since the UK’s Brexit vote, after its profit slipped as more energy loans soured, expenses rose and revenue from mortgage lending declined.
The terror attack in Nice, France weighed on travel-related shares. Cruise operators Royal Caribbean Cruises and Carnival fell at least 2.1%. Delta Air Lines slid 2.4%, while Priceline Group declined 1.2%.
Also dragging on the consumer discretionary group, CBS sank 3.6% after UBS Group cut the stock to sell from neutral, citing the risk of slower national TV advertising in the second half of this year. Chipotle Mexican Grill dropped 3.1% after Morgan Stanley downgraded the shares to the equivalent of neutral from buy, saying it could take years for sales to fully recover after an outbreak last year of food-borne illnesses.
Intel and International Business Machines were among the biggest contributors to the technology group’s decline before their earnings reports this week. Both ended seven-day rallies, with IBM’s the longest in almost four months. Cognizant Technology Solutions lost 2%, after falling as much as 4.1%, as peer Infosys cut its revenue outlook. Infosys dropped 8.8%, the worst since April.
Raw material producers were the benchmark’s best performers, with WestRock climbing 5.7% to its highest since December. Analysts at Jefferies said in a note that favourable June containerboard data should lift container and packaging stocks. International Paper rose 3.2% near an 11-month high, while Sealed Air gained 1.6%.
Among other shares moving on corporate news, Herbalife rallied as much as 22% before finishing 9.9% higher. It agreed to pay $200 million to settle US claims that the nutrition company deceived consumers with get-rich-quick promises, though the government stopped short of hedge fund manager Bill Ackman’s call to shut it down.
European stocks erased most of their intraday losses at the close, even as a terror attack in France dragged travel shares lower. The Stoxx Europe 600 Index closed less than 0.2% lower, paring an earlier drop of as much as 0.7%. Travel and leisure shares posted the biggest slide, with EasyJet, Thomas Cook Group and hotel operator Accor down at least 2.7%.
Europe’s benchmark climbed in three of the past four sessions, sending the gauge to a weekly gain of 3.2%. It has rebounded since a June 27 low as optimism grew that central bankers will act to limit the fallout of the country’s vote to leave the European Union and some earnings reports beat estimates. The gains haven’t been enough to overcome losses from the Brexit vote, and technical indicators are signalling more challenges ahead.
Commodity producers, this year’s best performers on the Stoxx 600, declined. Precious-metal producers Fresnillo and Randgold Resources, which surged amid demand for haven assets in the aftermath of Brexit, fell at least 1.4%.
Source: Bloomberg, TradingFloor.com
US earnings this week
- Monday: IBM, EMC, Netflix, Yahoo, VMWare
- Tuesday: Goldman Sachs, Johnson and Johnson, United Health, TD Ameritrade, Microsoft, Lockheed Martin, United Continental, Discover Financial, Kansas City Southern
- Wednesday: American Express, Morgan Stanley, Halliburton, Abbott Labs, Illinois Tool Works, Northern Trust, St. Jude Medical, eBay, Las Vegas Sands, Qualcomm, Intel, Newmont Mining, Motorola Solutions, Mattel
- Thursday: AT&T, Visa, Capital One, Chipotle, General Motors, Travelers, Union Pacific, Bank of NY Mellon, Biogen, Blackstone, DR Horton, Hershey, Johnson Controls, Sherwin Williams, Royal Caribbean, PulteGroup, Domino's Pizza, Nucor, Quest Diagnostics , Pandora
- Friday: General Electric, Honeywell, American Airlines, VF Corp, Whirlpool, Synchrony Financial, SunTrust, Stanley Black and Decker, Newell Brands, Moody's
Local markets and commodities
- Bank of New York Australia ADR Index -0.5%, BHP Billiton ADR -1.5% to A$20.08 equivalent, 1.4 discount to last Sydney close, Rio Tinto ADR -1.8% to A$43.27 equivalent, 14 discount to last Sydney close
- Gold posted a weekly drop for the first time since May as investors turned to risk assets such as stocks, cutting demand for bullion as a haven. The metal fell 2.3% last week, and holdings in gold-backed funds are also set for the first weekly decline since May.
- Money has poured into global equities in the past three weeks as speculation grew that policymakers will do more to limit the fallout from the UK’s vote to leave the European Union. Retail sales in the US topped forecasts in a broad advance that showed consumers delivered for the economy last quarter.
- Bullion futures, which touched a two-year high last week, are still up 25% this year on expectations that US interest rates will remain low, making assets that don’t pay interest more attractive.
- Gold futures for August delivery dropped 0.4% to settle at $1,327.40/ounce on Comex. The weekly drop was the first since May 27. Silver futures for September delivery slid 0.8% to $20.165/oz on Comex.
- Oil prices rose Friday as better-than-expected Chinese economic data boosted expectations for oil demand from that nation, the world’s No. 2 oil consumer. But US drilling data showed an uptick in the number of rigs drilling for oil in the US, capping price gains.
- US oil for August delivery settled up 27¢, or 0.6%, at $45.95/barrel on the New York Mercantile Exchange. Prices rose 1.2% this week. Brent, the global benchmark, rose 24¢, or 0.5%, to $47.61/barrel on ICE Futures Europe, posting a 1.8% weekly gain.
- Oil demand has been robust this year because of relatively low prices around the world, even as a persistent oversupply of crude has kept prices subdued. Oil traders have closely watched China for signs of whether the country’s crude consumption is set to slow amid worries about its economic growth.
- China’s National Bureau of Statistics said Friday that its gross domestic product grew 6.7% from a year earlier in the second quarter. Some analysts said that China’s thirst for crude is likely to hold up in the coming months as domestic production continues to fall because of ageing oil fields and budget cuts.
- The number of rigs drilling for oil in the US rose by six this week to 357, the highest number since April, Baker Hughes said Friday. While the number of rigs remains low compared with two years ago, the recent increase suggests that producers are willing to invest in new production at current prices. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore for September delivery lost 0.7% to close at 461.5 yuan/mt on Dalian Commodity Exchange, first drop in four days to pare weekly gain. Most-active futures still up 7.3% last week, rising for sixth week in the longest run since March. Stockpiles show holdings expanded for the fifth week, the longest run of gains since December, according to Shanghai Steelhome data as iron-ore holdings at China Ports Expand 0.9% to 105.4mln tons. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Three-month copper on the London Metal Exchange closed down 0.5% at $4918/tonne after climbing as high as $5000. Prices still scored a weekly rise of 4.4%. Copper also may have been supported after choppy seas off the coast of Chile caused widespread delays to copper shipments from the world's top producer in the second half of June.
- Zinc marched to a peak of $2235/tonne, the strongest since May 29 last year, before paring gains to end 0.7% firmer at at $2204. Zinc has been the favourite of investors this year, who expect shortages to bite after the closure of major mines.
- Aluminium closed down 1.4% at $1659 after hitting $1703, the strongest since July 17 last year, while lead finished 1.2% weaker at $1873, after retreating from $1916, a 13-month peak. Data showed that aluminium stores held in warehouses monitored by Shanghai Futures Exchange decline for twelfth week to lowest since November 2011, according to bourse data.
- Nickel ended down 0.8% at $10,270, pulling back from $10,510, after data showed the global nickel market deficit widened to 11,200 tonnes in May. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Macquarie (MQG): Enbridge, Macquarie said to seek 49.9% stake in EnBW German windfarm, Reuters says
- Mayne Pharma (MYX): Markets $400mln loan
- Patties Foods (PFL): Shareholders to vote on acquisition by Pacific Equity on August 26
Broker upgrades and downgrades
- Fantastic Holdings (FAN): Downgraded to neutral from overweight at JPMorgan
EURUSD and XAUUSD
Gold (XAUUSD) found support again above 1,320 therefore we continue to maintain our bullish exposure as long as this level holds. The key support level for silver (XAGUSD) would be 20, which has been quite solid throughout last week.
The US dollar index (DX) bounced off the support level 96 and is looking to regather its upside momentum. EURUSD had one of the steepest declines in almost two weeks and has fallen below the 200 DMA. The interim resistance level would be 1.1070, which is 50% retracement level between the December 15 low and May 16 high.
We expect EURUSD to remain under further selling pressure as the US dollar is likely to strengthen in the near term.
XAUUSD monthly chart
Source: Saxo Bank
EURUSD monthly chart
Source: Saxo Bank
AUS200.i and JP225.i
The Turkish coup caused some panic selloff in the equity indices in the closing hours last Saturday morning but these losses were recovered this morning on the back of the headline that the coup was resolved on Saturday night. The AUS200 closed above the psychological level 5,400 last week therefore it is difficult to see any negative catalysts to the downside yet.
The Japanese market is closed today but the price actions of JP225 looks interesting as it is trading in the intersection of the downtrend (from the December 15 high) and the uptrend (from the February 16 low).
We see a shorting opportunity at the current level 16,524 with stops above the previous uptrend line, although the risk to the upside remains due to the Bank of Japan stimulus, which is expected to be released this month.
AUS200 monthly chart
Source: Saxo Bank
JP225 monthly chart
Source: Saxo Bank. 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