- Big banks, AGL and Telstra doing the heavy lifting this morning
- AGL shares jumped 3.5% to a 3-week high of $A24.55 on triple normal volume
- US shares lift overnight after a deal was made to extend the US debt limit
Overnight and early trading
The Australian sharemarket seemed to be shrugging off the geopolitical problems in North Korea this morning with the benchmark ASX up around 25 points in the first hour of trade.
The market is up about 0.5% to around 5715.70, with the banks part of the move upwards, especially CBA, up at around 0.7%. Morningstar upgraded CBA to a buy, while Telstra is higher by 1.7% after Credit Suisse raised the telecom to overweight.
BHP fell 0.9% after it was cut to underperform and Woolworths was down 0.5 % as it also traded ex-dividend.
US stocks pushed higher while longer-term government debt fell after lawmakers reached a deal with President Donald Trump to extend the US debt limit and fund the government through mid-December.
The S&P 500 Index added to its gains after Democratic congressional leaders announced the agreement, which also includes aid to victims of Hurricane Harvey.
Ten-year Treasury yields jumped, while shorter-term bills showed a mixed reaction. Yields on bills maturing on October 5 and October 12 fell as much as 12 basis points but December yields climbed, as investors anticipated a rerun of the debt drama that roiled markets in recent weeks.
US stocks rebounded from their worst session in weeks, boosted by shares of energy companies.
On the up and up: a regrading has boosted Telstra's shares this morning. Photo: Shutterstock
Energy stocks rose alongside oil prices as Gulf Coast refineries continued to restart following Hurricane Harvey, boosting demand for crude.
The Dow Jones Industrial Average rose 54.33 points, or 0.2%, to 21807.64. The S&P 500 advanced 7.69 points, or 0.3%, to 2465.54 and the Nasdaq Composite climbed 17.74 points, or 0.3%, to 6393.31.
The three indices posted their biggest one-day declines since August 17 on Tuesday.
The S&P 500 energy sector climbed 1.6%, its largest one-day advance in two months. Chevron and Exxon Mobil were two of the biggest gainers in the Dow industrials, with shares of Chevron adding $2.35, or 2.1%, to $111.79 and Exxon Mobil shares climbing $1.60, or 2.1%, to $78.78.
Together, the two stocks added roughly 27 points to the blue-chip index as US crude oil rose 1% to $49.16/barrel.
News from Washington drove some modest intraday moves in stocks and U.S. government bonds.
Stocks slightly pared gains and Treasury yields fell briefly after Fed Vice Chairman Stanley Fischer announced his intention to resign, months before his term was set to expire.
Treasury yields then climbed following the news that President Donald Trump and congressional leaders had agreed to raise the federal government’s borrowing limit for three months. Doubts about raising the debt ceiling had weighed on markets in recent weeks.
Financial stocks rose after their worst day since mid-May, with the KBW Nasdaq Bank Index, a measure of 24 of the largest US bank stocks, edging up 0.2%.
United Continental Holdings shares declined 77 cents, or 1.3%, to $60.33 after the company said Hurricane Harvey and price competition will weigh on revenue in the current quarter.
Investors are now tracking Hurricane Irma, which has grown into one of the most powerful storms ever recorded over the Atlantic Ocean, prompting evacuations in Florida and disrupting travel.
Continuing tensions following North Korea’s recent nuclear test - its most powerful yet - were also a concern for investors.
Solid earnings and economic growth around the globe have supported stocks this year, with U.S. indices hitting record highs over the summer even as investors have grown anxious about how long the bull run can last.
Goldman Sachs group chairman Lloyd Blankfein on Wednesday sounded a warning about the markets, saying that some of what he sees “unnerves” him.
Earlier, the Stoxx Europe 600 rose less than 0.1%, with many investors looking ahead to the next monetary policy meeting of the European Central Bank on Thursday.
Most expect the ECB to hold off until next month to announce the start of winding down its €2.3 trillion ($2.7 trillion) stimulus program.
But investors were awaiting comments by ECB President Mario Draghi, who is expected to offer clues about the stimulus phaseout.
Information sources: Bloomberg, TradingFloor.com, WSJ.com
Local markets and commodities
- The S&P/ASX 200 Index futures contract rose 0.2%; futures relative to estimated fair value suggest an early gain of 0.1%.
- Bank of New York Australia ADR Index +0.5%, BHP Billiton ADR +1.1% to A$27.85 equivalent, 0.4% premium to last Sydney close, Rio Tinto ADR +0.6% to A$61.45 equivalent, ~10% discount to last Sydney close.
- Gold hit sessions lows on Wednesday after top Democratic leaders said President Trump was on board with their idea of tying Hurricane Harvey aid to a short-term increase in the debt limit and government funding.
- Wednesday’s session fell slightly short of the recent high and ended the session at $1,334/oz. Prices had slipped earlier in the session after House minority leader Nancy Pelosi and Senate minority Chuck Schumer said they are prepared to vote in favour of a three-month debt limit increase and government spending. The plan would also include Hurricane Harvey aid. Earlier gold prices hovered around a one-year high touched Tuesday at $1,344.21/oz amidst lingering tension from North Korea's nuclear test on Sunday. Goldies in Toronto dropped 2.5% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil prices gained Wednesday on renewed demand as refineries in the Gulf Coast restarted operations. Light, sweet crude for October delivery rose 50 cents, or 1%, to $49.16/barrel on the New York Mercantile Exchange, the highest settle value since August 9. Brent, the global benchmark, rose 82 cents, or 1.5%, to $54.20/b, its highest settle since April 18. The upswing in crude prices marked a swift reversal from last week, when prices had languished in the wake of Hurricane Harvey. The storm knocked out more than 20% of US refining capacity, cutting demand for crude and weighing on prices. Refining capacity has since started to come back online, providing support for crude.
- Opec and 10 producers outside the cartel, including Russia, first agreed late last year to cap production at around 1.8 million barrels a day lower than peak October 16 levels, with the aim of reining in the global oil glut and sending prices higher. The deal, which was extended in May until March 2018, has been undermined by falling compliance, growing US output and an unexpected surge in production from Libya and Nigeria - two member states exempted from the agreement because their oil industries had been damaged by civil unrest. Analysts said they were looking ahead to official US data this week on crude inventory levels, which have fallen consistently in recent months, while cautioning that the information was likely to be less reliable than usual as a result of Harvey. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- Spot iron ore prices remained flat, despite steel prices falling in China. The recent accidents in China had seen output affected, which had lifted steel prices. However, with output now recovering, steel prices have come under some short-term pressure. Rebar stockpiles also rose 5.2% last week in China, according to SteelHome data. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Nickel and aluminum led a rebound on the London Metal Exchange as a slump in the dollar boosts demand for commodities as alternative assets. Nickel for delivery in three months rises 0.7% to settle at $12,165/tonne, after falling as much as 1.4% earlier; aluminum added 0.4%. LME copper rose less than 0.1% to $6,901/t. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- In other news: Trading ex-dividend: AMP, ASX, Air NZ, BHP, Corporate Travel, Mgmt, Estia Health, Flexigroup, Greencross, Monadelphous, NIB, Woolworths; QBE Insurance (QBE): QBE’s reinsurance cover will help manage Harvey, Irma costs: S&P; Tegel (TGH): Forecasts underlying Ebitda will rise in FY2018.
Broker stock re-gradings
- BHP Billiton (BHP): Cut to underperform at Exane, PT GBP13.10
- Boart Longyear (BLY): Affirmed by Moody’s, outlook negative
- Commonwealth Bank (CBA): Raised to buy at Morningstar
- Orocobre (ORE): Raised to buy at Cormark, PT C$5.60
- RCR Tomlinson (RCR): New overweight at JPMorgan, PT A$5.08
- Telstra (TLS): Raised to outperform at Credit Suisse, PT A$4
- Virtus Health (VRT): Raised to buy at Morningstar
Stocks to watch
South32 (S32) seems to be regaining upward momentum as it rallied for three consecutive days. S32 has now return to the recent resistance zone 3.06-3.10 on the back of the resilient base metal prices.
While forming a triple top is a possible scenario, we anticipate continuation of the ascending price actions.
South 32 monthly chart
Despite decent Australian GDP numbers yesterday, AUDUSD dipped below 80 cents but a sharp rally came when the Bank of Canada unexpectedly raised interest rates by 25 basis points up to 1%.
AUD still under-performs CAD thus we see more upside potential on AUDUSD as uptrend (from the June low of 0.7373) also continues to hold its validity. The key data release would be AU retail sales and trade balance at 1130.
AUDUSD monthly chart
Source: Both charts, Saxo Bank.
-- Edited by Adam Courtenay
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call