Article / 21 June 2017 at 1:13 GMT

Today's Trade: ASX slips as oil retreats

Trading Desk / Saxo Capital Markets
Australia
  • Shares down a massive 1.3% in early trading as oil price sours mood
  • US shares drop the most in a month, with energy shares down 1.2% overnight
  • Miners badly hit as BHP loses 3% and Rio around 2.5%

Overnight and early trading

The benchmark S&P/ASX200 stock index was down 1.4% within less than an hour of trading this morning with energy, materials and financial stocks the biggest losers of value.

Weakness in other commodity prices are also taking their toll, BHP was down nearly 3% at the open and Rio was down 2.5%.

Asian shares are also poised to drop after US stocks fell the most in a month, spurred by crude oil tumbling into a bear market on concern a global supply glut will persist.

Futures on China’s equities gained after MSCI added the nation’s domestic stocks to its emerging markets index. Futures fell for all of the Asia-Pacific region’s 10 biggest bourses outside of China.

The MSCI decision will add 222 China A-share stocks starting in May 2018. The index provider delayed its decision on the status of Argentina’s equities and will consult on the possible inclusion of Saudi Arabia in the index.

China’s $6.8 trillion onshore market is the world’s second largest and accounts for 9% of global stock value, but had been rejected for index inclusion three times by MSCI over issues including capital controls and long trading halts. Futures on Hong Kong shares retreated before the decision.

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All inclusive: China stocks had been rejected for index inclusion three times by MSCI
over issues including capital controls and long trading halts. Photo: Shutterstock


Losses in US were broad as nine of the S&P 500’s 11 sectors fell for the day. The S&P 500 and Dow Jones Industrial Average fell after both indices climbed to fresh closing records Monday.

Energy stocks in the S&P 500 fell 1.2%, deepening losses for the index’s worst-performing sector of the year. The moves came as fresh fears over an oversupply of oil sent US crude into a bear market, or down 20% from its previous high.

Rising production around the world has offset efforts by Opec to draw down a glut, analysts say, weighing on oil prices.

Crude for July delivery fell 2.2% to $43.23/barrel on Tuesday, posting its lowest settlement since September 16.

While the energy sector is expected to account for nearly half of the S&P 500’s earnings growth for the second quarter, according to FactSet, analysts say broad strength across sectors should help stocks keep climbing.

The Dow Jones Industrial Average fell 61.85 points, or 0.3%, to 21467.14. The Nasdaq Composite lost 50.98 points, or 0.8%, to 6188.03 and the S&P 500 shed 16.43 points, or 0.7%, to 2437.03.

Shares of healthcare companies added 0.3% in the S&P 500 and were one of two sectors in the broad index posting gains for the day.

Regeneron Pharmaceuticals rose $23.66, or 5%, to $495.33 after investment bank Piper Jaffray lifted its price target for the stock. Alexion Pharmaceuticals gained 2.89, or 2.5%, to 119.05 and Incyte rose 2.3, or 1.9%, to 124.58.

Consumer-discretionary stocks fell 1.2% in the S&P 500, posting the biggest losses of the broad index’s sectors for the day. Chipotle Mexican Grill lost 33.31, or 7.3%, to 425.60, Ross Stores lost 2.93, or 4.8%, to 57.72 and Kohl’s lost 1.50, or 4%, to 36.03.

Government bonds edged higher, with the yield on the 10-year US Treasury note falling to 2.153%, its third-lowest settlement of the year, from 2.188% Monday. Yields fall as bond prices rise.

Elsewhere, the Stoxx Europe 600 fell 0.7%, pulled lower by a decline in oil and mining companies.

Information sources: Bloomberg, TradingFloor.com

Local markets and commodities

  • The S&P/ASX 200 Index futures contract fell 0.8%; futures relative to estimated fair value suggest an early decline of 0.5%
  • Bank of New York Australia ADR Index -3% to lowest since Nov. 4, BHP Billiton ADR -3.5%, most since April 12, to A$22.23 equivalent, 3.2% discount to last Sydney close, Rio Tinto ADR -3.2% to A$50.15 equivalent, lowest since Nov. 30, ~16% discount to last Sydney close.
  • Gold prices rose on Tuesday after hitting a five-week low as the dollar steadied after reaching a three-week peak following hawkish comments from an influential US Federal Reserve official. New York Fed President William Dudley said on Monday that labour market tightness should help drive up inflation, reinforcing the message that recent weak data is unlikely to derail plans to keep raising interest rates.
  • The greenback had a further lift on Tuesday following dovish comments from Bank of England Governor Mark Carney, but later gave back gains to trade little changed versus a basket of major currencies. Spot gold was down 0.01% at $1,242.64/oz after earlier touching a low of $1,242.61/oz, the weakest since May 17.
  • US gold futures broke even, settling at $1,245.80/oz. Investors are pricing in around a 50% chance that rates will be raised again by the year-end, according to CME FedWatch. A strong dollar makes dollar-priced gold costlier for non-US investors. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil tumbled to the lowest level in nine months, pulling energy stocks down, amid growing concerns that OPEC-led output cuts are failing to ease a global supply glut. Futures declined 2.2% in New York, entering a bear market for the first time since August, as investors focus on rising production from countries that are not part of OPEC’s deal.
  • Libya is pumping the most crude in four years, and the amount of oil stored in tankers reached a 2017 high earlier this month. US drillers have added oil rigs for 22 straight weeks. An industry report on a decline in American inventories didn’t improve the mood. West Texas Intermediate crude, the US benchmark, dropped 21% from a close of $54.45/b on February 23, entering a bear market, which kicks in when settlement prices fall at least 20% from their peak.
  • Oil has stayed below $45/b since last week as supplies in the US remain plentiful and the oil rig count rises to the highest since April 2015. WTI for July delivery, which expires Tuesday, fell 97 cents to settle at $43.23/b, the lowest since mid-September. Total volume traded was about 35% above the 100-day average. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore added 0.3% to close at $56.45/tonne, extending its gain from the one-year low of $53.36/t struck on June 13 to 5.8%. It now sits at the highest level since June 2, with the current winning streak equalling the longest stretch of gains since late 2015. The big four iron ore miners all offered their seaborne cargoes via tenders or trading platforms during the day, which led to some transaction materialising. At least three traders told Metal Bulletin that they had recently booked mainstream Australian cargoes, including higher-ranked 62% Fe fines and lumps, lower-ranked 62% Fe fines, and 58% Fe fines. Premiums paid for Pilbara Blend fines and lumps sold against the July average of indices were around $US0.30-0.50 per tonne, one of them said. At Chinese ports, trading was reported to be not as active as on Monday, however, amid a retreat in the futures market. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper posted the biggest loss in six weeks, dragging down metal producers, as the strengthening dollar makes raw materials priced in the greenback more expensive to holders of other currencies. Copper futures for delivery in September declined 1.3% to settle at $2.572/pound on the Comex in New York, marking the biggest loss for a most-active contract since May 8.
  • Zinc prices dipped as investors sought to balance concerns about tightening supplies with uncertainty over Chinese demand. Benchmark zinc on the London Metal Exchange closed 0.04% down at $US2555/t, retreating from an intraday peak of $US2581.50, the highest since June 1.
  • LME nickel shed 2.1% to end at $US8820 a tonne. Prices received a fillip on Monday from news that about a dozen newly constructed nickel smelters in Indonesia have stopped operations because of a plunge in prices. Aluminium finished unchanged at $US1886.50/t, supported by continued concern about a crackdown by the Chinese government on illegal and polluting smelters. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Bluescope Steel (BSL), Vocus (VOC): Bluescope added to MSCI Australia index at May review, Vocus removed; Commonwealth Bank (CBA): Added to MSCI ACWI Growth index; Evolution Mining (EVN): Scheduled to host holder meeting on La Mancha reorganization; Fonterra (FSF): Whole milk powder avg price falls to $3,022/t; Lendlease (LLC): Blackstone said among bidders for LendLease senior housing stake Link (LNK): Said to plan to submit bid for Capita unit Wednesday: AFR; Origin Energy (ORG), Senex (SXY): Fosun said to join Senex for Origin’s Lattice bid: Australian; Paladin Energy (PDN): Expert determination for Langer Heinrich seen July 20; Rio Tinto (RIO): Picks Yancoal offer for coal mines over Glencore bid; Seven Group (SVW): Caterpillar May Asia/Pacific sales +49% following April rise 47%; NOTE: is authorised dealer in West Australia, NSW, North China

Broker gradings 

- Spark Infra (SKI): Cut to sector perform at RBC, PT A$2.70
- Sydney Airport (SYD): Cut to underperform at RBC, PT A$6.75
- Transurban (TCL): Cut to sector perform at RBC, PT A$12.50
- AGL Energy (AGL): Raised to overweight at JPMorgan, PT A$28.20
- Alumina (AWC): Alcoa outlook to positive from stable at S&P; Ratings affirmed
- Cochlear (COH): Raised to buy at BofAML
- Regis Resources (RRL): Raised to hold at Morningstar

Stock to watch: Myer

Retail stocks suffered the most yesterday as the Amazon’s recent proposal of acquiring US food retailer Whole Foods seemed to have reignited the threat again to Australian retail sectors.

Price actions of Myer (MYR) have been interesting as it has rebounded off 2015 low of $A0.8250 despite breaking it by half a cent three weeks ago.

The recent recoveries look promising as weekly lows have been ascending by one cent. We see an attractive reward-risk trade setup with potential profit target at $A1.10 as long as double bottom holds at $A0.8250.

Myer share price quarterly chart
 
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USDRUB

USDRUB continued to show strength and rallied to break March high 59.60 as crude oil plunged below May low 43.76.

The long-term downtrend from the November 16 high of 66.48 had already been breached early last month and solid double bottom seems to have been formed near 56 handle.

Upward momentum is still expected to exist while pull back is not unlikely given the magnitude of the recent spike.

USDRUB monthly chart

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AUDUSD


AUDUSD looked to be heading up to retest the recent resistance zone 0.7630 but it made a sharp reversal following the sell-off from copper as the European session began.

Yesterday’s price actions signal potential downside risk although interim support level remains at 0.7570.

AUDUSD monthly chart
 
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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.


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