Article / 01 September 2016 at 0:49 GMT

Today's Trade: ASX slips on oil-price spill

Trading Desk / Saxo Capital Markets
  • Local markets opened lower following a sharp decline in oil prices
  • Oil dropped the most in almost a month after a government report 
  • The report showed that US stockpiles increased last week by more than projected
  • Gold capped its first monthly decline since May on rate-hike expectations

By Saxo Capital Markets (Australia)

Overnight and early trading

Local markets opened sharply lower following a fall in the oil price overnight. The ASX200 was down 13 points or 0.2% to 5420 as energy and mining stocks dragged on the index. 

Oil prices saw their biggest collapse in a month, after US EIA crude oil inventories
surged above market expectations. Photo: iStock 

  • A selloff in oil sent stocks lower, with the S&P 500 Index erasing its August advance, while the dollar maintained gains as traders awaited US jobs data amid ongoing speculation over the outlook for interest rates in the world’s largest economy.
  • Energy shares led declines as New York-traded crude fell below $45/barrel on data showing US stockpiles climbed more than analysts had projected last week. The S&P 500 ended the month down 0.1%, ending its longest run of gains in two years as it failed to budge more than 1% in either direction for a 38th day. 
  • The yen extended losses against the greenback, while Brazil’s real rose as President Dilma Rousseff was impeached, fuelling optimism over an economy that is suffering its deepest recession in a century.
  • The S&P 500 fell 0.2% to 2,170.95. After posting five straight monthly gains and reaching a record August 15, the US benchmark has failed to maintain its momentum amid mixed economic data and uncertainty over the timing of the Fed’s next move. Meanwhile, the CBOE Volatility Index rallied 13% in August.
  • Energy companies trimmed their August advance to 0.6%, while utility stocks posted their biggest monthly decline in more than a year. Phone companies had their worst month since 2014 as technology and financial shares both rose for a second month.
  • European stocks fell 0.4% as declines in commodity and energy producers outweighed the best month for banks in more than a year. Commerzbank AG and Deutsche Bank AG rallied after Manager Magazin reported the latter was considering a potential merger. Greek lenders pushed the ASE Index to the best performance among western European markets after Piraeus Bank SA and Alpha Bank AE released earnings.
  • The MSCI Emerging Markets Index trimmed its third consecutive monthly gain on Wednesday as declining commodity prices weighed on benchmark gauges in raw material-dependent nations from Russia to South Africa and Brazil.
  • Futures on Asian equity indexes mostly signalled declines, with contracts on gauges in Sydney, Seoul and Hong Kong down at least 0.4% in most recent trading. Nikkei 225 Stock Average futures added 0.1% to 16,900 in Osaka, and gained 0.3% to 16,910 on the Chicago Mercantile Exchange amid a sixth day of losses for the yen.
  • West Texas Intermediate oil for October delivery slid by 3.6% to $44.70/barrel on the New York Mercantile Exchange, trimming its August advance to 7.5%, still the most since April. Crude inventories rose by 2.28 million barrels, according to the US Energy Information Administration, more than the 1.3 million-barrel increase projected by analysts surveyed by Bloomberg. Oil imports into America increased by 3.2% to 8.92 million last week, the highest level since September 2012, the report showed.
  • Oil entered a bull market August 18, less than three weeks after tumbling into a bear market. Prices rebounded partly on speculation that talks among members of the Organisation of Petroleum Exporting Countries in Algeria next month may result in action to stabilise the market. A deal to freeze output was proposed in February but a meeting in April ended with no final accord.
  • The Bloomberg Dollar Spot Index, which tracks the currency against 10 peers, was little changed, ending August up 0.6%, its first monthly gain since May. The US currency climbed 0.5% to 103.43 yen, touching its strongest level since July 29 to cap a monthly increase of 1.3%. The yen was one of the worst Asian currency performers versus the dollar in August as resurgent bets on the Fed hiking rates in 2016 coincided with increased fiscal and monetary stimulus from Japan.
  • Friday’s payrolls data will be key for the greenback. US employers are projected to have added 180,000 jobs in August, according to economists surveyed by Bloomberg. While that would be down from a 255,000 increase in July, the monthly number has exceeded expectations in the past two readings. 
  • Odds of an increase in US rates next month climbed to 36% Wednesday, from 18% at the start of August, according to Fed fund futures tracked by Bloomberg. The chance of a hike by December was 60%. Fed Vice Chairman Stanley Fischer said last week a rate hike is possible and added Tuesday that the central bank would base decisions at its September 21 meeting on economic data, putting added focus on the US August payrolls report.
  • Ten-year Treasury yields rose one basis point, or 0.01% percentage point, to 1.58%, according to Bloomberg Bond Trader data. Options on futures swings have declined, with a CBOE index that tracks Treasury volatility down 24% from a June peak reached just days after Britain voted to quit the European Union.

Source: Bloomberg,

Key earnings

Thursday: AU: Energy World Corp Ltd

Local markets and commodities

  • Bank of New York Australia ADR Index -2.6%, most since July 19, BHP Billiton ADR -3.9% to A$19.95 equivalent, 2.3% discount to last Sydney close, Rio Tinto ADR -1.4% to A$40.12 equivalent, ~16% discount to last Sydney close
  • Gold capped its first monthly decline since May on growing expectation that the Federal Reserve will raise US interest rates this year and as purchases through bullion-backed funds slowed. It’s the first time gold has dropped in August since 2009, with the metal generally climbing on jewellery demand ahead of the wedding and festival season in India, the largest consumer after China. 
  • Prices slid 3.4% this month after surging 25% in the first half of the year as economic concerns fueled demand for the metal as a haven. Gold futures for December delivery dropped 0.4% to settle at $1,311.40/ounce at 1353 on the Comex in New York, falling for the second month this year. Silver futures for December delivery gained 0.2% to $18.707/ounce on the Comex. Goldies in Toronto lost 1.38% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil dropped the most in almost a month after a government report showed that US stockpiles increased last week by more than projected. Crude inventories climbed 2.28 million barrels, according to the Energy Information Administration. A 1.3 million-barrel gain was projected by analysts surveyed by Bloomberg before the report. 
  • Imports rose to the highest in almost four years as output slipped. West Texas Intermediate for October delivery dropped $1.65, or 3.6%, to $44.70/barrel on the New York Mercantile Exchange. It’s the biggest decline since August 1 and was the lowest close since August 12. 
  • Futures climbed 7.5% in August, the biggest monthly gain since April. Total volume traded was 7.8% below the 100-day average. Brent for October settlement, which expires Wednesday, slipped $1.33, or 2.8%, to $47.04/barrel on the London-based ICE Futures Europe exchange, and closed at a $2.34 premium to WTI. The more-active November contract fell $1.84 to $46.89. 
  • Oil capped a monthly advance as Opec's planned talks fan speculation it could reach an accord on output. Oil entered a bull market August 18, less than three weeks after tumbling into a bear market. A production limit would be positive for the market, Saudi Arabia’s Energy Minister Khalid Al-Falih said in an interview last week, while ruling out an actual cut.
  • A freeze deal between members of Opec and other producers was proposed in February but a meeting in April ended with no final accord. Energy companies led losses in the Standard & Poor’s 500 Index. The S&P 500 Oil & Gas Exploration and Production Index fell 2.5%. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore dropped 0.34 to $58.97 a dry ton. Iron ore with 62% content delivered to Qingdao posted back-to-back quarterly gains in the first half, rose a further 6.7% last month and is down 0.7% in August. In contrast, futures on China’s Dalian Commodity Exchange lost 11% this month after closing on Wednesday at the lowest in nine weeks. China’s steelmakers, the largest buyers of seaborne iron ore, have sounded a note of caution. Hesteel said on Tuesday industry prospects aren’t optimistic, while Baoshan Iron & Steel said the supply-demand balance in China’s steel market hasn’t materially improved. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper rose for the first time in eight days after a mine in Chile was halted and a potential strike at another operation raised the prospect of supply disruptions at the biggest copper-producing nation. Codelco closed its Chuquicamata mine Tuesday after a vehicle crash left two dead. While the state miner resumed processing of stockpiled material on Wednesday, at its smaller Salvador mine, workers are voting on whether to accept a pay offer or go on strike. A separate accident Tuesday interrupted operations at another Chilean mine, operated by Freeport-McMoRan.
  • Copper for delivery in three months rose 0.2% to settle at $4,617/tonne at 1830 on the London Metal Exchange. Lead and tin also advanced, while aluminium and nickel declined and zinc was little changed. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Arrium (ARI): Whyalla losses seen narrowing to ~A$11m in FY17: Australian
  • BHP Billiton (BHP): Samarco prosecutor expects to seek criminal charges next month
  • Trades ex-div: BHP, Challenger (CGF), Coca-Cola Amatil (CCL), Decmil (DCG), GWA Group, Pact Group (PGH), Primary Health (PRY), SkyCity (SKC), Southern Cross Media (SXL)
  • Crown Resorts (CWN): Melco Intl 6 mos. profit HK$10.1b vs HK$108.7m y/y

Broker upgrades and downgrades

  • Adelaide Brighton (ABC): Raised to outperform vs hold at Taylor Collison
  • Aurizon (AZJ): Raised to buy vs hold at Shaw & Partners
  • Harvey Norman (HVN): Cut to underperform vs neutral at Credit Suisse
  • Independence Group (IGO): Raised to neutral at Credit Suisse

Stock to watch: Harvey Norman (HVN.xasx) 

HVN rallied to the highest level in more than eight years on the back of strong earnings, but yesterday’s price actions did not look convincing as it pulled back more than half of its intraday gains. Further retracement is possible down to the 4.90-5 as it looks overbought.
Harvey Norman monthly
Source: Saxo Bank
Commonwealth Bank of Australia (CBA.xasx) looks sick since going ex dividend two weeks ago and now approaching key support levels between  $70-71 where we expect short covering given these levels have been strong support levels in the last 12 months.
CBA monthly
 Source: Saxo Bank


ADP nonfarm payroll numbers were slightly better than expected but US dollar (DX) showed little reaction as we wait for tomorrow’s nonfarm payroll. The risk is still to the downside for the US dollar as it had already been rallying more than 2% since last Friday’s speech by Fed chair Janet Yellen. 

The major focus for AUDUSD will be Capex (1130) and Caixin manufacturing PMI (1145) today. Disappointing Capex should reinforce the current downward momentum towards the support level 0.7450, otherwise AUDUSD has the potential to rebound up to the resistance level of  0.76.
Source: Saxo Bank
S&P500 ended its five-month winning streak after trading in a tight range throughout August. Upside momentum seems to be fading but at the same time resilience cannot be ignored. While US500 is still trading above the August low, AUS200 broke below the previous resistance level 5,400 and appears to be underperforming other major equity indices. Selling pressure may continue to exist but a daily close below 5,400 may be required to confirm further decline.
 Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more 

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

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Follow us on Watch the recording of this week’s Macro Monday Call here.


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