Article / 07 March 2017 at 0:46 GMT

Today's Trade: ASX softens ahead of RBA

Trading Desk / Saxo Capital Markets
Australia
  • Shares soft in early trade, led by slips in mining stocks
  • Fears abound in market that RBA is moving to a tightening bias
  • French elections and Korean missile launches adding to mix

Overnight and early trading

The ASX/S&P 200 was feeling the geopolitical weight this morning - down around 0.3% at 1025 AEDT (2335 GMT), with the materials sector most heavily hit, and financials generally weak.

Of the the major miners, BHP was down 1.4%, Rio lost 1.3% and Fortescue slipped 1.2%.

The big banks were about 0.2% lower with Telstra and Qantas also dropping slightly.

US stocks fell overnight, with financial shares leading a retreat from last week’s highs.

The Dow Jones Industrial Average has shed about 150 points since Wednesday, when investors’ optimism about the US economy powered the blue-chip index past 21,000 for the first time.

The Dow industrials fell 51 points, or 0.2%, to 20,954 on Monday. The S&P 500 lost 0.3% and the Nasdaq Composite slid 0.4%. The VIX rose 2.55% to 11.24.

Financials were the worst-performing sector in the S&P 500, losing 0.6%.

Bank stocks have been among the biggest winners in the post-election rally, which has been bolstered by President Donald Trump’s promises to enact pro-business policies.

The S&P 500 has notched six consecutive weeks of gains.

JP Morgan Chase lost 1%, pressuring the Dow industrials. Deutsche Bank shares tumbled 7.9% in Europe after the German lender said it would seek to raise €8 billion ($8.5 billion) through a share sale.

US Treasuries slipped as investors anticipated a rate increase, which Federal Reserve officials have signaled in recent days.

The yield on the benchmark 10-year Treasury note rose to 2.494%, according to Tradeweb, from 2.492% Friday. Yields rise as prices fall.

Energy companies were among the few gainers Monday, rising 0.3% in the S&P 500 despite a slip in the price of oil.

General Motors shares declined 0.8% after the auto maker said it would take a charge of at least $4 billion in connection with the sale of its European operations.

Shares of France’s Peugeot gained 2.7% after it said it would pay €1.3 billion for GM’s Opel and Vauxhall brands.

The Stoxx Europe 600 closed 0.5% lower and the euro fell 0.3% to $1.058 amid uncertainty around France’s presidential elections.

xxx Missile testing by North Koreans has created unease in global markets. Photo: Shutterstock

Hopes for consolidation kept some European stocks buoyant, however. Shares of Aberdeen Asset Management and Standard Life climbed 4.2% and 5.7%, respectively, after the companies agreed to merge in a deal that would create one of the UK’s biggest asset managers.

Earlier, Japan’s Nikkei Stock Average ended 0.5% lower as the yen strengthened against the dollar and government bond yields pulled back, weighing on exporters and financial firms.
Source: Bloomberg, TradingFloor.com

Local markets and commodities

  • The S&P/ASX 200 Index futures contract fell 0.1%; futures relative to estimated fair value suggest an early decline of 0.2%.
  • Bank of New York Australia ADR Index -0.7%, BHP Billiton ADR -1.8% to A$25.29 equivalent, 1.8% discount to last Sydney close, Rio Tinto ADR -2.4% to A$53.78 equivalent, ~13% discount to last Sydney close.
  • Gold fell for the third straight session on Monday, but hovered above Friday's two-week low, pressured by comments from Federal Reserve chair Janet Yellen that reinforced expectations of an increase to US interest rates this month. Spot gold was down 0.6% at $1,226.61/oz, having slid on Friday to $1,222.51/oz, the lowest since February 15. US gold futures settled down 0.08% at $1,225.50. Gold holdings in ETFs have suffered since the spectre of a rate hike in March has jumped significantly in recent days. Bloomberg data shows holdings fell 0.5% on Friday to 58.75 million ounces. Gold stocks in Toronto slid overnight, finishing down 2.53%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Crude oil prices were largely unchanged as another rise in US drilling activity countered the concerns about Libyan supply. Baker Hughes data showed drillers added another seven rigs in the US last week, bring the total to 609. However the risks to further supply disruptions keep rising. Libya’s two largest ports have now been shut due to fresh clashes, cutting output by over 50,000 b/d according to reports in Bloomberg. In Gabon, a majority of oil workers agreed to go ahead with a general strike. US West Texas Intermediate crude fell 13c/b to $53.20/b. Brent crude up 15c/b to $56.05/b. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore spot prices were weaker as traders started to doubt the sustainability of profit margins in the Chinese steel sector. Steel prices in Chinese futures markets fell, despite authorities announcing they would cut steel capacity in 2017 by at least 150 million tonnes. Another rise in the port inventory also weighed on prices. SteelHome data showed stockpiles increased 0.5% to 130.1m tonnes last week. Spot iron ore slipped below $90/tonne, shedding 1.59% to close at $89.73/t. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Three-month copper on the London Metal Exchange closed 1% lower at $5,858 tonne; it’s lowest since February 24. Even with the world’s two largest copper mines out of action, there’s still too much supply. A huge amount of copper - almost 39,000 tonnes - has been sent to warehouses in a network managed by the London Metal Exchange, the biggest inflow in 15 years, according to bourse data released Monday. Workers at Cerro Verde mine, one of the largest copper producers in Peru, plan to start a five-day strike on Friday to demand better labour conditions, a union representative said. Lead fell 0.3% to $2,243/t after touching its lowest in more than seven weeks at $2,199.50/t. Tin ended down 0.3% at $19,450/t. Aluminium slipped 0.9% to $1,876/t. The commodity hit a two-year high of $1,957/t last week as China pressed on with plans to cut output by 30% over the winter heating season. Zinc fell the most among the metals, down 1.2% to $2,740.50/t while nickel rose 1% to $11,095/t. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Trading ex-dividend: Blackmores; Medibank Private, Nine Entertainment, Oil Search, Qantas, Qube, Ramsay, Regis Resources, Sonic Healthcare; ANZ Bank (ANZ), AMP (AMP), Macquarie (MQG): Macquarie, AMP in talks on joint bid for ANZ Wealth: Australian; Astro Japan Property (AJA): Lone Star makes offer for real estate assets; BHP Billiton (BHP): Chile Presidential hopeful Guillier meets Escondida labor unions; Charter Hall (CHC), Vicinity Centres (VCX): Scheduled to speak at Citi global property conference in US; Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC): Aussie banks’ high-risk X factor nothing to sing about: Gadfly; Domino’s Pizza Enterprises (DMP): Scheduled to host investor day; Graincorp (GNC): Australia wheat exports, output seen declining after record crop; Healthscope (HSO): Said to seek buyer for 48-site medical center operations: AFR; News Corp (NWS): Resumed equal-weight at Morgan Stanley, PT $15; U.K. Labour seeks Murdoch phone-hacking focus in Fox-Sky review; Washington H Soul (SOL): Said to take 49.49% share in Pengana Capital from National Australia Bank (NAB): AFR.

Companies going ex dividend

Tuesday: AMB, BKL, CLX, DCG, EPW, HOM, IRI, MPL, MOC, NEC, OSH, QAN, QUB, RHC, RRL, SCO, SHV, SHL, TPC

Wednesday: ARA, BXB, CTD, HSN, HSO, HIT, IEL, IFL, IRE, KGN, MLD, MYO, PGF, PPG, ST1, SDF, SNZ, CDG, BLW, ISD

Thursday: APO, ASX, AIZ, AEF, BHP, BST, BFG, EDC, FXL, GLB, IGO, ING, JIN, LIC, MIL, MND, OZL, PGC, PME, QBE, QMS, RWC, SFC, SRV, S32, SUG , TOX, TMW, VGL, VTG,

Friday: GTN, WTC

Broker gradings

- Boral (BLD): Raised to overweight at JPMorgan
- Navitas (NVT): Cut to underperform at Credit Suisse
- Western Areas (WSA): Raised to neutral at JPMorgan
- Westfield (WFD): Cut to neutral at Credit Suisse
- Sandfire Resources (SFR): Raised to overweight at JPMorgan

Stocks to watch

Transurban (TCL) looked impressive last month as it jumped more than 10% from January 17 low and major driver behind this rally was its positive earnings update (42% rise in first half profit) promising higher dividends ahead.

TCL broke above 11.05 (50% retracement of all time high 12.66 and November 17 low 9.45) but since then it seems to be struggling to maintain prices above it as the 200 Day Moving Average also crosses 11.05.

This stock tends to show sensitive correlation to 10 year bond prices (XT) but it has outperformed the bond since the earnings release last month.

This is another reason we are anticipating potential reversal of the rally in the near term. We would look to sell either on the break of the recent swing low 10.82 or 11.44 that coincides with 61.8% retracement should the stock rises further.

Transurban monthly chart

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Deutsche Bank (DBK:xetr) slumped 7.9% overnight on news it plans to bolster its finances by selling new shares in an attempt to raise €8bn.

The bank is trying to reshape itself after suffering huge losses and legal bills which were near disastrously compounded in December with a payment to US authorities.

Deutsche Bank quarterly chart
   
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Volume on the daily chart below shows that the move downwards has commitment and we will await to see how the restructuring pans out.
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Source: All charts, Saxo Bank
 
AUDUSD

Focus for today would be on the RBA rate decision at 1430 AEDT (0330GMT) and we are expecting rates to be on hold with a neutral tone.

The USD continues to retain its resilience therefore putting restrictions on upside of AUDUSD.

Last night AUDUSD made an attempt to extend the recovery but failed at 0.76 handle which previously served as January 17 resistance level.

We saw copper (HG) moving lower along with gold as US treasury yield climbed, therefore it is possible to see further selling pressure to exist for AUDUSD.

Key support level would be 0.75-0.7520 while interim resistance should remain at 0.76.

AUDUSD daily 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

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