- Gains in big miners following strength in commodity markets overnight
- Benchmark S&P/ASX 200 index remains 0.3% higher on 5838
- Trump’s infrastructure plan failed to ignite interest from investors
- Boral, Cochlear and Challenger lost ground after reporting earnings
By Saxo Capital Markets
The S&P/ASX 200 index rose 17 points, or 0.3% to 5838 while the All Ordinaries rose 19 points, the same gain, and the AUD traded at US78.61¢.
Miners were all up in early trading, with BHP up 1.1% and Rio Tinto shares climbed 2.1% while South32 advanced 1.7%.
US stocks surged, with financial markets showing signs of recovery after the worst week in two years for American equities as commodity prices stabilised.
It's a potential sign the clouds over the market are beginning to part after two bruising weeks that pushed indexes from New York to Hong Kong into correction territory.
The 10-year yield fell back from the four-year high hit overnight as the dollar slipped. The Nasdaq Composite Index turned positive for 2018, with the Dow Jones Industrial Average and the S&P 500 now down less than 1% since the end of December.
Stocks and bonds have been in a tug-of-war since a blowout jobs report early this month sent Treasury yields spiking, raising the specter of higher interest rates to come.
Iron ore miners are this morning enjoying the renaissance in spot prices. Photo: Shutterstock
The Cboe Volatility Index fell as the S&P posted its biggest two-day advance in 18 months, but traders were still on edge following the tumultuous move in equities last week that wiped $2 trillion from US stocks.
Investors are awaiting U.S. consumer-price data due Wednesday with some trepidation, given that pressure on equities has been emanating from the Treasury market and the outlook for inflation.
Last night’s gains were broad, with increases seen in oil companies, regional banks and utilities firms.
The trading session lacked the volatility that characterised last week’s stumble. The S&P 500 and Dow Jones Industrial Average climbed out of the gate, marched steadily higher and never reversed course. The indices closed up 1.4% and 1.7%, respectively.
The moves marked a sharp departure from the past two weeks, when concerns over rising bond yields and collapsing bets on low volatility led investors to pull a record amount of money from equity funds in the week ended Wednesday and dump other assets, like oil and gold.
In total last week, the blue-chip index changed direction 53 times, including 29 times in a single session. The wild swings in share prices led many traders to express uncertainty over when the downturn would end.
Yet overnight, markets showed signs of bouncing back, giving some investors hope that the turbulence that had gripped markets around the world was starting to fade.
The S&P 500 notched its biggest two-day percentage gain since June 2016, shortly after markets rebounded from UK’s surprise vote to leave the European Union.
Commodities that had slid the past two weeks reversed course, with US crude oil ending the day higher following its largest one-week percentage decline in more than two years.
And a measure of expected swings in the U.S. stock market, the Cboe Volatility Index, headed lower again, after rocketing higher in its biggest weekly advance since August 2015.
The Dow Jones Industrial Average jumped 410 points to 24,601, nearly erasing its losses for the year.
The blue-chip index, which notched its first two-day winning streak this month, is still down 7.6% from its January 26 high. The gains followed a rally that lifted shares in South Korea and China to their biggest one-day advance since January.
Still, some investors and analysts warned that the market’s attempt to rebound could be tested as early as Wednesday, when the Bureau of Labor Statistics is expected to release fresh data on consumer prices.
Concerns that a faster-than-expected pickup in inflation could push the Federal Reserve to pick up its pace of interest-rate increases have pushed government bond yields higher throughout the year, with the yield on the benchmark 10-year US Treasury note settling overnight at its highest level since January 2014.
Further evidence of inflation could stoke another bout of pressure on bonds and stocks, rattling the markets again after a brief period of calm.
Shares of energy companies rose with oil prices, giving major indexes a boost.
The S&P 500 energy sector rose 1.8%, among the biggest gains of the broad index’s 11 sectors, while US crude oil rose 1.1% to $59.87/barrel after sliding last week on worries about rising US production
Outside the equity market, demand for haven assets such as gold has been muted, while stocks and bonds in emerging markets and riskier pockets of Europe have held up well, suggesting investors remain encouraged about the global economy.
Credit spreads have mostly remained tight, reflecting continued optimism about the outlook for the corporate sector.
European stocks rallied, lifting the Stoxx Europe 600 up 1.7%. The Shenzhen Composite, home to smaller-cap stocks in China, led gains in Asia, jumping 2.6% after coming under pressure last week. The Shanghai Composite rose 0.8%, its biggest gain since January 23.
Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
- Tuesday: PepsiCo, Under Armour, Generac, Baidu, Blue Apron, Martin Marietta Materials, MetLife, Occidental Petroleum, AllianceBernstein, Tanger Factory Outlet, Twilio, Fossil, Dana Holding.
- Wednesday: Cisco Systems, Applied Materials, Credit Suisse, Dr. Pepper Snapple, Groupon, TripAdvisor, Marriott, Cedar Fair, Wyndham Worldwide, Agilent, NetApp, Kinross Gold, SunPower, Williams Cos, Waste Connections.
- Thursday: CBS, Zoetis, Con Ed, Andeavor, Shake Shack, TrueCar, Nestle, Encana, Waste Management, TransCanada, TreeHouse, Yamana Gold, Allscripts Healthcare, Cognex, Avon Products, Brookfield Asset Management.
- Friday: Coca-Cola, Kraft Heinz, Campbell Soup, Deere, Och-Ziff Capital Management, Ryder System, Vulcan Materials, VF Corp, JM Smuckers.
Local markets and commodities
- S&P/ASX 200 Index futures are up 0.6% to 5775. Futures relative to fair value suggest an early gain of 0.4%.
- Bank of New York Australia ADR Index is up 1.4% to 280.7, BHP Billiton ADRs are up 2.0% to A$29.76 equivalent, a 0.7% premium to last Sydney close, Rio Tinto ADRs are up 2.9% to A$70.51 equivalent, a 9.6% discount to last Sydney close
- Gold prices rose on Monday as the dollar eased, but gains are expected to be muted ahead of inflation data from the United States later this week that could mean US interest rates rise faster than expected. Spot gold was up 0.6% at $1,324.16/oz by. It has fallen more than 3% since hitting a 17-month peak at $1,366.07 in January.
- US gold futures settled up 0.81% at $1,326.30/oz. Hedge funds and money managers slashed their net long position in COMEX gold for the first time in eight weeks in the week to February 6, and cut it in silver, US Commodity Futures Trading Commission data showed on Friday. Gold stocks in Toronto rallied firmly overnight adding 3.32%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Crude edged higher after the worst weekly decline in two years as Opec shrugged off the threat that US shale drillers will swamp the market with excess supplies. Futures in New York advanced, breaking a six-session string of losses. Strong demand for crude coupled with restrained output from Opec and allied suppliers will erase any remaining glut this year, United Arab Emirates Energy Minister Suhail Al Mazrouei said.
- The price gain was muted as the US government lifted its shale oil supply forecast and weakness in gasoline and diesel markets bled over. West Texas Intermediate crude for March delivery added 9 cents to settle at $59.29/b on the New York Mercantile Exchange.
- Total volume traded was about 16% above the 100-day average. Brent for April settlement declined 20 cents to end the session at $62.59/b on the London-based ICE Futures Europe exchange, and traded at a $3.51 premium to WTI for the same month.
- Shale drillers in places such as West Texas, Oklahoma and North Dakota may imperil Opec's carefully-laid and fellow travelers like Russia and Mexico. The number of rigs searching for US oil jumped 34% in the past year and the Energy Information Administration projects shale-oil output to rise 110,000 barrels a day in March. As a result, nationwide crude production is expected to exceed 11 million barrels a day before the end of this year. Opec’s own analysts on Monday upped their estimate for how much oil non-cartel suppliers will pump this year by 250,000 barrels a day to 1.4 million a day. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- The gains in the bulks sector were also relatively limited as the market slowdown for the upcoming Chinese New Year. Trading in iron ore futures in China was quiet, with many traders already closing up shop for the holidays. Trading was a little more active in the Singapore exchange, with front month futures gaining over 1%. Spot iron ore was relatively flat moving $0.02 lower to close at $75.56/tonne. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Copper prices rose on Monday from a two-month low last week, helped by US dollar weakness. Industrial metals prices have fallen this year but remain near multi-year highs. Benchmark three-month copper on the London Metal Exchange ended up 1.1% at $US6831 a tonne after touching $US6733 on Friday, the lowest since December 14. LME aluminium added 0.1% to close $US2124 a tonne. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- In other news: ANZ Bank (ANZ): DBS Indonesia Completes Acquisition of ANZ’s Local Wealth Unit; BHP (BHP): Escondida Union Doesn’t Rule Out Early Wage Talks in Chile; Boral (BLD): H1 Results Expected; 2- Analyst Rev. Est. A$2.6b; Cardno (CDD AU): Non-Deal Roadshow Scheduled By Morgans for Feb. 20; Macquarie Group (MQG AU): TDC Recommends DKK 50.25/Shr Offer From Macquarie Consortium; Rio Tinto (RIO AU): Invests $C250mln to Extend Ops at Vaudreuil Refinery; Senex (SXY AU): Might Be a Potential Takeover Target After Battle For AWE: Australian; Super Retail (SUL AU): Non-Deal Roadshow Scheduled By Morgans for February 20; Mantra, Link Administration, Bluescope had largest one-day percentage increase in total short positions, according to data compiled by Bloomberg; Sirtex, Abacus Property, Altium had largest decrease in short positions; NOTE: Australian short interest data is collated by the Australian Securities & Investments Commission and published four days after reporting.
- AWE (AWE): Upgraded to Equal-weight at Morgan Stanley
- Ansell (ANN): Downgraded to Underperform at Credit Suisse; PT $A21.75
- Aspen Group (APZ): Rated New Buy at Craig-Hallum
- Cimic (CIM): Upgraded to Neutral at Credit Suisse; PT $A45; Said to Be Seeking Financial Partner for WestConnex Bid: Australian
- JB Hi-Fi (JBH): Downgraded to Sell at Bell Potter; PT $A23
- Monadelphous (MND): Rated New Underperform at Credit Suisse; PT $A15
- Praemium (PPS): Upgraded to Buy at Baillieu Holst; Price Target $A0.65; Downgraded to Hold at Morgans Financial; PT $A0.69
Australian corporate releases
- Tuesday: Boral, Challenger, Cochlear, Transurban
- Wednesday: Aveo, Computershare, CSL, Domino's Pizza, Dexus, Goodman Group, Orora, Woodside
- Thursday: ASX, Evolution Mining, Healthscope, IOOF, Newcrest, Sonic, Suncorp, Telstra, Treasury Wine Estates, Vocus
- Friday: IAG, Medibank Private, Origin, Primary Healthcare, Whitehaven Coal
Stock to watch: coalminer Whitehaven Coal
After a sharp spike during 2016, Whitehaven Coal (WHC) went through a six month consolidation period.
Since the double bottom was formed at 2.42 which coincide with July 13 high, WHC rallied more than 100% to test the previous double bottom between 2011 and 2012.
Ascending channel appears to remain intact and unless this is broken, we would keep our bullish bias on WHC.
The yield curve
Yield curve (10 year – 2 year) continued to steepen and it appears to have broken through 1 year downtrend while it has now risen more than 60% since Jan 18 low 48.78.
US 10-year yield curve monthly chart
Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
-- Edited by Adam Courtenay
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