Article / 14 September 2016 at 1:28 GMT

Today's Trade: ASX stutters in early trade

Trading Desk / Saxo Capital Markets

  • ASX shows lack of direction moving up and down in early trade
  • US stocks retreated as did debt, while USD gained on oil woes
  • Gold, oil and iron ore prices all fell overnight

By Saxo Capital Markets (Australia)

Overnight and early trading

The ASX/S&P 200 has been see-sawing since the start of trade, briefly moving into positive territory after falling around 0.3% in the opening minutes of trade. It's possible it may drop for a fifth straight session as fears continue to wash around global markets.

At 1023 AEST (0023 GMT) the S&P/ASX 200 was sitting at 5210 points, but by 1035 AEST was down 0.13%. At 1119 it was up 9 points to 5216.

Resources stocks were weighing the heaviest after iron ore fell again overnight and oil took a hit. BHP was down 0.6% and Rio 1%, while the banks were showing little sign of movement. Macquarie rose 0.7%, while Healthcare and telcos are the only sectors higher,

Overnight, US stocks retreated with sovereign debt, while a plunge in crude oil spurred gains in the dollar as investors calibrated expectations toward prospects of less global monetary stimulus.

The S&P 500 Index fell to its lowest level since July 7 as Monday’s rebound was overwhelmed by declines in all ten main industry groups. The CBOE Volatility Index surged 18% to the highest since June, while Apple was the only member of the Dow Jones Industrial Average to rise.

Treasuries tumbled, propelling yields on 10-year notes to their highest point in almost three months. US crude slid below $45/barrel on speculation a glut will persist. Mexico’s peso led losses among emerging market currencies.

Equities have been whipsawed over the past three days following an unprecedented stretch of calm. Investors remain on edge over the ability of central banks to fuel economic and price growth, amid concern they are questioning the role of stimulus.

For the second time since Friday, stocks and bonds sold off together and gold also fell, leaving investors with few places to hide. Oil joined the rout after the International Energy Agency predicted that the supply glut will extend into next year, punishing the currencies of resource exporters.

The uptick in volatility comes after fund managers increased cash levels this month amid bearish views on the markets, according to a Bank of America survey. The percentage of investors saying both equities and bonds are overvalued has climbed to a record, while stock allocations relative to cash fell to around the lowest level in four years, the survey found.

The S&P 500 slid 1.5% to 2,127.02 in New York, paring a drop of as much as 1.8% after the index touched its average price over the past 100 days. The index rallied 1.5% Monday, rebounding from a 2.5% rout in the previous session that shattered a stretch of tranquility that saw the gauge post no moves of more than 1% for 43 straight days.

Investors also continue to wrestle with extended valuations, given companies in the S&P 500 are forecast to post a sixth consecutive quarterly decline in profits. The index trades at 18.4 times estimated earnings, the most expensive level since 2002. The Dow Average slipped 1.4%, while Apple gained 2.4%.

The Stoxx Europe 600 Index slipped 1% after an early advance faded amid a slump in mining companies and energy producers. Total and Royal Dutch Shell lost at least 2.6%, tracking crude prices lower. Commodity producers fell for a fourth day, their longest declining stretch since June.

The Aussie market did not know whether it was coming or going this morning. Photo: iStock

The IEA-sparked rout in oil sent emerging market assets lower for a third day, with stocks and currencies extending losses following the worst selloff since June. The MSCI Emerging Markets Index fell to its lowest point since August 4.

Futures on Asian equity indices foreshadowed further declines in the region, with contracts on Japan’s Nikkei 225 Stock Average down 0.5% in Osaka. Futures on benchmarks in Australia, South Korea and Hong Kong dropped at least 0.2%.

Treasuries due in a decade tumbled anew, reversing gains after Federal Reserve governor Lael Brainard urged prudence when it came to tightening US monetary policy.

Ten-year yields rose six basis points, or 0.06% point, to 1.73%, the highest level since June 23. The probability of a rate hike at next week’s Federal Open Market Committee meeting dropped by eight percentage points on Monday to 22%, futures prices indicated.

Longer-dated securities, which have been outperforming in recent months, led losses. The difference between yields on Treasuries due in two and 30 years - a measure of the yield curve - widened to 166 basis points, the most on a closing basis since June 30.

Money mangers upped their cash hoard to 5.5%, according to the September survey by Bank of America, near the most since November 2001. A record 54% of survey respondents said stocks and bonds are overvalued.

The US Treasury’s $12 billion auction of 30-year bonds Tuesday drew a yield of 2.475%, above the level indicated in pre-sale trading. The bid-to-cover ratio, at 2.13, is down from 2.33 in the last 10 sales, signaling weaker demand.

European bonds also fell. Yields on 10-year German bonds rose three basis points to 0.07% as the notes tumbled for a fourth straight day.

Yields on similar-maturity French sovereign debt climbed four basis points to 0.37%. UK gilts, which led the global debt market selloff, reversed gains sparked by inflation data, sending yields higher by four basis points to 0.91%, the highest since July 1.

The yen weakened 0.7% versus the dollar, having surged 0.8% the previous day as Brainard said the case for Fed tightening was “less compelling.”

An MSCI gauge of developing nation exchange rates slid 0.2%, falling for a third day. The Brazilian real led declines, weakening 2%, while the Russian ruble and Mexican peso dropped at least 0.9%.

The GBP retreated the most in five weeks after a report showed UK inflation undershot analyst forecasts. The data again brought into focus the uncertain economic outlook after Britain voted to leave the European Union more than two months ago.

West Texas Intermediate crude slumped 3% to settle at $44.90/b in New York. World stockpiles of oil will continue to accumulate through 2017, a fourth consecutive year of oversupply, due to declining demand in India and China, the IEA said.

Opec also revised up its projections for rival supplies in 2017, predicting an increase in output from outside the group before major producers meet in Algiers for talks later this month.

US data due Wednesday is forecast to show the country’s oil inventories rose by 4 million barrels last week, which would be the biggest increase since April.

Gold also fell, with bullion for immediate delivery down 0.7% to $1,319.05/oz, touching a 1 1/2-week low. The precious metal has declined for five sessions, its longest run of losses in almost a month.

Information sources: Bloomberg,

Local markets

  • The S&P/ASX 200 Index futures -0.2%; futures relative to estimated fair value suggest an early decline of 0.4%.
  • Bank of New York Australia ADR Index -4.6%, most since June 24, BHP Billiton ADR -5.3% to A$19.67 equivalent, 1.7% discount to last Sydney close, Rio Tinto ADR -4.2% to A$39.91 equivalent, 16% discount to last Sydney close.
  • Gold fell for a fifth straight session, the longest slump since June, as a rising dollar eroded demand for the metal as an alternative asset. Gold futures for December delivery fell 0.1% to settle at $1,323.70/oz on Comex. The losing streak is the longest since June 23.
  • Silver futures for December delivery dropped 0.1% to $18.975/oz on Comex. After a first-half surge, gold prices have largely stalled as concerns that the Federal Reserve will raise US interest rates buttress the dollar and reduce demand for the metal as a store of value. Traders put odds of a Fed rate hike by year-end at 57%, up from 12% at the start of July. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil dropped as the International Energy Agency changed its view on global oversupply, seeing a glut persisting into 2017. West Texas Intermediate for October delivery fell $1.39 to settle at $44.90/b on the New York Mercantile Exchange. Total volume traded was 28% above the 100-day average. Brent for November settlement slipped $1.22, or 2.5%, to $47.10/b on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.62 premium to WTI for November delivery.
  • Oil has fluctuated since rallying in August amid speculation Opec and Russia would agree on measures to stabilise the market at a meeting later this month. Rising Opec output has offset the effect of declining supplies elsewhere, maintaining the glut, the IEA said in a monthly report. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore lost 2.9% to $56.09 a tonne - the most since August 26 and the lowest since July 22. In overnight news, Brazil’s Vale, the world’s biggest exporter of iron ore, said talks with Fortescue Metals Group on a joint venture have stalled as they argue over how to price their products. “The commercial discussions are taking much longer than expected,” Peter Poppinga, head of Vale’s ferrous minerals division, said in an interview in London on Tuesday. “You won’t see anything happening in 2016.”
  • The two companies signed an accord in March to blend their differing ores, a pact that may make Vale’s higher-quality output more marketable and raise the value of the product from Fortescue Metals, an Australian miner. Fortescue CEO Nev Power said in an interview in July that the venture would be completed in the “near future”. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Nickel capped its biggest two-day drop in a month, leading declines in industrial metals, as a decline in crude oil dragged down commodities and equities. A gauge of mining company shares sagged to the lowest since July, paced by Freeport-McMoRan. Crude fell as much as 3.3% as the International Energy Agency said a surplus will last longer than previously thought. Lower energy prices help reduce production costs, deterring miners from trimming output amid ample supply of some metals.
  • Nickel for delivery in three months slid 2.2% to settle at $9,860/tonne on the London Metal Exchange. The Bloomberg World Mining Index dropped 2.3%, declining a fifth straight day for the longest stretch of losses since March. Copper futures for December delivery added 0.1% to $2.1015/pound on the Comex in New York. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Trades ex-div: Adelaide Brighton (ABC), Invocare (IVC), Seven Group (SVW), Seven West Media (SWM); Air New Zealand (AIZ): Aug. passengers rise 4.4% y/y; Arrium (ARI): Trims Moly-Cop bidder list to 6 ahead of second-round proposals: Australian; Crown Resorts (CWN): Peer Las Vegas Sands opens $2.9b resort in Macau, eyes Asia Pacific expansion; CYBG (CYB): Sees “double-digit” return on tangible equity by end 2019; Platinum Asset (PTM): Plans on-market buyback of up to 10% of shares; Raised to neutral vs underperform at Credit Suisse; Superloop (SLC): Said to plan acquisition of Bigair Group: AFR

Broker gradings

- Brambles (BXB): Raised to hold vs sell at Shaw & Partners
- Gold Road (GOR): Rated new buy at Haywood Securities
- JB Hi-Fi (JBH): Raised to add vs hold at Morgans Financial; Raised to buy vs neutral at UBS; Raised to overweight vs neutral at JPMorgan
- Macquarie Atlas (MQA): Raised to outperform vs neutral at Credit Suisse
- Oil Search (OSH): Raised to hold vs sell at Morningstar
- Regis Resources (RRL): Raised to buy vs hold at Argonaut Securities

Stock to watch

Since Ramelius Resources (RMS.xasx) broke out of the three-year rounding bottom formation earlier this year, it rose to 0.645 in July.

This level coincided to a 200% extension of the rounding bottom consolidation and since then it has been falling towards 0.44 where the uptrend intersects the 100% extension. We see a tactical long opportunity near 0.44 targeting 0.52 and 0.57.

Ramelius Resources quarterly graph

Source: Saxo Bank

The USD firmed and the US 10-year yield rallied to 1.75% for the first time since the period before Brexit.

AUDUSD was one of the biggest casualties as it broke below 0.75 although it found support at 0.7450 where the uptrend (from the January low) crosses the 50% retracement between the May low and the August high.

The selling pressure seems obvious but we consider going long unless AUDUSD closes below the uptrend.

AUDUSD monthly chart
Source: Saxo Bank
Wild price swings continued overnight as US500 wiped all the Monday’s gains, however it failed to touch Monday’s low 2,108.

The support levels 2,100-2,120 are likely to remain solid and as long as these levels hold, we continue consider going long.

The AUS200 looked weak from the open yesterday as it broke the 200 DMA and 5,200. The interim support level sits at 5,155 which would be 50% retracements between Feb low and the Aug high.
AUS 200 monthly chart
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. Watch the recording of this Week’s Macro Monday Call at 1030 AEST and watch our call on Periscope #SaxoStratsAPAC. Follow us on


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