Today's Trade: ASX takes a break after solid week
- The ASX200 opened lower led by the big banks, while miners were up
- Gold rebounded from a three-week low on ECB comments
- There is more upside potential for AUDUSD as copper and iron ore show strength
Overnight and early trading
Local markets were uninspired in early trade with the ASX200 falling 8 points to 5504 at the open. The big banks were all lower but miners were up on higher gold prices.
Overseas, earnings continued to set the tone on global equity markets, as US stocks retreated from record levels amid a mix of corporate results that raised some concern about the economy’s strength.
Crude fell amid a stockpile glut, while Treasuries rose with gold. The S&P 500 Index fell from a record, with airlines leading declines after Southwest Airlines tumbled on weakness in its fares. Intel dragged the Dow Jones Industrial Average lower for the first time in 10 days. Starbucks fell 3% in late trading after earnings missed estimates. Travel companies sent European shares down from a four-week high. The 10-year Treasury yield retreated, while crude fell below $45/ barrel in New York.
Equities turned lower after the European Central Bank was less forceful than investors had been speculating in signalling that additional stimulus is coming. Stocks had added more than $4.5 trillion in three weeks on bets central banks will stoke growth. Earnings had also been playing a part, with positive surprises helping lift the S&P 500 to a record. Some of that optimism faded Thursday as signs faded that profits will be able to sustain equities at elevated valuations.
The S&P 500 fell 0.4% to 2,165.05. The Dow slipped 0.4%, halting the longest rally since 2013. Valuations on the S&P 500 climbed above 20 times earnings for the first time in seven years a week ago. Intel slipped after reporting slower growth in its server-chip division. American Express lost 2% as its revenue was short of predictions. Southwest Airlines tumbled 8.8% after its earnings disappointed, weighing on shares of other carriers. Qualcomm gained after it gave a forecast that beat analysts’ estimates, and eBay surged 11% after also raising its outlook.
The Stoxx Europe 600 ended little changed, with airlines leading declines. Deutsche Lufthansa sank 5.3% after cutting its 2016 profit forecast. EasyJet slid 5.3% after posting a drop in quarterly revenue. Ryanair Holdings and Air France-KLM Group fell more than 4%. Miners in the gauge advanced for the first time in three days.
The Borsa Istanbul 100 Index slumped 3.6%. Turkey imposed a three-month state of emergency as the government pursues those responsible for last week’s failed military coup, detaining thousands of army officers, judges and prosecutors.
The euro reached a three-week low, weakening against most of its major counterparts after the ECB decision. Draghi indicated the ECB will consider adding fresh stimulus later this year when it has a clearer picture of the economic impact from the UK’s secession vote. The euro was little changed at $1.1021 after declining as low as $1.0980, the weakest level since June 27. It was 0.8% weaker at 116.76 yen.
The Bloomberg Dollar Spot Index fell 0.2%, after four days of gains. A Citigroup gauge that tracks the degree to which American economic data are exceeding projections is at an 18-month high and futures put the chance of a Federal Reserve interest-rate increase this year at 47%, up from 9% at the end of June.
Data Thursday showed sales of previously owned homes in the US unexpectedly climbed in June to the highest level in more than nine years, giving a boost to residential real estate as it approached the end of its busy selling season.
Nickel extended gains to a 11-month high on concern the Philippines crackdown on mines is disrupting supplies from the world’s top supplier of nickel ore. Mining stocks climbed for the first time in a week. Futures settled 1.7% higher.
Gold rebounded from a three-week low after the ECB said it may add stimulus as needed once it has a clearer picture of the Brexit vote’s economic impact. Futures advanced 0.9% to settle at $1,331/ounce. The metal has alternated between gains and losses for eight straight days.
Charles Schwab joined a growing list of Wall Street firms predicting Treasury yields will stay low following a record-setting rally, even as US debt is on pace for its second-straight weekly decline. The yield slipped two basis points Thursday to 1.56% after touching 1.31% two weeks ago.
Brazil is planning to sell global bonds for the first time since March as increased speculation that a new government will pull the nation from its deepest recession in a century drives down borrowing costs.
German 10-year bund yields touched the highest level in four weeks after the ECB left interest rates unchanged in its first policy announcement since the UK’s vote. Germany’s 10-year bund yield was little changed at minus 0.008%.
Source: Bloomberg, TradingFloor.com
- Friday: General Electric, Honeywell, American Airlines, VF Corp, Whirlpool, Synchrony Financial, SunTrust, Stanley Black and Decker, Newell Brands, Moody's
Local markets and commodities
- Bank of New York Australia ADR Index +0.8%, BHP Billiton ADR +2.3% to ~$A19.33 equivalent, 0.4% premium to last Sydney close, Rio Tinto ADR +2.5% to $A41.12 equivalent, 13% discount to last Sydney close
- Gold rebounded from a three-week low after the European Central Bank said it will consider adding stimulus as needed once it has a clearer picture of the Brexit vote’s economic impact. Gold futures for August delivery rose 0.9% to settle at $1,331/ounce on Comex. Prices earlier touched $1,310.70, the lowest for a most-active contract since June 28.
- Holdings in gold-backed exchange-traded funds fell 0.6 tonnes to 2,005.5 tonnes on Wednesday, data compiled by Bloomberg show. Goldies in Toronto lifted close to 3%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Oil dropped as the US is set to end the summer-driving season with ample stockpiles while investors await signs of additional central bank stimulus. West Texas Intermediate for September delivery dropped $1 to close at $44.75/ barrel on the New York Mercantile Exchange. Total volume traded was 35% below the 100-day average at 1452.
- Brent for September settlement declined 97¢, or 2.1%, to $46.20/ barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $1.45 premium to WTI. US crude inventories fell by 2.34 million barrels last week to 519.5 million, according to the EIA report.
- Stockpiles of gasoline rose for the fourth time in five weeks to 241 million last week, marking the highest level since April. US consumption of the fuel averaged 9.73 million barrels/day in the four weeks ended July 15, down 0.1% from July 8 but still the highest seasonal level in at least a decade.
- American fuel demand typically peaks in the summer months when motorists take to the highways for vacations. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore rose $1.42, or 2.6%, to $57.17 a ton, according to a price index compiled by Metal Bulletin. According to steel traders in China, floods and storms in Hebei province may disrupt some logistics; some steel mills may have to suspend production as they are unable to secure iron ore or other raw materials.
- Vale, the world’s biggest iron-ore miner, reported output that exceeded analysts’ estimates, keeping a new annual production record in sight. Second-quarter iron-ore output was 86.8 million tonnes including third-party purchases, the Rio de Janeiro-based company said Thursday in a statement. That beat the 86 million tonnes estimated on average by five analysts surveyed by Bloomberg.
- Iron-ore output slipped from a second-quarter record 89.3 million tonnes a year earlier. Last year’s numbers included output resulting from synergies between Vale’s Samarco joint venture and some of the company’s southeastern mines. Samarco has been shut since a deadly dam breach in November.
- Vale is maintaining its production guidance for 2016, forecasting output to hit the lower end of its range of 340 million to 350 million tonnes for the year. The company broke its annual production record in 2015 with 345.9 million. Vale’s expansion goals include the ramp-up of the industry’s biggest development project, the S11D mine in Carajas, in the second half. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Nickel hit a 10-month peak and zinc touched its highest in 14 months as speculators kept buying, but analysts cautioned that rallies are vulnerable to corrections. Benchmark nickel on the London Metal Exchange surged to a peak of $10,900/tonne, its strongest since August 11 last year, and closed with a 1.7% gain at $10,760. LME zinc finished 0.4% up at $2254 a tonne after touching $2294.50, the highest since May 18 last year.
- LME copper edged 0.2% higher at $4976/ tonne by the close, having touched its highest since Friday at $5000. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- BHP (BHP): Extends production sharing contract in Algeria
- Aurizon (AZJ): Sees FY16 underlying Ebit at $A871mln, vs est.
- Centuria Capital (CNI): Wrote to GPT Management noting expiration of breach notice periodSantos (STO): Scheduled to release production report
- Virgin Australia (VAH): Plans flights to China, Hong Kong, in 2017, Australian reports
- Vocus (VOC): Investors pay $A8.50/share after rights offer shortfall, AFR says
Broker upgrades and downgrades
- Coca-Cola Amatil (CCL): Downgraded to neutral from outperform at Credit Suisse
- Mirvac (MGR): Cut to neutral from outperform at Credit Suisse
ASX200 crosses 5500 threshold
XAUUSD, AUDUSD and EURUSD
Gold (XAUUSD) found support above 1,310 and recovered all its losses from Wednesday as bond yields rose while the US dollar fell. A daily close above the key resistance levels 1,334-1,338 may signal the end of the recent decline in gold.
The uptrend (from May low 0.7145) seems to be intact for now as AUDUSD is looking to regather the upside momentum. We see more upside potential at the current level as the copper and iron ore continues to show strength. The risk to the downside could be a yet another disappointing CPI next Wednesday. The probability of a rate cut next month is now 70%.
Source: Saxo Trader
Source: Saxo Trader
The US dollar index (DX) ended its two days winning streak but it found the support near the June high 96.84. ECB chief Mario Draghi’s comments failed to determine a clear direction of EURSUD but the price actions were choppy and remained below 200 DMA. We believe EURUSD is going lower to test the first support level 1.0910, which was the Brexit low.
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.