Article / 14 November 2016 at 1:06 GMT

Today's Trade: ASX moves lower as euphoria fades

Trading Desk / Saxo Capital Markets
Australia
  • ANZ and Westpac are trading ex-dividend, both down over 3% at start
  • Miners pressured despite rise in iron ore - other commodities are soft
  • ASX was down around 0.6% at 1100 AEDT, weighed down by materials

By Saxo Capital Markets

Overnight and early trade

At just before 1100 AEDT (0000 GMT) the S&P/ASX 200 was 0.6% weaker for the day at 5341.4 points, a big difference from last week where the stockmarket realised a 3.7% rise.

Real estate stocks were flat while Telstra was up 1.6% and Transurban, 1.5%. The weakness is in the banks, with both Westpac and ANZ trading lower, and the materials sector, down 1.3%.

On Friday, global stocks joined declines in bonds and commodities as a selloff in emerging markets deepened with traders parsing the implications of a Donald Trump presidency for the world’s largest economy.

The MSCI All Country World Index pared its biggest weekly rally since September, the S&P 500 Index halted a four-day gain, while the Dow Jones Industrial Average hit a record high.

A rout in Latin American markets extended into a third day on bets that higher US interest rates would damp the appeal of riskier assets around the world. The USD rose to its strongest level since February.

Bonds continued to get pounded, with losses exceeding $1 trillion this week, and trading in Treasuries closed for a holiday. Gold and oil slumped.

Global stocks gained $1.3 trillion this week as traders bet Trump will lower taxes, ease corporate regulations and ramp up spending to spur growth. Meanwhile, investors pushed down the value of bonds as the policies are seen boosting inflation and interest rates.

Federal Reserve vice-chairman Stanley Fischer said the central bank has almost reached its goals for maximum employment and price stability, strengthening the case for a hike.

xxx
 Ripe for a hike: The incoming commander in chief has strengthened the case for an
interest rate rise and the numbers look just about right, says the Fed. Photo: iStock


MSCI’s global gauge of stocks dropped 0.6% in New York, trimming its weekly advance to 1.6%.
The S&P 500 fell 0.1% to 2,164.45, while still posting its best week in two years. The Dow Average rose 0.2%.

The Russell 2000 Index of smaller companies rallied on speculation Trump’s homeward-looking policies will favour the more domestic-focused index. The VIX fell again to 14.17.

Investors are also considering what a Trump presidency means for the trajectory of interest rates.

Utilities and consumer staples - stocks that have been coveted for their high dividend payout as a source of income amid record-low bond yields - have all retreated over the past five days.

The MSCI Emerging Markets Index declined 2.9% to the lowest level since July 11. The Stoxx Europe 600 Index dropped for a second day amid a slide in construction firms, miners and drugmakers.

European government bonds extended their selloff, with the yield on Italian 10-year securities climbing above 2% for the first time since September 2015. German 10-year bunds declined for a fifth day.

The market value of Bank of America’s Global Broad Market Index, which tracks more than 24,000 bonds around the world, has slumped by $1.14 trillion this week to $48.1 trillion.

The only previous week it fell by more than $1 trillion was in June 2013, when the Fed under then chairman Ben Bernanke was threatening to reduce debt purchases, leading to a bond selloff that became known as the “Taper Tantrum.”

The benchmark US 10-year note yield has jumped 37 basis points in the week to Thursday. Treasuries are closed worldwide Friday for US Veterans Day holiday.

The USD posted the biggest weekly gain since 2011, spurring central banks from India to Indonesia to step in to stabilise their currencies on concern Trump will pursue policies that spur capital outflows from developing economies.

The US Dollar Index, which tracks the currency against 10 major peers, rose 0.2%, extending its weekly rally to 2.8%. The greenback fell 0.1% to 106.76 yen, and gained 0.4% to $1.0848 per euro.

Emerging market currencies posted their worst three-day rout since 2011.

Latin American currencies tumbled on concern that Trump could usher in a host of protectionist measures after he campaigned on a pledge to protect American workers and companies from unfair trade deals.

Commodities fell the most in four months, dragged down by gold and oil as traders reassessed the possible effects of Trump’s plans.

The Bloomberg Commodity Index slid 1.8%. Gold retreated to pre-election levels after rising earlier as investors flocked to haven assets upon Trump’s victory.

Oil dropped to the lowest in almost two months in New York on rising Opec output after a volatile week driven by uncertainty about the group’s intentions and the surprise election of Donald Trump.

West Texas Intermediate for December delivery dropped $1.25 to $43.41/barrel on the New York Mercantile Exchange. Brent for January settlement fell $1.09, or 2.4%, to $44.75/b on the London-based ICE Futures Europe exchange.

Source: Bloomberg, TradingFloor.com

Local markets and commodities

  • The S&P/ASX 200 Index futures -0.3%; futures relative to estimated fair value suggest an early decline of 0.7%.
  •  Bank of New York Australia ADR Index +0.1%, BHP Billiton ADR -1.7% to A$24.85 equivalent, 0.4% discount to last Sydney close, Rio Tinto ADR -0.5% to A$51.78 equivalent, ~13% discount to last Sydney close.
  • Gold, which was expected to rally on Trump’s election victory, has fallen for four of the past five days. For the week, gold was down 5.3%, the most since 2013. On Friday gold slid 3.3% to $1,224.30/oz. Much of the pressure has come as investors warmed to the prospects of a Trump presidency improving US economic growth through infrastructure spending. Investors are also considering what a Trump presidency means for Federal Reserve policy and the trajectory of rates. Odds for a December increase in borrowing costs have risen to 84% from 76% a week ago, which is weighing on gold. Goldies in Toronto endured another tough session on Friday finishing down 6.75%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Iron ore with 62% content in Qingdao jumped to $79.81 a dry ton Friday, the highest since October 30, 2014, after rising 108% from December’s low, according to Metal Bulletin. For the week, prices rose 23%, the biggest increase since records began in 2008. In 2016, prices are up 83%, far ahead of the 5.5% advance in the Bloomberg Commodity Index. The upsurge has helped to revive miners’ shares. In Australia, Fortescue Metals Group  has more than tripled this year, while Rio Tinto Group rallied 33% and BHP Billiton Ltd. gained 40%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper surrendered its biggest gain in seven years as investors reassess the consequences of Donald Trump’s stimulus plans. Copper futures for December delivery dropped 1.6% to settle at $2.509/tonne and trading volume was as much as five times over average levels, while price swings in options were the highest since January, data compiled by Bloomberg show. Supply growth pickup and bearish seasonal factors to weigh on market with Chinese metals demand growth and credit growth in Q1 to slow. Nickel slumped 2.9%. Aluminium, zinc, tin and lead also dropped. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news:  Westpac (WBC): Trades ex-div;  ANZ Bank (ANZ): Asked AmBank to boost anti-money laundering controls: FT; Meiji Yasuda Life to buy ANZ life insurance unit: Sankei; Trades ex-div; Abacus Property (ABP): Annual meeting scheduled; BHP Billiton (BHP), Fortescue (FMG): Iron ore’s trumped up gains seen at risk after doubling; CIMIC Group (CIM): CPB Contractors wins Amberley base upgrade project; Crown Resorts (CWN): Employee released in China after almost month in detention; CSL (CSL): Afstyla gets positive recommendation in Europe; Echo Resources (EAR): Takeover offer bidders statement, offers sent.
  • Harvey Norman (HVN): Annual meeting scheduled; NOTE: Co. earlier this month said 1Q adj. profit +26%, comp. sales +6.6%; Insurance Australia (IAG): Said to plan A$300m hybrid offer: AFR; Macquarie Group (MQG): UniCredit says in talks after multiple offers for Pioneer; Newcrest (NCM), Northern Star (NST), Evolution (EVN), OZ Minerals (OZL), Saracen (SAR), Regis Resources (RRL), Resolute Mining (RSG), St Barbara (SBM), Woodside Petroleum (WPL), Worleyparsons (WOR), Oil Search (OSH), Beach Energy (BPT), Karoon (KAR), Origin Energy (ORG): Commodities decline most in 4 months as gold, oil slump; Rio Tinto (RIO): Board to meet Monday on consultant payments: FT; Santos (STO): Chairman says ENN desire for board seat understandable.


Broker gradings

- OZ Minerals (OZL): Cut to underperform vs neutral at Credit Suisse
- Webjet (WEB): Raised to buy vs neutral at UBS

Releases due this week

Monday
AGM: Abacus Property Group, Harvey Norman Holdings Ltd

Tuesday
AGM: Nine Entertainment Co Holdings Ltd
Earnings: OFX Group Ltd earnings

Wednesday
AGM: Aveo Group, IPH Ltd, DUET Group, Pact Group Holdings Ltd, Navitas Ltd, Brambles Ltd, Earnings: GrainCorp Ltd

Thursday
Investor Day: Telstra
AGM: Sonic Healthcare Ltd, ResMed Inc, Mirvac Group, Platinum Asset Management Ltd, Goodman Group, Seven Group Holdings Ltd, iSentia Group Ltd, Gateway Lifestyle, BHP Billiton Ltd, Mantra Group Ltd, Mineral Resources Ltd, Infigen Energy, Costa Group Holdings Ltd, James Hardie Industries PLC, ResMed Inc

Friday
AGM: Altium Ltd, Link Administration Holdings Ltd, Vicinity Centres, Myer Holdings Ltd, Regis Resources Ltd, Automotive Holdings Group Ltd, Independence Group NL, Sydney Airport
Earnings: James Hardie Industries PLC, AusNet Services

Stock to watch

Last Friday gold (XAUUSD) made a critical break out below $1,250/oz and the gold miners in US plunged to a seven month low.

The upside of Evolution Mining (EVN.xasx) has been restricted but at the same time the stock has been showing some resilience despite the clear weakness in gold last week.

The uptrend (from Nov 15 low) is intact and the 200 Day Moving Average has been acting as a support level.

Furthermore the $A2.10 price has been acting as a major support level since June this year and we expect this level to be tested today. A potential break out below this level of $A2.10 should trigger aggressive sell off.
 
Evolution Mining monthly chart

1

 
As the 10-year bond yield continues to strengthen, Telstra (TLS) has been under enormous selling pressure over the last four months and the key support level of $5.00 has clearly broken through this month.

Telstra is approaching the next support level of $A4.64 where the 200 DMA crosses 50% retracements between the 2010 low of $A2.55 and the 2015 high of $A6.74, therefore a potential rebound is possible near $A4.64.
 
Telstra yearly chart

2



















Despite subdued price actions from crude oil, Beach Energy (BPT.xasx) has bounced off $A0.70 this month but found a resistance level at $A0.80 which currently looks like a triple top and this level also served as a significant double top back in 1997.

RSI is indicating falling momentum and further weakness from crude below $42.50 could put downward pressure on BPT, therefore we see a good shorting opportunity at 0.80 with stop above last Friday’s high 0.81.

Beach Energy monthly chart

3 Source: All charts, Saxo Bank
 
Indices round-up: USD, EURUSD, AUDUSD, Nikkei Futures, AUS200, S&P 500, gold

The US dollar index was strongly supported along the lower channel trendline in the past week and as he had highlighted in last week’s Today's Trade report on the 7th November - this was the level to hold further losses.

We also highlighted the 200 DMA which sits just below the lower trendline and the US dollar respected this level as well.

We also highlighted the weekly chart confirming the intersection of the upper and lower pennant trendlines so in respect to timing, the low printed over the US dollar does not get better than what we saw last week.

Now this week as the US dollar index hovers at around the 99 handle, it will need to make a clearance above the October high and in addition to a fresh high, we need to see momentum start to pick up.

What we are currently seeing as of the weekly close on Saturday morning, the US dollar index sits at its highs whilst momentum is displaying a divergence which signals that the steam in this rally may be running out.

To the topside, the 100 handle may act as major resistance, and coincidently, this week, the upper channel trendline which has defined US dollar moves for the best of the past seven months since April, offers potential rejection as we saw in July and in August.
 
USD index monthly chart

4
 
USD index yearly chart

5
 
Last week we outlined that the EURUSD continued to remain upside corrective also providing levels to fade continued rallies.

Our level of the 200 DMA failed to hold, instead, rallying a further 120 pips or so but for those that had the US dollar chart marked up as we had presented, whilst the Euro was hitting up against the 200 DMA, the US dollar was nowhere near that support level. So in hindsight that was the give away that the Euro had slightly more room to rally.

Now whilst the EURUSD makes new lows, there is diverging momentum as measured by the RSI, exactly the same as we what we are currently witnessing over the US dollar index.

This is classified as an A Class divergence where the instrument makes new lows whilst the momentum holds strong, and the current pattern suggests that the decline over the Euro may mature within days.

So this week, not only do we have attractive short opportunities over the US dollar index at the 100 level, the EURUSD itself also presents some unique long opportunities, especially if it continues to make new lows and the momentum continues to hold.

The level of 1.0783 happens to be a full 76.4% retracement between the December 2015 low to this years high.

And if we measure the range between the high in August to October low and apply that range to the peak of last week, a 100% repeat in price also happens to come in at this 1.0783 level so we have a strong alignment in support at this level.

Any long positions taken from where the EURUSD is currently at right now here in Asia down to the 1.0783 level would have stops below the 1.07 handle so below the 2016 lows which was seen in January.

EURUSD monthly chart

6
 

The Aussie dollar this week is in serious trouble as the weekly close happened to come in below the lower channel trendline which has supported every sell down over the Aussie this year.

The AUDUSD has also produced an outside weekly candle bar which is a reversal signal of its recent trend.

Now the failure for the Aussie dollar to holds its gains last week whilst commodities continued to rally (we saw copper hit its biggest gains in seven years, iron ore rocketed 23%) will be translated by the market for further losses to potentially lie ahead.

On the daily chart: The 200 DMA may be that temporary saviour however given that it did not act as strong support or resistance throughout this year - we’re not expecting too much here although it has held Aussie’s losses early this morning.

Now as always, we need to see a second consecutive close below the lower trendline in order for the break to constitute a true break otherwise if the AUD settles today back within the channel, then last Friday's close will prove to be a false break.

On the back of a second settlement below the lower trendline today, any rallies will most likely terminate below this trendline as it will now act as resistance points for the AUD.

Should attempted gains be rejected at this trendline upon a higher move this would signal that a deeper sell down may be on its way.

AUDUSD monthly chart

7
 
AUDUSD monthly chart with 200 DMA
8

 
The Nikkei futures approaches some significant levels: the January 2016 high at 17,900 may provoke failure for Nikkei’s gains as this level happens to be a 50% retracement between the peak at 2015 all time high to the 2016 lows.
 
Nikkei 225 futures monthly chart

9
 
The 61.8% retracement between the February low to the 2016 high called the low over our ASX 200 last week, with the index also being supported at the June lows as well.

After breaking the April/June/September support trendline, the ASX index now trades back above here with support to be continued to be offered at this trendline with a break below again to see next support at the 200 DMA.

This week the AUS200 approaches heavy resistance as offered by the July/August/September trendline and we look for the market to fail here.

Only an unexpected break above this trendline would introduce scope for our index to then test 5,500 or the October highs followed by 5,570 the August highs.

So only a break above this trendline would be necessary to argue for a longer term bullish shift.

AUS200 monthly chart

10
 
The S&P 500 is yet to break out to new highs, still struggling below this year’s peak.

Prices are also failing below the Jan to June trendline it recently broke and this trendline is now giving resistance to S&P’s attempted gains and the test this week will be to settle above here.

It will also be for the index to make a new highs as well in parallel to what we are currently witnessing over the Dow Jones Index.

S&P 500 monthly chart
 
11
 
Gold was left brutally bruised and beaten up into the close last week however now fast approaches strong support levels.

An initial rally was met with a rejection slightly above the June/July/August downtrend line and the break of the short-term September/October uptrend was enough for stops to trigger and for an aggressive sell down to follow.

If we shift our focus to the momentum, RSI fails to make new lows, whilst gold itself makes new lows – a similar setup to that of the EUR: An A class divergence.

This week, we mark $1,210/oz as first level of support over gold followed by $1,199/oz so a break of $1,200/oz should not to be a significant event for us, especially should the RSI continue to hold up.

Now the $1,210/oz level we marked as first support will be an interesting level to watch for a hold given that it is a 50% retracement between 2015 lows to this year’s peak.
 
XAUUSD monthly chart

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Source: All charts, Saxo Bank - create your 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.


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