Article / 08 September 2016 at 1:17 GMT

Today's Trade: ASX turns red across the board

Trading Desk / Saxo Capital Markets

  • The ASX 200 close to 1% down at 5369 in a stronger-than-expected early selloff
  • Morning trade red across the board, with no sector showing signs of strength
  • Resources sector at the heart of the selloff despite mixed commodity markets

By Saxo Capital Markets (Sydney)

Overnight and early trading

The ASX/S&P 200 was suffering an across-the-board sell-off right from the open, defying the strong gains in share markets overseas. The miners were at the heart of it - BHP Billiton slid 2.1% to $A20.06, Rio Tinto softened 1.4% to $A47.47 and Fortescue slipped 2.1% to $A4.88.

Overseas, US stocks held near record levels and the dollar gained as traders digested mixed data in the world’s largest economy amid bets interest rates will stay low.

The S&P 500 Index was little changed after rising to within three points of an all-time high and the dollar halted a two-day slide. The loonie erased gains after the Bank of Canada cited increased risks of slower growth, while Mexico’s peso slumped as the nation’s finance minister stepped down.

Crude climbed to a one-week high as investors parsed comments from Opec and Russia for signs of whether oil producers will agree on measures to bolster the market.

Traders pared their bets on a rate increase in September to 20%, according to Fed fund futures data compiled by Bloomberg. The US economy grew at a modest pace in July and August as a strong labor market failed to put much upward pressure on wages and prices, according to the Federal Reserve’s latest Beige Book release.

The US Citigroup Economic Surprise Index, which measures data surprises relative to market expectations, fell below zero for the first time since July in an indication that releases have been worse than expected.

 Commodities have not been hard hit, but BHP is feeling the heat this morning. Photo: iStock

The S&P 500 lost less than 0.1%. The stock index has held in a band of 1.5% for 39 days, the narrowest ever for that length of time, and has gone 42 sessions without a 1% move in either direction, the longest since 2014.

Equities failed to make headway as consumer staples companies capped the worst drop in six weeks, offsetting gains in technology and energy shares.

General Mills fell the most in almost two years, while Whole Foods Market and Kroger lost more than 4%, spurred by a 14% drop in rival Sprouts Farmers Market after the grocer cut its profit outlook.

Apple rose after executives unveiled new products, and Facebook advanced to a fresh high, extending its longest winning streak in five months.

A rally among exporters amid a weaker euro pushed European equities near their highest prices since April, while Germany’s Dax Index erased its annual decline.

Automakers led the advance in the Stoxx Europe 600 Index, which rose for the fourth time in five days. The Dax climbed 0.6%, with steelmaker ThyssenKrupp AG, chemical company BASF SE and Daimler AG advancing the most.

The Canadian dollar weakened after the central bank held its benchmark rate at 0.5% , with the decision anticipated by all 25 economists surveyed by Bloomberg.

The loonie gained in the past few days alongside other major currencies amid dissipating expectations for a US interest-rate increase this year.

Yet the currency has lagged behind most peers this quarter after a string of disappointing data from the country’s economy.

The benchmark 10-year Treasury yield was little changed at 1.53%, according to Bloomberg Bond Trader data. The rate on the two-year note, the coupon maturity most sensitive to Fed policy expectations, was at 0.73%.

In Europe, investors have strengthened bets that yields on longer-dated securities will fall relative to those on shorter-term debt in the past three days.

The so-called bull-flattening of the yield curve is fueled by speculation policy makers will step up their asset-purchase program or adjust its rules to ease a perceived scarcity of bonds available to buy.

With the European Central Bank’s current rules for quantitative easing excluding much of the shortest-dated debt from purchases, investors are building up positions in longer-term, higher- yielding securities as the Governing Council prepares to announce its latest policy decision on Thursday.

West Texas Intermediate oil for October delivery rose 67 cents to settle at $45.50/barrel on the New York Mercantile Exchange. It’s the highest settlement since August 30.

Copper had the biggest advance in almost three weeks as a mine strike in Chile, the largest producer, helped ease concerns that global supplies of the metal will exceed demand.

Source: Bloomberg,

Key earnings

Today: Karoon Gas Australia Ltd, FAR Ltd, Intrepid Mines Ltd
Friday: Altura Mining, Stavely Minerals, Rex Minerals Ltd

Local markets and commodities

  • The S&P/ASX 200 Index futures -0.3%; futures relative to estimated fair value suggest an early decline of 0.5%.
  • Bank of New York Australia ADR Index -0.2%, BHP Billiton ADR -1.8% to A$20.23 equivalent, 1.3% discount to last Sydney close, Rio Tinto ADR -1.7% to A$40.46 equivalent, 16% discount to last Sydney close.
  • Gold prices reversed gains Wednesday, weighed upon by a rising dollar. Gold for December delivery closed down 0.4% at $1,349.20/oz on the Comex division of the New York Mercantile Exchange. Prices hit $1,357.60/oz earlier in the session. Investors are now waiting for the European Central Bank’s next policy meeting tonight, though analysts largely expect that no further stimulus will be announced. Gold typically benefits when monetary policy stays loose, because it doesn’t pay interest and therefore struggles to compete when rates go up.
  • Meanwhile money is now moving back into holdings in gold exchange-traded funds, climbing by by 13.8 tonnes in the first two days of this week, topping the 13.7 tonnes added in all of August, data compiled by Bloomberg show. Aggregate open interest in futures rose to the highest in six weeks. Money managers, who pulled back on gold in August after some Fed officials said they were in favour of tightening monetary policy, are giving the metal a second look as disappointing economic data weakened the case for a rate hike. Gold stocks shed 0.25% overnight in Toronto. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil prices increased after industry data showed US stockpiles dropped, reducing inventories that are at the highest seasonal level in at least 30 years. Light, sweet crude for October delivery settled up 67 cents, or 1.5%, to $45.50/barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 72 cents, or 1.5%, to $47.98/b. Both hit their highest settlement in more than a week. The global benchmark closed at a $1.83 premium to WTI for November delivery.
  • Gasoline prices rallied the hardest, sending up the spread between gasoline and oil futures and eventually pulling crude futures with them. Traders and brokers are discussing reports of outages at an oil refinery in New Brunswick, the largest refinery in Canada. They also expect data coming from the US Energy Information Administration to show refineries slowed last week to 92.3% of capacity, down 0.5%, according to The Wall Street Journal’s weekly survey.
  • Gasoline futures settled up 3 cents, or 2.3%, at $1.3464 a gallon, its largest daily gains since Aug. 18. It is now 5.8% in three-straight winning sessions. Diesel futures gained 1.8 cents, or 1.3%, to $1.4265 a gallon. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore dropped $0.70 to $58.46/tonne overnight as sharp declines in coke and coking coal were dragging steel and other raw material prices lower. Also weighing on iron ore overnight was data from the Pilbara Ports Authority yesterday which showed that Iron ore shipments from the world’s largest bulk-export terminal in Australia swelled to a record, offering fresh evidence of strong supply and underpinning forecasts of lower prices through the year-end.
  • Exports from Port Hedland totalled 42.9 million tonnes in August from 38.7 million in July and 39.2 million a year earlier and cargoes to China were 35.4 million, also an all-time high, from 32.5 million in July and 33.9 million in August 2015. Port Hedland is a maritime gateway for low-cost supply from Australia’s Pilbara region and handles cargoes from miners including BHP, Fortescue Metals Group and Roy Hill, which is ramping up output this year. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper had the biggest advance in almost three weeks as a mine strike in Chile, the largest producer, helped ease concerns that global supplies of the metal will exceed demand. Copper for delivery in three months gained 0.6% to $4,650/t on the London Metal Exchange, the biggest gain since Aug. 18. Metal markets are looking ahead to China's trade data due on Thursday for clues to growth and demand prospects.
  • Zinc closed a touch firmer at $2322/t from Tuesday's close at $2321/t. It is up more than 60% since its January lows. Aluminium gained 0.2% to $1593/t, lead slipped 1.4% to $1920 and nickel rose 1% to $10,210/t. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Trades ex-div.: Air New Zealand (AIZ), ASX (ASX), AV Jennings (AVJ), Beach Energy (BPT), Corporate Travel Mgmt (CTD), Flexigroup (FXL), Iress (IRE), Iluka (ILU), Metlifecare (MEQ), Monadelphous (MND), NIB Holdings (NHF), OZ Minerals (OZL), RCG Corp (RCG), Sky Network TV (SKT), Sonic Healthcare (SHL), Tassal (TGR), Trade Me (TME), Woolworths (WOW)
  • Avanco Resources (AVB): To be halted pending announcement; Bank of Queensland (BOQ): Considering divestments: AFR; Dexus (DXS): Reports settlement of A$86.5m sale of site in Adelaide; Link Administration (LNK): UBS said mandated to sell PEP, ICG stakes in Link Group: AFR; Mesoblast (MSB): ADRs fall after cautious mention by Seeking Alpha; MG Unit Trust (MGC): Farmers walking out on Murray Goulburn milk contracts: Australian; Sigma Pharmaceuticals (SIP): Scheduled to release 1H results; Tower (TWR): Increases claims provisions for Canterbury damage. 

Broker gradings

- APN Outdoor (APO): Raised to buy vs neutral at UBS
- Cimic (CIM): Raised to buy vs neutral at Goldman Sachs

Stocks to watch

The ETF over the Dow Jones Transportation Average (IYT:xarc) has made a clear break out of an inverse head and shoulder formation and the technical set up suggests that there are further gains to be made.

The profit targets are broken down by the respective Fibonacci numbers (see green extension targets) as a ratio of the distance between the head to the neckline. Most interesting is the overlap that can be seen at the $155.30- $155.42 zones: this level happens to the 38.2% inverse head and shoulder extension target which coincides with the 76.4% retracement between the 2014 highs through to this years low.

These levels have also acted as areas where the ETF has experienced some decent support in Q4 of 2014 and Q1 of 2015 so we set the profit target here for long positions over this ETF.

The Scentre group (SCG.xasx) has sold off to break below the uptrend (from Aug 15) and now approaching the key support level $4.60 where 200 Day Moving Average intersects.

Dow Jones Transportation Average quarterly chart 
Scentre Group monthly chart
Huge outside reversal price actions suggest we may start to see further retracements towards the interim support level $4.70, although uptrend needs to be broken first. The price of FMG.xasx is massively above the 200 DMA and the RSI continues to remain below 70.
Fortescue Metals Group monthly chart

Source: All charts, Saxo Bank
AUS200.i and AUDUSD

The AUS200 continued to struggle near 5,400 and underperform other major indices, while the US indices maintains resilience assisted by the strong gains from the transport sectors (IYT).

The key support level would be 5,380 and the resistance level is at 5,433 as yesterday’s break seems to be a false break for now.
AUS 200 monthly chart

Yesterday’s Australian GDP numbers were merely half of the previous data but reactions from AUDUSD were not negative at all.

It made an attempt to test 0.77 but fell short. The downtrend (from Jan 15 high) has been restricting the rally in the past and we expect the same unless we see a proper breakout above 0.7750.

Today’s trade balance (1130 AEDT, 0130 GMT) could be interesting but the main driver for AUDUSD should continue to be the direction of US dollar.

AUDUSD monthly chart 
Source: Both charts, Saxo Bank
Today's Trade 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. Watch us on Periscope: #SaxoStratsAPAC. Follow us on


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