Article / 11 July 2016 at 1:47 GMT

Today's Trade: ASX up 1.5% on renewed confidence

Trading Desk / Saxo Capital Markets
  • Both miners and banks getting an early lift from boosted sentiment
  • Strong US jobs data raising hopes of resuscitated global markets
  • US employers in June added 287,000 jobs, the strongest month since October
  • News of a Coalition victory has dissipated local uncertainties

By Saxo Capital Markets

Overnight and early trading

Traders are back in the ASX market with some strength in early trading, backed up by Friday night's big lift in global sentiment. at 1030 AEDT (0030 GMT) The ASX/S&P 200 was 83 points or 1.6% higher at 5,314.

The banks were also up - ANZ rose 2.5%, Westpac 2.1%, NAB 1.8% and CBA 1.5%. Macquarie was up 2.8%.

Strong US jobs data raised hopes that the US recovery would resuscitate global markets, which fed into mining stocks. BHP was up 2.7% and Rio 1.4%. Fortescue was 3.9% ahead. Energy stocks have also climbed, with Woodside up 1.3%.

On Friday, both the US bond and stock markets touched new extremes Friday, a result of June’s job report but also a reminder that current financial conditions have little historical precedent.

The S&P 500 briefly surpassed its record closing-high level in intraday trading after the Labor Department reported a boost to US hiring, erasing all losses after the UK’s June 23 vote to leave the European Union.

As stocks marched higher, investor demand for US government bonds, considered one of the safest investments, strengthened. The benchmark security is now yielding its lowest return on record, 1.366%. Bond yields move inversely to prices, meaning the lower the yield, the more expensive the bond.

US employers in June added a seasonally adjusted 287,000 jobs, the strongest month of hiring since last October, according to the Labor Department report. That was a sharp rebound from May, when hiring sagged to 11,000, the weakest reading since the economy stopped shedding jobs in 2010.

The unemployment rate, calculated from a separate survey of US households, rose to 4.9% in June from 4.7% in May, partly retracing its drop from 5% in April.

The workforce expanded in June after shrinking the prior month, and the labor force participation rate ticked up to 62.7%

On Friday, all three indexes closed above their pre-Brexit levels. The Dow Industrials gained 250.86 points, or 1.4%, to 18,146.74, while the S&P 500 rose 32 points, or 1.5%, to 2,129.90.

Both indices finished at a high for the year. The Nasdaq Composite Index added 79.95 points, or 1.6%, to 4956.76.

The Dow industrials and the S&P 500 are both up a little more than 4% this year, while the Nasdaq is down 1%. The Stoxx Europe 600 remains down 11% year to date, while Japan’s Nikkei Stock Average has tumbled 21%.

Another sector that has performed well this year struggled this week. The energy sector was the biggest laggard in the S&P 500, falling 1.1% for the week. The price of US-traded crude oil fell 7.3%, to $45.41/barrel, its biggest weekly fall since February.

European stocks also soared to close sharply higher on Friday, after investors cheered on the news that the US had created 287,000 jobs during the month of June.

 There was good news on US jobs, but the USD was not heavily influenced. Photo: iStock

All major bourses celebrated the news from overseas, with France's CAC and Germany's Dax rallying to close up 1.8 and 2.2% respectively. The UK's FTSE 100 lagged behind however, finishing up 0.9%, while its domestically-focused FTSE 250 index jumped 1.75%.

Banks were also a key focus for investors Friday, particularly in Italy. Shares of Banca Monte dei Paschi di Siena (BMPS) jumped 5.5% after the struggling bank said it was "working intensely" with authorities to find a solution for its bad loan portfolio.

The lender has been told by the European Central Bank to cut its debts by 30% in the next two-and-a-half years.

Banco Popolare said on Thursday that it had conducted internal stress tests which confirmed the banks' resilience to adverse shocks. The news sent the lender to the top of the STOXX 600, closing 18.4% up.

Goldman Sachs cut its price target for a number of UK banks, including Royal Bank of Scotland, Barclays and Lloyds. Despite this, shares in all of the banks closed sharply higher

Sources: Bloomberg, WSJ,

Local markets and commodities

  • S&P/ASX 200 Index futures +1.2%; futures relative to estimated fair value suggest an early gain of 1.4%.
  • Bank of New York Australia ADR Index +3.4%, BHP Billiton ADR +5.6% to A$19.39 equivalent, 0.7% premium to last Sydney close, Rio Tinto ADR +4.3% to A$41.75 equivalent, 14% discount to last Sydney close.
  • Gold prices ended lower on Friday after economic data showed stronger-than-expected growth in the US workforce. Gold for August delivery settled down 0.2% at $1,358.40/oz on Comex. The precious metal traded as low as $1,336.30 immediately after the release of June jobs data, but reversed course to trade as high as $1,371.80 during the session.
  • Barrick Gold, the Toronto-based gold mining company, in an interview with Bloomberg on Friday, stated that the company could be debt-dree by 2026. The company's president, Kelvin Dushnisky, expressed confidence that Barrick Gold would lose all of its $9 billion debt in the next 10 years, also saying that "it's not unreasonable". He added that selling the debt is dependent on the price of gold. The gold sector within the Toronto Stock Exchange rose 2.36%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil rose after stronger US payroll growth allayed concern that the economy of the world’s largest crude-consuming nation is slowing. Futures climbed 0.6% in New York. America’s job market stirred to life in June as payrolls climbed by 287,000, the most since October, after a two-month lull.
  • Oil tumbled 4.8% on Thursday after government data showed US crude stockpiles fell 2.2 million barrels last week, a smaller drop than forecast and industry data suggested. The report showed US production slumped to the lowest level since May 2014. West Texas Intermediate crude for August delivery rose 27 cents to close at $45.41/barrel on the New York Mercantile Exchange. Futures capped a 7.3% weekly decline, the most since February. The grade settled at $45.14 on Thursday, the lowest since May 10. Brent for September settlement increased 36 cents, or 0.8%, to $46.76 a barrel on the London-based ICE Futures Europe exchange.
  • The global benchmark closed at a 64-cent premium to WTI for the same month. Crude production in the US tumbled to 8.43 million barrels a day in the week ended July 1, the lowest since May 2014, according to the EIA report. The number of active oil rigs in the US has increased by five of the last six weeks, Baker Hughes data show. Explorers have idled more than 1,000 oil rigs since the start of last year. Meanwhile a strike by oil workers in Nigeria entered a second day and a gradual shutdown of facilities is in progress, the Pengassan union said. The government will meet with union leaders on Monday, Oil Minister Emmanuel Kachikwu said. “Gaps in confidence” are hindering talks with rebels who are attacking the nation’s oil facilities, he said. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore rose 10 cents, or 0.2%, to $55.17/tonne, according to a price index compiled by Metal Bulletin. Steel rebar for October delivery rallied 2.4% to close at 2,445 yuan/mt on Shanghai Futures Exchange, the highest close for most-active contract since May 3. Futures rose 4.1% last week, rising for the third week.
  • Australia’s Department of Industry, Innovation and Science cut its outlook for prices next year by 20% as the global market remains well supplied, loss-making miners are holding out and steel output in China will shrink further. Iron ore is seen at $44.80/t next year, the department said in a quarterly report on Friday. That compares with its previous forecast of $56/t given in the March quarter. The prediction for 2016 was little changed at $44.20/t from $45. Prices were whipsawed in the first half after three years of declines, and remain 27% higher after construction in China picked up.
  • Despite the large movements, fundamentals are broadly unchanged, according to the department, which forecast that while the nation’s shipments will increase further, earnings would be flat. Data from China on Friday showed another rise in port holdings, which expanded to the highest since December 2014. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Copper headed for its biggest weekly drop in two months on concerns about flagging demand in China and as stockpiles tracked by the biggest metals exchange jumped. Copper for delivery in three months added 0.3% to $4,700/t on the London Metal Exchange, and is down 4.3% last week. That’s almost erased the previous week’s rally, as traders struggled to see any signs of rising demand in China, the world’s biggest user of the metal.
  • Industrial metals dropped last week as anxiety over the fallout from the UK’s vote to leave the European Union flared again in financial markets, adding to concerns about future demand. At the same time, stockpiles of copper in LME warehouses surged 18% this week to the highest since February.
  • Nickel also headed for a weekly decline, paring gains made in the wake of the Philippines’ pledge to shutter mines that don’t meet environmental and social welfare standards. Those mines risk closure this year, Gina Lopez, the country’s new environment secretary, told Bloomberg on Thursday.
  • The metal was down 0.3% at $9,720/t on the LME on Friday, set for a 2.5% weekly loss. The Philippines is the world’s biggest supplier of mined nickel. Aluminum and zinc prices rose on the LME, tin fell and lead was little changed. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news:  Macquarie (MQG): Final bids for Lyon airport due next week, La Tribune says; Tabcorp (TAH): Greyhound-racing industry to fight ban, AFR says; Telstra (TLS): Plans to cut 326 jobs, AAP reports; had around 37k employees as of December 31: Bloomberg data; Turnbull Declares Victory: Prime Minister Malcolm Turnbull declared victory in Australia’s election, “This is a great day,” Turnbull, 61, told reporters in Sydney on Sunday, hours after opposition Labor leader Bill Shorten phoned him to concede.

Broker upgrades and downgrades

- OceanaGold (OGC): Toronto shares rated new equalweight at Barclays


Aussie 10-year bond prices (XT) continue to show strength and it doesn’t appear to be affected by last week’s credit outlook cut by the S&P. In the meantime, the AUDUSD is now trading at the 61.8% retracement level at 0.7570, although the key resistance level would be the 0.76 handle.

These levels 0.7570 to 0.76 served as key support levels during March to June 2015, therefore we expect some selling pressure.

For EURUSD the interim resistance level 1.1108 looks valid and the pair sold off on the back of the stronger than expected nonfarm payroll figures, although it found the support level at 1.10 handle.

EURUSD is expected to remain under further selling pressure and the 200 Day Moving Average should also act as a line of the resistance.

AUDUSD monthly price

EURUSD monthly price
 Source: Both charts, Saxo Bank

AUS200.i and US500.i

The downtrend (from the May high) looks to be broken as the AUS200 extended its gains in the SYCOM sessions on Friday night as the strong non farm payroll numbers seems to have boosted sentiment across equity indices.

The support level is 5,250 while the next resistance level would be 5,333 which is the pre Brexit high and we expect the upside momentum to exist today.

The US500 rallied to break above the June high of 2,127.5 and now recovered all of the losses from the Brexit selloff. We currently do not see any negative catalyst to the downside, but the US500 is near the previous uptrend (from the February low) which may act as an interim resistance level. The support level would now be the psychological level of 2,100.

AUS 200 monthly chart

US 500 monthly chart
Source: Both charts, 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. Please join us for the Weekly Macro Call each Monday at 10:30 AEDT


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