Article / 26 July 2016 at 0:39 GMT

Today's Trade: ASX skids on overseas slippage

Trading Desk / Saxo Capital Markets
  • US stocks declined as crude oil slid to a three-month low
  • ASX follows US decline with a 20 point drop in early trading
  • The US dollar advanced against eight of its 16 major peers
  • AUD drops overnight from US74.81 to US74.69 cents

By Saxo Capital Markets


The ASX/S&P 200 dropped 20 points in early trading, a 0.4% fall at 1030 AEST (0300 GMT). The big loser this morning has been Woolworths, falling 3.1% as investors took profits after yesterday's 8% share price surge.

Resources stocks were also under pressure, particularly Newcrest Mining, which was 4.2% lower amid a falling gold price and a broker downgrade this morning. BHP was down 1.5%, while Rio and Fortescue are both down about 0.5% and South32 was down 1.4%.

Overnight, US stocks declined as crude oil slid to a three-month low, while a stronger dollar weighed on metals ahead of central bank meetings in the US and Japan this week.

The S&P 500 Index slipped from a record as energy shares paced declines, with US oil down 2.4% to below $44/barrel. Nine of 10 main groups in the gauge retreated amid trading volumes that were 18% below average.

The Treasury’s auction of two-year notes lured the weakest demand since 2008 on speculation the Federal Reserve will acknowledge signs of economic strength on Wednesday.

Gold extended its first back-to-back weekly drop since May as the dollar gained against high-yielding currencies.

The pullback came after the S&P 500 advanced to a fresh record Friday, as strong US economic data spurred traders to boost bets on the Fed raising interest rates by the end of 2016.

While the Fed will probably keep borrowing costs on hold this week, economists predict the Bank of Japan will bolster stimulus. The European Central Bank last week said it would be ready and able to act if needed.

The S&P 500 lost 0.3% to 2,168.48, with energy companies lost 2% as a group and industrial shares fell 0.6%. Yahoo! fell 2.7% after agreeing to sell its main web businesses to Verizon Communications, while Verizon fell 0.4%.

Roper Technologies dropped 5.8%, the most in the S&P 500, after missing profit estimates. Micron Technology jumped 6% after the company adopted a so-called poison pill, a rights issue that can make a takeover more difficult to achieve.

In Europe, the Stoxx 600 gauge pared gains to close 0.2% higher, with the drop in oil prices weighing on energy producers. The benchmark came within 1% of erasing losses incurred after the Brexit vote, after figures showed a measure of German business sentiment slipped less than expected in July.

 The oil price is the big topic this morning, but iron ore is looking stronger. Photo: iStock

The gains were short-lived, however, with the rebound stalling for a third day after the index hit a one-month high last week.

In Asia, Nintendo shares plunged by the most since 1990 after the company said late Friday that the financial benefits from the worldwide hit Pokemon Go will be limited.

The stock sank 18% to 23,220 yen at the close in Tokyo, the maximum one-day move allowed by the exchange, wiping out 708 billion yen ($6.7 billion) in market value.

Futures on Asian equity indices mostly signaled losses for Tuesday, with contracts on Japan’s Nikkei 225 Stock Average down at least 0.2% in both Osaka and Chicago.

Futures on stock gauges in South Korea and Hong Kong dropped more than 0.1%, while those on Australia’s S&P/ASX 200 Index were little changed.

The US dollar advanced against about eight of its 16 major peers, climbing at least 0.7% against Mexico’s peso and the Canadian dollar.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 key currencies, added 0.1% to its highest point since May 31.

The yen reversed an earlier retreat to end Monday up 0.3% at 105.81 per dollar.

Oil dropped to its lowest point since April after US producers increased drilling for a fourth week, even as the market contends with abundant stockpiles. West Texas Intermediate crude futures slipped to $43.13/barrel after sliding 1.3% on Friday to its lowest settlement since May 9.

Rigs targeting oil in the US rose to 371, capping the longest run of gains since August, according to data from Baker Hughes. Money managers also added the most bets in a year on falling WTI prices during the week ended July 19, according to Commodity Futures Trading Commission figures.

Precious metals declined, with gold futures losing 0.7% to settle at $1,322.90/oz as the buoyant equity markets and revived expectations for a potential US rate hike this year hurt demand. Silver futures retreated 0.4%.

Benchmark two-year bond yields jumped to a one-month high as the Treasury sold $26 billion of the maturity at steeper yields than indicated in pre-auction trading.

Yields on Treasuries maturing in a decade were little changed at 1.58%. The Treasury has $103 billion of planned offerings of coupon-bearing securities this week.

Two-year German notes held onto their longest slide since August as data indicated that Europe’s biggest economy may be weathering the fallout from last month’s Brexit vote.

A month after British voters opted to leave the European Union, UK bonds are yielding the least in 16 years relative to their US counterparts, reflecting speculation that the Bank of England will loosen policy to mitigate the economic impact of the vote.

The extra yield, or spread, that investors get for holding US two-year notes instead of similar-maturity gilts was 58 basis points, the most since May 2000, based on closing Bloomberg generic prices.

Information sources: Bloomberg,

US earnings 

Apple, Caterpillar, Verizon, 3M, DuPont, United Technologies, McDonald's, Eli Lilly, BP, Twitter, KeyCorp, KKR, Freeport-McMoRan, Martin Marietta Materials, Paccar, United Health Services, Starwood Hotels, T. Rowe Price, LVMH, Valero Energy, Under Armour, JetBlue, Anadarko Petroleum, Chubb, Panera Bread, US Steel

Boeing, Coca-Cola, Comcast, Facebook, Amgen, State Street, Whole Foods, Groupon, GoPro, Cheesecake Factory, GlaxoSmithKline, Lumber Liquidators, Six Flags, Altria, Deutsche Bank, Fiat Chrysler, Statoil, Dr. Pepper Snapple, Ingersoll Rand, Hess, Corning, Nissan, Norfolk Southern, Nintendo, Southern Co, Anthem, Statoil, General Dynamics, Nasdaq OMX, Northrop Grumman, Mondelez

Thursday, Alphabet, AstraZeneca, Bristol-Myers Squibb, Colgate-Palmolive, Celgene, Cigna, Total, MasterCard, Ford, Dow Chemical, Diageo, ConocoPhillips, Credit Suisse, Royal Dutch Shell, BNP Paribas, Hershey, HCA, Harley-Davidson, Marsh & McLennan, Marathon Petroleum, Potash, PG&E, TransCanda, Raytheon, Expedia, CBS, Samsung

Exxon Mobil, Chevron, Merck, AB InBev, UPS, UBS, Sanofi, Xerox, CBOE Holdings, Philips 66, Cabot Oil, Barclays, Eni, Tenneco, Lexmark, CNA Financial

Local markets and commodities

  • S&P/ASX 200 Index futures little changed; futures relative to estimated fair value suggest an early gain of 0.1%.
  • Bank of New York Australia ADR Index -0.1%, BHP Billiton ADR -1% to A$18.93 equivalent, 1.6% discount to last Sydney close, Rio Tinto ADR -0.9% to A$41.60 equivalent, 14% discount to last Sydney close.
  • Gold declined a third time in four sessions amid rising speculation that the Federal Reserve will raise U.S. interest rates this year. Fed policy makers meet Tuesday and Wednesday. Gold futures for December delivery dropped 0.3% to settle at $1,327.20/oz on Comex in New York.
  • Silver futures for September delivery dropped 0.2% to $19.647 an ounce on the Comex. Gold stocks in Toronto lost 2.9%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil fell to the lowest in three months in New York after US producers increased drilling for a fourth week even as the market contends with abundant stockpiles. WTI for September delivery dropped $1.06 to settle at $43.13/b on the New York Mercantile Exchange. It’s the lowest close since April 25. Total volume traded was 39% below the 100-day average.
  • Brent for September settlement slipped 97 cents, or 2.1%, to $44.72/b on the London-based ICE Futures Europe exchange. The North Sea crude ended the session at a $1.59 premium to WTI.
  • US oil explorers have boosted the number of active rigs by 55 since the start of June to 371, with 14 added last week, Baker Hughes said Friday. Government data show US gasoline supplies are at the highest seasonal level in decades, which may spur refiners to shut sooner than usual for maintenance. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore rose 99 cents, or 1.8%, to $56.86/tonne, according to a price index compiled by Metal Bulletin. Iron ore futures rose as much as 4.1% on Dalian Commodity Exchange in Asia yesterday, rebounding from last week’s 7.2% loss. Iron ore for immediate delivery to China's Tianjin port dropped 40 cents to $US55.70 a tonne. The index dropped 3.6% last week but has still jumped around 30% so far this year. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Zinc gained, trading near the highest in more than a year, on prospects for a supply deficit and as central banks pledged to back economic stability, boosting the demand outlook for the metal. Zinc for delivery in three months rose 0.2% to settle at $2,249/t on the London Metal Exchange. Prices reached $2,294.50 on Thursday, the highest since May 2015, and have risen for seven of the past eight days.
  • Nickel in London advanced 0.6% to $10,475/t. The new speaker of the Philippines House of Representatives backed the idea of a ban on raw materials exports to encourage domestic processing of natural resources. The country is the biggest producer of nickel ore used by China to make stainless steel. Three-month copper on the London Metal Exchange ended down 0.4% at $US 4900/t. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Automotive Holdings (AHG): To acquire dealership in Laverton, Victoria; Coal of Africa (CZA): Granted amendment of environmental authorisation; Perseus Mining (PRU): Set to release 4Q production data; SAI Global (SAI): Planning to sell Assurance services unit, according to AFR; Smartgroup (SIQ): Expected to close placement at ~A$7/share, AFR says; Spotless (SPO): Target of takeover interest, The Australian reports.

Brokers gradings

- Woolworths (WOW): Downgraded to neutral from overweight at Credit Suisse
- Nufarm (NUF): Rated new outperform at RBC Capital; PT A$9
- Newcrest (NCM): Cut to underweight from neutral at JPMorgan
- Rural Funds (RFF): Raised to buy from hold at Bell Potter

Stock to watch

We highlighted key levels for Telstra last week accompanied by a buy stop trade set up upon a break higher above its neckline (See trade idea here)

As Telstra faces a key break out level, so does TPG Telecom as one can observe in the attached chart below.

The next buy opportunity presents itself upon the retest of the lower rising green trendline however a break below here sets up TPM.xasx to be pressured below the double top formation which could signal further downside could be expected.
TPG Telecom quarterly chart

Pending orders: See here 


Crude oil (CL) sold off to make a three-month fresh low and seems to have broken the lower line of the falling wedge. The major beneficiary of this price actions was USDCAD which rallied more than 100 pips and which is now approaching the next resistance level of 1.3311.

This is where the 200 Day Moving Average crosses the 38.2% Fibonacci retracement between the January high of 1.4690 and the May low of 1.2460.

The triangle pattern now appears to be clearly broken, therefore we expect further continuation of the current upside momentum.
USDCAD monthly chart

The last two days of price actions on gold (XAUUSD) have indicated sings of weakness as it failed to stay above $1,333/oz.

We still maintain our bullish exposure on the US dollar index (DX) which should reinforce the selling pressure on gold.

If we see another daily close below last Thursday’s low $1,311/oz, gold should extend the losses towards the key support levels 1,300, 1,288 and 1,267.

XAUUSD monthly chart
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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