Steen Jakobsen
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Article / 27 July 2016 at 0:22 GMT

Today's Trade: ASX200 buoyant ahead of CPI data

Trading Desk / Saxo Capital Markets
  • Local markets opened higher, led by miners
  • Gold headed for the first gain in three sessions on the interest rate outlook
  • US oil prices sank to a fresh three-month low 
  • If no improvements in today’s CPI then AUDUSD expected to drop to 0.73 support

By Saxo Capital Markets (Australia)

Overnight and early trading

The ASX200 opened in the green led by miners however, all eyes will be on today's CPI data this afternoon as well as the US Federal Reserve's meeting early tomorrow morning. At the start the ASX200 was up 0.4% at 5557.

Overseas, earnings from McDonald’s to Caterpillar tugged US stocks in opposite directions, leaving benchmark indices little changed as investors turned their attention to Wednesday’s Federal Reserve policy decision. Housing data that showed the biggest gain in new-home sales in eight years bolstered optimism in the economy and raised the spectre that the Fed may strike a more hawkish tone on rates after its two-day meeting.

 Gold headed for the first gain in three sessions on the outlook for
interest rates to stay low. Photo: iStock

The S&P 500 Index rose less than one point to 2,169.18 at 1600 in New York, narrowly avoiding its first two-day losing streak since the Brexit secession vote a month ago. The index has rallied 8.4% in that time after a 5.3% rout in the two days following the UK’s shock decision to secede from the European Union. The gauge retreated on Monday from a record, with energy producers sliding amid a decline in oil prices. The Dow Jones Industrial Average slipped 0.1% to 18,473.61 on Tuesday, and the Russell 2000 Index of small caps added 0.6%.

In Tuesday’s trading, five of the S&P 500’s 10 main industries moved lower, led by phone and utility companies, which fell as much as 1.5%. Verizon Communications lost 1.9% after it posted wireless subscriber gains that missed analysts’ estimates. 3M, after cutting its outlook for sales growth due to pressure from a strong US dollar, dropped 1.1%.

Among the biggest declines in the Dow, McDonald’s fell 4.5% after reporting same-store sales growth that missed analysts’ estimates. Amid concerns that the US fast-food industry is heading into a recession, Darden Restaurants, Chipotle Mexican Grill and Yum! Brands fell as much as 3.8%.

Technology companies in the S&P 500 gained 0.4%, closing at a 16-year high. The group was boosted by Analog Devices, which announced it will acquire Linear Technology for about $14.8 billion. Shares in Analog rose 3.9%, while Linear posted a 29% gain. Also moving on corporate news, Texas Instruments jumped after the largest maker of analog semiconductors forecast revenue and profit that may beat analysts’ estimates.

Netflix extended gains from Monday, rallying 4.3% after a director, Jay Hoag, disclosed a 600,000 share purchase in the company.

European equities struggled for direction for a fourth day, swinging between gains and losses amid earnings reports, before closing little changed. The Stoxx Europe 600 Index added 0.1% at the close, after rising as much as 0.4% and sliding 0.6%. A rebound that took it to a one-month high last week has stalled, with the gauge trading in a range of less than one point for the past three days amid thin volume.

Source: Bloomberg,

US earnings

  • Wednesday: 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
  •, 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
  • Friday: 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 rise 0.2%; futures relative to estimated fair value suggest an early gain of ~0.4%
  • Bank of New York Australia ADR Index +2.7%, BHP Billiton ADR +4.2% to $A19.63 equivalent, 1.9% premium to last Sydney close, Rio Tinto ADR +4.3% to $A43.16 equivalent, 11% discount to last Sydney close
  • Gold headed for the first gain in three sessions on the outlook for interest rates to stay low as US policymakers gathered for a two-day meeting and a Bank of England official indicated he favours immediate economic stimulus. Gold for August delivery settled up 0.1% at $1320.80 a troy ounce on Comex. 
  • Gold traded as low as $1,317.50 and as high as $1,322.50 during the session. Goldies in Toronto lifted 2.39% overnight. In early reporting, Silver Lake achieved full-year gold sales of 132,400 ounces. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • US oil prices sank to a fresh three-month low Tuesday as a glut of gasoline keeps weighing on the market. US oil for September delivery settled down 21¢, or 0.5%, at $42.92. Six losing sessions out of the past seven have sunk it to its lowest settlement since April 25.
  • Brent, the global benchmark, gained 15¢, or 0.3%, to $44.87/barrel on ICE Futures Europe, snapping a three-session losing streak. Oversupply concerns have sent oil into retreat throughout July, reversing a five-month rally that had sent oil above $50/barrel. 
  • US refiners have overwhelmed even record demand, and saturated international markets have supplies backing up in the US, too, analysts said. Despite those fears, US drillers are showing signs they’re ready to ramp up production again. They added 15 active rigs to oil fields last week, the fourth consecutive week of increases. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore rose $1.22, or 2.2%, to $58.08/ton, according to a price index compiled by Metal Bulletin. Iron ore’s ascent has prompted several banks to forecast a retracement toward the year-end. Macquarie Group warned this month that recent advances may be well beyond fundamentals, saying there was abundant supply, rising inventories at China’s ports and prospects for weaker steel production. 
  • Meanwhile, UBS stated in a report that the ramp up at Roy Hill appears to be gathering steam, with export rates at an annualised 24 million tons a year through May and June, which described the development as a “bearish risk.” Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Nickel and zinc fell to one-week lows as weaker oil prices heightened concerns over the health of the global economy. Nickel for delivery in three months fell 1.2% to settle at $10,350/tonne on the London Metal Exchange. Prices declined as much as 2.3% intraday, touching the lowest since July 18, despite suggestions of an ore-export ban from the Philippines, the top miner, during a nationwide audit on mines. 
  • Copper futures for September delivery climbed 0.4% to $2.2255/pound on Comex. Overnight Freeport-McMoRan reported weaker-than-expected revenue for the second quarter as the price of copper and oil plunged and gold sales tumbled. Freeport sold 156,000 ounces of gold, less than half as much as it sold a year ago. Meanwhile its average selling price for oil fell 18% compared to the second quarter of 2015, and the price of copper slumped 20%. The Phoenix-based company disclosed a loss of $479 million, or 38¢ per share. 
  • Excluding one-time items, Freeport- McMoRan said it lost 2¢ per share. Its revenue dropped 15% to $3.33 billion. Freeport-McMoRan shares opened lower, but turned around to sustain a big rally. Independence Group this morning has been placed in a trading halt as Macquarie and Euroz are in the market with a $250mln placement. The brokers were seeking to sell shares at $3.75 each. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • AMP (AMP): Starts $A300mln infrastructure raising, AFR reports
  • GrainCorp (GNC): Archer-Daniels-Midland doesn’t plan to sell stake, AFR says
  • Elanor Investor Group (ENN): Moelis said to be raising $A30mln at $A1.85 apiece, AFR says
  • Fortescue (FMG): Set to release Q4 production data
  • Vicinity (VCX): Property revaluations give net value gain of $A279mln

Broker upgrades and downgrades

  • WPP AUNZ (WPP): Upgraded to outperform from neutral at Credit Suisse
  • SAI Global (SAI): Cut to sell from hold at Canaccord Genuity

Pending orders

  • ASX200 crosses 5500 threshold
    Note: We are cancelling the buy limit over IGO.xasx due to capital raising. Independence Group this morning has been placed in a trading halt as Macquarie and Euroz are in the market with a $A250mln placement. The brokers were seeking to sell shares at $A3.75 each


The previous CPI number was shocking as it printed minus 0.2%, which was the lowest since 2009 and this initiated the massive selloff in AUDUSD during April-May. The uptrend (from May low 0.7145) seems to be valid for now but if we do not see any improvements in today’s CPI (1130 AEST), then AUDUSD is expected to drop towards the next support level 0.73, while the resistance level would be the July high 0.7676. 

The current probability of a rate cut in the next Reserve Bank of Australia meeting is 56% but any weak CPI figures would support a strong case for a rate cut next month.
AUDUSD monthly
Source: Saxo Bank
EURUSD showed signs of weakness throughout July since it found the resistance level below the previous uptrend (from December 15 low). Tomorrow morning’s Federal Open Market Committee rate decision is a key focus for EURUSD although it is unlikely to see any rate hike as the current probability is only 10%. 

The market sentiments look to be quite positive despite the Brexit event and the recent US data also have been quite good, therefore we are cautiously leaning towards less dovish comments this time from Fed chair Janet Yellen. This means EURUSD could test the Brexit low 1.0911 and potentially decline further south towards the March low 1.0820. If we see any spike towards 1.11, then there would be a good opportunity to sell as we still remain bullish on the US dollar.
EURUSD monthly
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. Listen to this week's Monday Macro Call here.


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