Article / 22 September 2016 at 0:33 GMT

Today's Trade: ASX200 cheers Fed's decision

Trading Desk / Saxo Capital Markets
  • Local markets opened strongly on overseas leads led by resources
  • The CBOE Volatility Index fell more than 16% to 13.30, the most since June
  • Crude jumped after data showed US inventories plunged
  • AUDUSD rallied above the interim resistance level of 0.76

By Saxo Capital Markets (Australia)

Overnight and early trading

  • Local markets opened strongly on overseas leads after the Federal Reserve left rates unchanged. At the start, the ASX200 was 0.9% stronger at 5389, with energy and materials stocks leading the way after gains in commodity prices overnight.
  • Stocks advanced with bonds and the dollar fell as Federal Reserve officials lowered their outlook for long-term interest rates.
  • Global equities climbed the most since June, Treasury 30-year bonds rallied to a two-week high, and emerging-market assets surged as the Fed scaled back expectations for hikes in 2017 and beyond. The dollar dropped against all but one of its major peers. The S&P 500 Index extended gains after Fed Chair Janet Yellen said asset valuations are “not out of line with historical norms”. Earlier optimism was driven by the Bank of Japan’s tweaks to its stimulus policy. Crude jumped after data showed US inventories plunged.   
  • Traders have been losing faith in the Fed’s ability to diverge from the easing stance of policymakers in Europe and Japan amid signs of inconsistent strength in the world’s largest economy. A divided US central bank left its interest rate unchanged on Wednesday to await more evidence of progress toward its goals, while projecting an increase is still likely by year-end. Policymakers see two hikes next year, down from their June projection of three.
  • The Fed’s so-called “dot plot”, which it uses to signal its outlook for the path of interest rates, showed that officials expected one quarter-point rate increase this year. Three policymakers projected that keeping rates unchanged this year would be most appropriate. The probability of a move this year is about 60%, near the highest since June, according to futures data compiled by Bloomberg.  
  • The latest from the Fed came after the BoJ’s tweaks on Wednesday, which give it scope to keep loosening policy to revive the economy and inflation, while limiting the negative impact on bank earnings. Japan’s central bank said it would adjust the volume of its asset purchases as necessary in the short term, while keeping it at about ¥80 trillion ($780 billion) annually over the long term. It left the benchmark interest rate unchanged at minus 0.1%.
  • American equities rallied after the Fed kept interest rates steady even as the economy showed signs of improving, removing at least for six weeks an obstacle for stocks that rekindled volatility this month. The S&P 500 gained 1.1% to 2,163.12, the most on a Fed day since December, when it raised rates for the first time in a decade and the market ended 1.5% higher.
  • Among shares moving Wednesday on corporate news, Adobe Systems jumped the most since December 2014 after forecasting a better-than-estimated quarterly profit. FedEx surged to a three-month high after raising its full-year earnings outlook. 
  • The CBOE Volatility Index tumbled more than 16% to 13.30, the most since June, to erase a monthly gain that had reached 35% just a week ago.
  • MSCI’s global gauge climbed 1.1%, while a measure of emerging-market stocks posted a three-day rally. 
  • Shares in Tokyo posted their biggest gain since July after the Bank of Japan adjusted its monetary policy. Banks surged as Kuroda’s board refrained from making deeper cuts to negative interest rates. Exporters advanced as the yen weakened. The Topix index outperformed the Nikkei 225 Stock Average as the central bank said it was going to buy more exchange-traded funds tracking the broader gauge.
  • Stocks in the so-called peripheral countries were among the biggest Stoxx Europe 600 Index gainers: Italy’s UBI Banca climbed 5.4% and Spain’s Banco Popular Espanol jumped 9.1%. The benchmark gauge rose 0.4%. 
  • The yield on the US 10-year note fell four basis points, or 0.04%, to 1.65% in New York, according to Bloomberg Bond Trader data. Short-term Treasuries underperformed longer-dated debt, with the difference between two- and 30-year yields falling for a fourth day.
  • The gap between long- and short-dated Treasury yields has tumbled over the past year as traders bet the Fed would increase short-term rates, curbing the long-term outlook for inflation and economic growth.
  • The Fed’s announcement further dims the outlook for the dollar after a 20% surge since the middle of 2014 gave way to a slide this year in the run-up to the decision. Currency traders are losing faith in the prospects of continued monetary policy divergence with central banks in Europe and Japan, questioning the resolve of Fed policymakers to raise interest rates after months of inaction.
  • The Fed decision comes after the Bank of Japan announced a more flexible approach to expanding stimulus Wednesday, while seeking to control bond yields across different maturities. The yen rallied after an initial slide.
  • Oil climbed 2.9% in New York. Crude stockpiles fell 6.2 million barrels last week, according to the Energy Information Administration. That contrasts with the 3.25-million barrel gain forecast by analysts surveyed by Bloomberg and a 7.5-million barrel decrease reported Tuesday by the industry funded American Petroleum Institute. Prices maintained gains after the Federal Reserve left its policy rate unchanged for a sixth straight meeting.
  • West Texas Intermediate for November delivery rose $1.29 to settle at $45.34/barrel on the New York Mercantile Exchange. Total volume traded was about 10% above the 100-day average.
  • Gold prices jumped as tighter monetary policy is typically negative for gold because the metal doesn’t pay interest. Its 25% rally in the first half of the year has sputtered this quarter, partly on concern that the Fed could make a move on rates as soon as this month.

Source: Bloomberg,

 Iron-ore exporters in Brazil may benefit under a proposal to raise
 iron-ore royalty charges in Western Australia. Photo: iStock

Local markets and commodities

  • Bank of New York Australia ADR Index up 2.6%, the most since July 26, BHP Billiton ADR +3.6%, most since July 26, to $A21.08 equivalent, 1.7% premium to last Sydney close, Rio Tinto ADR +3.7%, most since July 26, to $A41.98 equivalent, about a 12% discount to last Sydney close
  • Gold futures closed up 1% to $1,331.40/troy ounce on Comex and continued to extend its gains after the Fed left its policy rate unchanged for a sixth straight meeting, saying it would wait for more evidence of progress toward its goals while projecting that an increase is still likely by year-end. Goldies in Toronto rallied
  • Oil prices rallied Wednesday as US inventory data showed domestic crude inventories at the lowest level since February and the dollar weakened. US oil for November delivery settled up $1.29, or 2.9%, at $45.34/barrel on the New York Mercantile Exchange. 
  • Brent, the global benchmark, rose 95¢, or 2.1%, to $46.83/barrel on ICE Futures Europe. US crude stockpiles fell by 6.2 million barrels in the week ended September 16 to 504.6 million barrels, the lowest level since February 12, the Energy Information Administration said Wednesday. However, stockpiles still stand 11% above year-ago levels. Opec is holding a meeting next week in Algeria to discuss taking coordinated action to lift oil prices. But some officials have said no decisions would be taken, as the meeting is an informal one. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore eked out a 0.2% gain to $55.87. According to BHP Billiton, which is also locked in dispute with federal tax authorities, iron-ore exporters in Brazil may benefit under a proposal to raise iron-ore royalty charges in Western Australia, a move that could jeopardise investments in the state. 
  • Higher royalty, or tax costs, would mean producers face more difficult decisions on approving new mines, opening a path for competitors in Brazil to increase market share, Chief Financial Officer Peter Beaven told reporters in Melbourne. The company is also continuing to negotiate with the Australian Tax Office over a higher $A1.02 billion ($770 million) bill for pricing of sales of commodities, including iron ore, to its Singapore marketing unit, he said. Raising royalties costs “would most definitely not be good for Australia,” Beaven said. “Those tons would be replaced in the market, but of course they would be replaced from Brazil and other competitors.” He cited Vale SA’s S11D expansion project, with planned capacity to produce 90 million tonnes a year. 
  • Western Australia’s Nationals party leader Brendon Grylls has set out a proposal to raise state charges on BHP and Rio Tinto Group’s iron-ore operations to $A5 a ton from AUD25¢ to boost revenue, and plans to make the change a focus of his 2017 state election campaign. The plan from the Nationals, a junior partner in the state’s ruling coalition, has support among about 45% of voters, according to a survey last week of 1,700 people published by The West Australian newspaper. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper on the London Metal Exchange ended 0.6% lower at $4763/tonne, paring small gains made in the previous session. Nickel ended 0.2% higher at $10,335/tonne in rings after the Philippines said it would suspend more than 10 additional mines in an environmental crackdown on the sector. It delayed for a second time the announcement of which companies will be shut, to September 26. 
  • Tin slipped 0.9% to $19,300/tonne and lead fell 2.3% to $1936/tonne. Zinc slid 1.2% lower to $2272/tonne. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Trades ex-dividend: Altium (ALU), Chorus (CNU), Crown Resorts (CWN), Fletcher Building (FBU), G8 Education (GEM), Spark NZ (SPK)
  • Brickworks (BKW): Scheduled to release FY results. NOTE: Adj. net income est. $A140.8mln (6 analysts)
  • Emeco (EHL): Plans $A20mln raising at AUD8.7¢/share: Australian
  • Fonterra (FSF): FY profit soared 65% as revenue declined
  • Investa Office Fund (IOF): Off S&P’s CreditWatch with developing implications
  • National Australia Bank (NAB): Warburg Pincus said to be seeking NAB’s stake in Cambridge Industrial Trust: AFR
  • Nufarm (NUF): Raised to add vs hold at Morgans Financial
  • Pepper (PEP): Names Mario Rehayem as Managing Director – Australian Mortgages & Personal Loans
  • Premier Investments (PMV): Scheduled to release FY results; NOTE: Adj. net income est. $A107.9mln (9 analysts)
  • Rio Tinto (RIO): 5 workers arrested for fraud at Canadian smelter
  • Seven Group (SVW): Caterpillar Asia-Pacific August three-month rolling retail machine sales up 2% vs down 7% in July; NOTE: Is an authorised Caterpillar dealer in West Australia, NSW and North-East China
  • Suncorp (SUN): Annual general meeting; NOTE: Co. said August 4 targeting improving underlying NPAT, RoE at least 10%,underlying ITR at least 12%
  • Tower (TWR): May be a potential takeover target after recent share price fall: AFR
  • Vicinity Centres (VCX): Names Carolyn Viney Executive General Manager Development

Broker upgrades and downgrades

  • Vocus (VOC): Cut to hold vs buy at Shaw & Partners
  • Saracen Mineral (SAR): Raised to buy vs hold at Wilsons
  • Carsales (CAR): Raised to outperform vs neutral at Credit Suisse
  • Alumina (AWC): Lowered to BB from BBB- at S&P on weaker JV partner

Stock to watch: TPG (TPM.xasx) 

TPG continued to extend its losses yesterday and it has now lost more than 30% since it reached a record high of $A12.93 in July. The interim support level would be $A8.50, which is the 500% extension of the rounding bottom that was formed during 2010-12 and also a 38.2% retracement. Although the downside momentum appears strong, this week’s selloff seems too aggressive therefore we see a tactical buying opportunity near $A8.50 targeting the previous uptrend: $A9.50-$A9.75.

Source: Saxo Bank 
Source: Saxo Bank 


The US dollar sold off as Fed left rates unchanged and EURUSD looks to be making a descending triangle while AUDUSD rallied above the interim resistance level 0.76 handle. The new Reserve Bank of Australia Governor Philip Lowe speaks in Canberra at 1000 AEST so his comments will be closely listened to. The major support level remains at 0.77 where we would look to sell.
AUDUSD monthly

Source: Saxo Bank 

AUS200 rallied yesterday and extended the upside momentum in the SYCOM session following the positive leads from the US markets, which is expected to resume the rally. The next resistance level would be 5,400 and the support level is now at 5,300.
AUS200 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. Watch the recording of this Week’s Macro Monday Call here.


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