- ASX200 crossed 5500 threshold after US stocks pushed to fresh records
- CBOE Volatility Index fell 1.7% to 11.77, its lowest since August 2014
- Crude oil rebounded after report showed US stockpiles fell a ninth week
- Iron ore fell 0.5% to $55.75 on concern about Chinese demand
- Two new trades (see below)
By Saxo Capital Markets (Australia)
Overnight and early trade
The S&P/ASX 200 is up 0.6% in early trade, to 5522, with 162 of 200 stocks in the green.
US stocks advanced overnight, pushing to fresh records, as quarterly results from Microsoft Corp.
and Morgan Stanley spurred optimism that corporate earnings can support further gains. Microsoft rallied to a three-month high after posting a better-than-predicted profit, boosting technology shares to the highest in almost 16 years. Morgan Stanley rose 2.1% as its earnings beat estimates, bolstered by a surprise gain in fixed-income trading revenue. Abbott Laboratories and Intuitive Surgical Inc. also gained on results that exceeded forecasts. Walt Disney Co. lost 1.3% after an analyst downgraded the shares.
Crude inventories fell 2.34 million barrels last week, Energy Information Administration data show. Photo: iStock
The S&P 500 Index rose 0.4% to 2,173.02 in New York, its sixth all-time high in eight days. The Dow Jones Industrial Average gained 36.02 points, or 0.2%, to 18,595.03. The gauge advanced for a ninth session, the longest since 2013, to post a seventh consecutive record. The Nasdaq Composite Index increased 1%. About 6.2 billion shares traded hands on US exchanges, 14% below the three-month average.
The S&P 500 is up 6.3% in 2016 after a rebound from the worst-ever start to a year sparked by worries that slowing growth in China would spread and oil’s plunge to a 12-year low. Anxiety over the UK’s Brexit vote briefly derailed stocks last month before assurances that major central banks would act to counter ill effects from Britain’s secession helped usher equities to all-time highs.
With stocks continuing to climb, investor nervousness has cooled. The CBOE Volatility Index, a measure of market turbulence known as the VIX, fell 1.7% today to 11.77, the lowest since August 2014.
Of the S&P 500 firms that have released results so far this season, 78% beat earnings estimates and 61% topped sales projections. Still, analysts forecast profit at its members will drop 5.8% in the second quarter, which would make it a fifth straight decline, the longest streak since 2009.
General Motors Co. and AT&T Inc. are among 34 companies set to release results on Thursday.
Technology shares were the strongest performers among the S&P 500’s 10 main industries, led by Microsoft’s best rally since January. The tech group rose to the highest since September 2000. Healthcare stocks climbed to their loftiest level in 11 months, bolstered by Intuitive Surgical’s rise to a record. Stocks perceived as defensive lagged, with utilities, consumer staples and phone companies declining.
Joining Microsoft to support the rally in tech, Cisco Systems Inc. added 2.4% to take the network-equipment maker’s shares to the highest in more than eight years. Visa Inc. rose 0.8% to a five-week high before its earnings report scheduled for tomorrow, and Facebook Inc. advanced 1.1% to a record.
Chipmakers climbed to their best levels in 15 years. Intel rallied 1.5% before its earnings report, while Micron Technology Inc. and Skyworks Solutions Inc. gained at least 1.7%. Marvell Technology Group Ltd. jumped 14%, the strongest in seven years, after its profit beat estimates. All 30 members of the Philadelphia Stock Exchange Semiconductor Index advanced more than 0.2%.
Managed-care companies recovered from declines yesterday after Aetna Inc. said it’s ready to go to court if necessary to proceed with its $37 billion takeover of Humana Inc. Humana rose
3.3%, mostly reversing a slide on Tuesday prompted by a report that regulators were poised to file lawsuits to block the deal. Aetna increased 1.2%, and Anthem Inc., which plans to merge with Cigna Corp., added 2.6%.
Earnings news also helped industrials extend all-time highs, amid the sector’s 10th gain in 11 days. Cintas Corp. surged 9.7% to a record, its biggest climb in five years. The uniform company raised its profit outlook after quarterly results were better than predicted. Illinois Tool Works Inc. added 2.8% after also lifting its earnings forecast on better-than-estimated results.
Weighing on the consumer-staples group, Kellogg Co. sank 5.4%, the worst drop in almost two years, amid diminished speculation over a potential takeover offer. Campbell Soup Co. slid 3.1% after lowering its 2016 sales forecast.
Energy producers slipped 0.2%, even as crude
rebounded after a government report showed stockpiles fell a ninth week, marking the longest stretch of declines on record. Halliburton Co. fell 1.6% after reporting quarterly sales that slid 43% compared with a year earlier. Chesapeake Energy Corp. and Anadarko Petroleum Corp. added at least 1.2%.
Technology and auto companies led European equities to a four-week high amid encouraging earnings announcements. Software maker SAP SE climbed 5.7% after reporting second-quarter results that beat analyst projections. ASML Holding NV advanced 3% after Europe’s largest semiconductor-equipment maker said sales increased. Volkswagen AG jumped 6% after saying first-half earnings exceeded estimates. Anglo American Plc helped drag miners lower, falling 4.8%, after cutting its copper production target.
The Stoxx Europe 600 Index
added 1% at the close of trading in London, with the volume of shares changing hands 34% lower than the 30-day average. The gauge has alternated between gains and losses each day since last week, after a rebound of about 9% following the post-Brexit vote slump. Germany’s DAX Index rose the most in western Europe on Wednesday, gaining 1.6%.
Source: Bloomberg, TradingFloor.com
AT&T, Visa, Capital One, Chipotle, General Motors, Travelers, Union Pacific, Bank of NY Mellon, Biogen, Blackstone, DR Horton, Hershey, Johnson Controls, Sherwin Williams, Royal Caribbean, PulteGroup, Domino's Pizza, Nucor, Quest Diagnostics , Pandora
General Electric, Honeywell, American Airlines, VF Corp, Whirlpool, Synchrony Financial, SunTrust, Stanley Black and Decker, Newell Brands, Moody's
Local markets and commodities
- Bank of New York Australia ADR Index little changed
- BHP Billiton ADR down 1.4% to A$18.96 equivalent, 1.5% discount to last Sydney close, Rio Tinto ADR down 1.3% to A$41.23 equivalent, 14% discount to last Sydney close
- Gold futures fell to a three-week low as gains in equities and a stronger dollar curbed demand for the metal as a store of value. Silver extended its longest run of losses in eight months, and shares of miners slid the most since November. Gold futures for August delivery slipped 1% to settle at $1,319.30 an ounce on Comex, the biggest loss in a week. Prices earlier touched $1,313.30, the lowest for a most-active contract since June 29. Silver futures for September delivery declined 2%, the biggest loss for a most-active contract since May 19. Prices are down for a fifth straight session, the longest streak since Nov. 13.
- In reporting, Newmont Mining Corp. chalked up a 15c beat on earnings as the world’s second-largest gold producer won ground on three fronts: producing more gold at lower costs, and then selling it at higher prices. Second-quarter net income fell to 4c a share from 14c a year earlier, the Greenwood Village, Colorado-based company said on Wednesday. Profit excluding one-time items was 44c a share, exceeding the 29c average of 16 analysts’ estimates compiled by Bloomberg. The results were released after the market close in New York, where Newmont rose 1.8% to $40 at after being smashed over 5% during normal trading.
- Goldies in Toronto lost 6.26%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Oil rose after a government report showed that US crude stockpiles fell a ninth week, marking the longest stretch of declines on record. Crude inventories fell 2.34 million barrels last week, Energy Information Administration data show. Supplies remain at the highest seasonal level in at least a decade. Gasoline stockpiles rose as refineries bolstered operating rates to the highest level this year. Prior to the report, prices fell to a two-month low.
- West Texas Intermediate for August delivery, which expired Wednesday, rose 29c to close at $44.94/barrel on the New York Mercantile Exchange. Prices earlier touched $43.69, the lowest intraday since May 10. The more-active September contract climbed 30c to $45.75.
- Brent for September settlement climbed 51c/b, or 1.1%, to $47.17 on ICE Futures Europe. The global benchmark closed at a $1.42 premium to September WTI. The EIA report showed US crude supplies dropped a ninth week, which is the longest stretch of declines in the data series that the agency began gathering in 1982. Inventories dropped to 519.5 million barrels, the lowest since the week ended Feb 26, EIA data show. Supplies climbed to an 87-year high of 543.4 million barrels in the last week of April.
- Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore futures on Dalian Commodity Exchange post longest losing streak in over two months on growing concern about oversupply and slowing Chinese demand. Iron ore fell 27c, or 0.5%, to $55.75 a ton, according to a price index compiled by Metal Bulletin. A drop in trading activity was reported in the seaborne iron ore market yesterday amid a mix of pessimism and optimism.
- Although ferrous futures stabilised during the day, the steel markets continued to weaken, especially in northern China, where heavy rain is hampering construction and sales of steel products. According to a Beijing-based trader, rising steel inventories are dampening sentiment among mills and there is minimal to no interest in buying iron ore at northern Chinese ports due to the rain.
- In further reporting, Vale is scheduled to release production numbers before regular trading begins (due to post its second-quarter earnings report on July 28): Vale SA’s relentless expansion is expected to keep the world’s biggest iron-ore miner near record output levels despite the hobbling effects of last year’s Samarco dam burst on its Brazilian operations. The Rio de Janeiro-based miner will report second-quarter output of 86 million metric tons, including third-party purchases, according to the average estimate of five analysts surveyed by Bloomberg. That compares with a second-quarter record of 89.3 million a year earlier, and 77.5 million in the first quarter, when Vale’s production is typically lower.
- Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Copper retreated on concern that supply will keep outpacing demand as data showed rising output in China, the biggest producer and user of refined metal. A stronger dollar also hit commodities priced in the currency. China’s production grew 7.6% in the first half, according to the National Bureau of Statistics Wednesday, as smelter margins improved. Copper futures for delivery in September declined 0.4% to settle at $2.254 a pound on Comex in New York.
- Three-month copper on the London Metal Exchange closed down 0.4% at $US4966/tonne while aluminium slid 1.3% to finish at $US1625, the weakest in three weeks. Zinc hit a 14-month high of $US2254/tonne before closing up 0.2% at $US2246 a tonne after data showed the global zinc market deficit surged to 68,700 tonnes in May.
- Nickel bounced off lows into positive territory after news that the Philippines has asked Nickel Asia Corp, its top producer, to stop exporting ore from Manicani island. LME nickel ended up 0.1% at $US10,580 a tonne, having hit its highest since October at $US10,670 last week. Nickel has surged some 10% this month on plans for a mining crackdown in the Philippines, the top supplier of nickel ore to China.
- In reporting, Anglo American, the second-best performer on the FTSE 100 Index this year, cut its annual target for copper output after heavy snow at operations in Chile. The shares slumped the most in more than three weeks. Production will be 570,000 to 600,000 metric tons this year, down from a forecast of as much as 630,000 tons, as heavy snow hit mining at higher altitudes at the Los Bronces mines, London-based Anglo said on Wednesday. The outlook for 2017 was also cut. Anglo trimmed its target for Brazilian iron ore. Anglo shares fell as much as 8% in London.
- Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- BHP (BHP): Samarco may not resume operations even in 2017, Reuters says
- CBA (CBA): Sells A$500m August 2, 2017, notes at BBSW up 43bps
- Cimic (CIM): Thiess unit gets Oyu Tolgoi contract; fell 19% yesterday on first-half results
- Fortescue Metals (FMG): Plans to sell lithium exploration rights, Australian reports
- Macquarie (MQG): Macquarie and Czech EP Holding bidding against Snam and Allianz for 49% stake in Gas Connect Austria, WirtschaftsBlatt says
- Oil Search (OSH): May comment on InterOil bid, set to release production data
- Santos (STO): CFO Andrew Seaton will retire end of 2016
- South32 (S32): Scheduled to release fourth-quarter production data
Stocks to watch
Independence Group (IGO.xasx)
We highlighted the break-out of the inverse head and shoulder over Independence Group (IGO.xasx) last week and since then shares of IGO.xasx continued to rally with the most recent high being rejected at the 61.8% extension of this inverse head and shoulder range. We are currently witnessing a retracement which presents an opportunity to buy upon the gap fill at 3.79.
This level has also enjoyed much traffic and noise and called the bottom in the third and fourth quarter of last year, as marked on the weekly chart below. Note the 200 weekly moving average is at 3.87 so a close above here for the week is desired. Should IGO continue to retrace lower, another point of entry the market will be eyeing will be upon the test of the neckline.
Entry: Buy limit
Target 1: 4.48
Target 2: 5.10
Stop loss: 3.33
Good till cancel
CFD margin: 25%
IGO daily chart
IGO weekly chart
Telstra Corp (TLS.xasx)
Telstra yesterday made a break above a resistance level which was in play since Q3 of last year, as marked by the blue trend line. The next big test that awaits Testra is the 50% retracement level between the 2015 high to this year’s low. This level also happens to intersect the orange trend line and a break above here will be interpreted as an inverse head and shoulder breakout.
Further observation over the weekly chart for Telstra: since the high of 6.73 posted on the Feb 2, 2015 the stock has retraced back to 5.00, which coincides with the long-term psychological support level (see monthly chart below). Since then it has consolidated between 5.00 and 5.80 until yesterday the stock finally posted a one-year fresh high of 5.83. An inverse head and shoulder breakout scenario may be met with a swift move to the topside to potentially trade to 6.06, which is the 61.80% retracement, and if it trades through here we may see a retest of the Feb 2, 2015 high of 6.73.
Entry: Buy Stop
Target 1: 6.02
Target 2: 6.20
Stop loss: 5.75
Good till cancel
CFD margin: 10%
TLS daily chart
TLS monthly chart
Charts: Saxo Bank
XAUUSD & WTI CRUDE
While the bond yields are maintaining resilience, precious metals plunged. Gold (XAUUSD) made a breakout below the key support level of 1,320, as we mentioned in the recent morning report. We expect further declines in gold, but the next support level would be 1,300 where the long-term downtrend coincides with the 200-week moving average. The overnight low of 1,312 was 50% retracement between the pre-Brexit low of 1250.50 and the July high of 1,375.
The overnight low of 43.70 on crude oil (CL) was right on the lower line of the falling wedge and it looks like the wedge is now broken as the crude finished strong. This price action signals potential reversal of the recent weakness in crude.
XAUUSD daily chart
CL daily chart
Charts: Saxo Bank
The all-time high of the USNAS100 was 4,816 in 2000 before the tech bust and last year’s high was 4,740. Last night USNAS100 outperformed the other major indices such as US500 and US20, therefore the upside momentum looks stronger than ever since the breakout of the recent downtrend (from Dec 15). If USNAS100 extends the gains towards the key resistance level of 4,740, then we would look to sell.
USNAS100 daily chart
Charts: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more.
Source: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Susan McDonald