Article / 16 May 2016 at 1:12 GMT

Today's Trade: ASX200 defies China, Wall St gloom with surprise bounce

Trading Desk / Saxo Capital Markets
Australia
  • The S&P/ASX200 made a surprise 0.5% bounce in early trading
  • The AUDUSD touched its 200 day moving average at 0.7250
  • That level should provide interim support for the flagging commodity currency
  • Iron ore came under some pressure, selling off 0.9%

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 was up 0.5% to 5,355.60 at 1055 AEST (0055 GMT).
  • A slump in consumer-focused companies led major US indices to log their third consecutive week of declines: The Dow Jones Industrial Average fell 185.18 points, or 1%, Friday to 17535.32. The S&P 500 dropped 17.50, or 0.8%, to 2046.61, while the Nasdaq Composite slipped 19.66, or 0.4%, to 4717.68.
  • It was the third consecutive week of declines for the Dow and S&P 500, their longest weekly losing streaks since the three-week period ended January 15. Friday’s losses narrowed the S&P 500’s gains so far this year to 0.1%. The Dow is up 0.6% year to date.


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 Copper has managed to close in the black after initially slipping to lows not seen since February 25; the red metal is down 8% in May so far. Photo: iStock


  • Consumer-discretionary shares in the S&P 500 led the week’s declines, falling 1.4%. On Friday, Wal-Mart Stores led the Dow lower, falling $1.91, or 2.9%, to $64.94, shaving 13 points off the index.
  • Corporate earnings in the first quarter came in above damped expectations, even though they contracted for the fourth consecutive quarter, according to FactSet. Earnings for companies in the S&P 500 are again projected to contract in the second quarter, but many investors and analysts expect earnings to pick up a bit in the latter half of the year
  • Nordstrom was the biggest laggard in the S&P 500 on Friday, after it cut its forecasts for the year a day earlier following disappointing first-quarter results. Its shares lost $6.07, or 13%, to close at $39.16.
  • In commodities, US oil prices fell 1% Friday to $46.21/barrel, but gained 3.5% for the week.
  • Gold for May delivery added 0.1% to $1,271.90 an ounce Friday, but had a weekly loss of 1.6%
  • The yield on the 10-year Treasury note fell to 1.705% on Friday, from 1.779% the previous Friday, the largest one-week yield drop since April 1.
  • The CBOE Volatility Index (VIX) rose to trade near 15.
  • The Stoxx Europe 600 rose 0.5% Friday and gained 0.9% for the week. Data on Friday confirmed that eurozone growth accelerated in the first quarter, but less sharply than first estimated.
  • The DAX rallied 0.92%, the CAC added 0.62% & the FTSE rose 0.56%
  • On the earnings front, Bouygues confirmed its full-year guidance after its operating loss for the first quarter narrowed thanks to improvement in its telecoms unit, sending shares over 2.5% higher.
  • The media sector under-performed other markets, predominantly due to a 27.6% decline in Eutelsat Communications. The satellite operator was faced with ratings downgrades on Friday, after the firm cut its outlook for the year.
  • French video games maker Ubisoft soared 8% to the top of benchmarks, after reporting higher sales and issuing a positive outlook.
  • Elsewhere, the auto sector was in focus on Friday, after European car sales rose 9% in April, according to the Association of European Carmakers (ACEA). BMW said group April global sales were up 1.9% year-on-year, helped by strong growth with its MINI brand, but shares were off 2.6% by the close, with the stock trading ex-dividend on Friday.
  • Volkswagen shares popped 1.3%, after reporting a rise in new car registrations in April, while Fiat jumped over 2% after the firm too posted a sharp rise in its European sales. Renault finished higher after alliance partner Nissan agreed to take a 34% stake in Mitsubishi Motors on Wednesday.
Local markets
  • Bank of New York Australia ADR Index -1.5%. BHP Billiton ADR -0.5%. Rio Tinto ADR -1.4%.
  • Spot gold has traded in a tight range before coming off its highs to finish up 0.6% to $1,273. A stronger USD and better than expected retail sales later in the trading session look to put a ceiling on gold for the next few days as it continues to consolidate. This puts gold down 1.7% for the week and the Dollar Index is at two week highs. These improved retail sales adds to the probability that The Fed could hike rates sooner than anticipated, which dampens golds appeal. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil was flat as WTI lost 0.3% to $46.21, Brent was flat at $47.83. This ended a three day winning streak at the same time baker Hughes reported the number of US rigs in operation fell by 10 to a total of 310. We have now seen the rig count drop eight weeks in a row and down from 660 a year ago. OPEC produced 32.47m/b day in April as reported by a secondary source and is the highest since 2008… which says something given that Nigeria’s supply has pulled back from 2.2m/b day to just 1.65m/b day. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore came under a little pressure, selling off 0.9% to close at $54.54/tonne. Rebar steel futures prices fell 3.6% for the day and plunged 13% for the week as Chinese steel output leaped to record highs in April. At this stage Chinese production is down for the calendar year in comparison to this time last year. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals were mixed but copper closed in the black. Copper initially made new lows not seen since February 25 before finishing up 0.3% to $4,627.50. Copper is down 8% for the month of May as it makes its second week of losses. Holding at these current levels will be key in order to avoid its next floor at $4,470. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • AWE (AWE), Origin Energy (ORG): AWE teams with Mitsui for Origin’s Perth Basin stake: AFR; NOTE: Last week, AWE rejects cash offer from Lone Star Japan at 30% premium
  • Broadspectrum (BRS): Takeover offer by Ferrovial extended to May 20.
  • Dexus (DXS): May consider hospital site investments to diversify holdings: Australian
  • Fonterra (FSF): Sees FY milk collection dn 3% y/y; pays early div.
  • Macquarie Atlas (MQA), Macquarie Group (MQG): Macquarie Infrastructure Partners considers sale of 50% stake in Virginia toll road.
  • Nick Scali (NCK): Sees FY16 net profit after tax $A24mln to $A26mln.
Earnings results due out this week
  • Monday: Agilent, Virtusa, Akorn.
  • Tuesday: Home Depot, TJX Cos, Red Robin Gourmet Burgers, Vodafone, Children's Place, Momo.
  • Wednesday: Target, Lowe's, SAB Miller, Cisco, Hormel, Staples, Booz Allen,L Brands, Salesforce.com, Analog Devices, Burberry, Take Two Interactive.
  • Thursday: Wal-Mart, Gap, Applied Materials, Dick's Sporting Goods, Autodesk, Advanced Auto Parts, Ross Stores, Shoe Carnival, Mentor Graphics, Brocade.
  • Friday: Campbell Soup, Deere, Foot Locker, The Buckle.
Broker upgrades
  • Integral Diagnostics (IDX): Raised to outperform vs neutral at Credit Suisse

OPEN POSITIONS
c
 
AUDUSD finds interim support

The US dollar index appears to have made a genuine break out of the descending wedge on the back of the strong US retail sales numbers, which hit a six year high. The daily close above 95 should signal further continuation of the US dollar.

The EURUSD also broke below the downtrend of the wedge and now we expect 1.1358 to act as a resistance level. The AUDUSD touched its 200 day moving average at 0.7250, which should be the interim support level, while the resistance levels are 0.7330 and 0.7380 where we would look to sell.
 
b
 
S&P500 in negative territory

The S&P500 (US500.I) looks to have broken the neckline of the head and shoulder but 2,039 has been a key support level during Q2to Q3 in 2015. So we would like to see a clear breakout below 2,039 in order to confirm the beginning of the reversal and the resistance level would now be 2,052.

The US500 is now trading in the negative territory for the year as the 2015 open price was 2,045.74. The S&P/ASX200 (AUS200) should follow soft leads from the US last Friday and the price actions of the Shanghai Composite Index would need to be monitored closely as all the Chinese data (industrial productions, fixed asset investment and retail sales) came out weak last Saturday.

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– Edited by Robert Ryan
 
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.Watch our daily morning call on Periscope at 9:45am: #SaxoStratsAPAC





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