Article / 22 February 2017 at 23:39 GMT

Today's Trade: ASX200 down as investors digest earnings results

Trading Desk / Saxo Capital Markets
Australia
  • The ASX200 was 0.4% lower at the start at 5783
  • FOMC minutes show Fed officials anticipating raising rates 'fairly soon 
  • Oil dropped on forecasts for another expansion in US crude stockpiles
  • Iron ore prices took a breather, down 0.6% to $94.30
  • Bullish exposure is expected to remain unchanged for AUDUSD

By Saxo Capital Markets (Australia)

The ASX200 was down at the start of trading, falling 0.4% to 5783. Miners were down along with supermarket owners and the big-four banks. Meanwhile, more earnings results were released, including Qantas, which reported a 7.5% decline in first-half earnings. Its shares were up 2.8% at the start.

  • US stocks bounced around the flatline overnight as a pullback in the price of oil weighed on shares of energy companies.
  • Energy companies in the S&P 500 were the worst performers in the index Wednesday, falling 1.6%, as the price of US-traded crude oil declined 1.4% to $53.59/barrel. On Tuesday, oil rose to its highest settlement since December.
  • The S&P 500 and the Nasdaq Composite slipped 0.1%, while the Dow Jones Industrial Average rose 33 points, or 0.2%, to 20776.
  • The pause follows a strong day of gains on Tuesday when all three indices closed at new records.
  • Small daily moves, most of which are minor gains, have been a theme for the stock market in recent months. The S&P 500 has not posted a 1% or more decline in 90 trading days, the longest stretch since 2006, according to WSJ Market Data Group. Similarly, the index has failed to post a 1% or more gain since December 7, the longest such stretch since 2014.
  • Even without big moves, since December 7 the S&P 500 has risen about 5.5%.
  • Traders say the lack of volatility can be unnerving, but they feel soothed by improving economic data and solid corporate earnings. The next catalyst to shake up markets could be a rate increase by the US Federal Reserve, which could come as soon as March.
  • Federal Reserve officials said they anticipated raising short-term interest rates “fairly soon” and some officials said it might be appropriate to move “potentially at an upcoming meeting,” according to minutes from the Fed’s latest meeting published Wednesday.
  • Indeed, in the minutes officials cited an improving economy and the possibility of proposed economic policies could push inflation up faster than anticipated.
  • Still, most investors aren’t anticipating a rate rise at next month’s Fed meeting.
  • Federal funds futures, used by investors to bet on central bank policy, show a 27% chance of a rate rise at the Fed’s meeting in March, according to data from CME Group, up from a 22% chance before the release of the minutes.
  • Government bonds strengthened Wednesday. The yield on the benchmark 10-year US Treasury note was at 2.416%, according to Tradeweb, compared with 2.429% Tuesday. Yields fall as bond prices rise.
  • Elsewhere, the Stoxx Europe 600 was little changed following three consecutive sessions of gains however the Stoxx basic resources sector index SXPP was smashed as much as 1.7%, marking its biggest retreat among European sectors, amid drop in metal prices including copper.
  • The US currency was recently down 0.3% against the Japanese yen to ¥113.2860.

Source: Bloomberg, TradingFloor.com

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 Qantas Airways reported a 7.5% decline in first-half earnings. Photo: Shutterstock

Local markets and commodities

  • Bank of New York Australia ADR Index -1%, BHP Billiton ADR -2.4% to A$25.80 equivalent, ~3% discount to last Sydney close, Rio Tinto ADR -1.3% to A$57.46 equivalent, ~17% discount to last Sydney close
  • Spot gold rose, erasing earlier declines, after minutes of the Federal Reserve’s last meeting showed officials expressing confidence they can raise US interest rates gradually, with many voters seeing only a modest risk of significant inflation. 
  • Gold for immediate delivery rose 0.1% to $1,237.53/ounce. The metal fell as much as 0.4% earlier. Gold has posted three straight weekly gains as uncertainty over the economic impact of upcoming elections in Europe and US President Donald Trump’s policies spurred speculation that the Fed will be cautious in raising rates. 
  • Fed fund futures are pricing in a 36% chance of a rate increase in March, the same as traders expected earlier before the minutes were released. Gold stocks in Toronto were down 1.29% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil dropped on forecasts for another expansion in US crude stockpiles while attention shifted to whether Opec will extend production cuts. West Texas Intermediate for April delivery dropped 74 cents to close at $53.59/barrel on the New York Mercantile Exchange. Total volume traded was about 18% below the 100-day average. 
  • Brent for April settlement fell 82 cents, or 1.5%, to $55.84/barrel on the London-based ICE Futures Europe exchange. A surge in US crude stockpiles to the highest level in more than three decades has kept oil futures in a tight range above $50/barrel this year, offsetting supply cuts by Opec and 11 other nations. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore prices took a breather, down 0.6% to $94.30. The rally to the highest level since 2014 has occurred at the same time as stocks have been rising, which has caused some producers to question the sustainability of the rise. Fortescue’s Nev Power noted that “we’re seeing stocks increase and prices increase at the same time, which is very unusual”.
  • As prices soared toward $100/tonne, BHP Billiton said the market is likely to come under pressure, Fortescue Metals Group forecast the raw material may moderate and Africa’s top supplier predicted a deep retracement. 
  • At the same time, Macquarie Group warned of steep losses amid abundant supply, and Goldman Sachs Group highlighted bulging stockpiles. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Funds cut bets on higher copper prices on Wednesday, driving the metal lower ahead of minutes from the Federal Reserve's last meeting, which could boost expectations of higher US interest rates and a stronger dollar. Benchmark copper on the LME, which hit a 21-month high above $6,200/tonne this month, ended down 0.3% at $6,040. Aluminium for three-month delivery fell 0.1% to $1,884.50/tonne on the LME, cutting this year’s gain to 11%. Zinc dropped 0.3% to $2,865/ton. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Adelaide Brighton (ABC): FY results expected; NOTE: Adj. net income est. $A195.6mln (13 analysts)
  • Ansell (ANN): Files third patent infringement suit vs Reckitt Benckiser
  • Alumina (AWC): swung to a full-year loss of $30.2 million ($A39.3 million) from $88.3 million profit the year earlier. The company said its net profit after tax excluding significant items in the year ended December 31 fell to $84.7 million from $258.2 million
  • Ardent Leisure (AAD): 1H results expected
  • Asaleo Care (AHY): FY results expected; NOTE: Adj. net income est. $A62.3mln (4 analysts)
  • Ausdrill (ASL): On track for FY guidance, gets two contract extensions
  • Breville Group (BRG): net profit after tax rose 9.4% to $A33.7 million. Revenue rose 2.4% to $A339.2 million. EBIDA rose 7% to $54.2 million
  • Challenger (CGF): Planning $A350mln capital notes issue: AFR
  • Cleanaway (CWY): 1H results expected
  • Costa Group (CGC): 1H results expected; NOTE: Co. in November forecast FY17 NPAT pre-SGARA at least 15%
  • Crown Resorts (CWN): 1H results expected; NOTE: CEO Craigie may be poised to depart: AFR; Melco pledges to spend ‘whatever it takes’ on Japan casino
  • Estia Health (EHE): 1H results expected; NOTE: Co. in October forecast FY17 underlying Ebitda $A86mln-$A90mln
  • Flight Centre (FLT): net profit for the December half fell 36.2% to $A74.4 million. Revenue fell 0.6% to $A1.25 billion. It will pay an interim dividend of A45¢ a share, fully franked
  • Fonterra(FSF): Confirms 2016-17 milk price forecast $NZ6/kgms
  • Fortescue (FMG): CEO sees potential value in adding coking coal output
  • Iluka (ILU): FY results expected; NOTE: Adj. net loss est. $A65.7mln (8 analysts)
  • Investa Office (IOF): net profit in the half year ended December 31 fell 20.2% to $A224 million. Interim revenue dropped 3.4% to $A106.6 million
  • Invocare (IVC): FY results expected; NOTE: Adj. net income est. $A54.3mln (8 analysts)
  • Macquarie Atlas (MQA): FY results expected; NOTE: Adj. net income est. $A109.4mln (9 analysts)
  • MYOB (MYO): FY results expected; NOTE: Adj. net income est. $A96.1mln (10 analysts)
  • Nine Entertainment (NEC): 1H results expected; NOTE: Co. in November forecast FY17 TV costs down ~1.5%
  • OZ Minerals (OZL): FY results expected; NOTE: Adj. net income est. $A117.7mln (16 analysts)
  • Perpetual (PPT): first-half net profit rose 2% to $A66 million and it will pay an interim fully-franked dividend of $A1.30 on March 24, up from $A1.25 a share. Revenue rose by 5% to $A251.1 million
  • Platinum Asset Mgmt (PTM): 1H results expected; NOTE: 2-analyst adj. net income est. $A94.2mln
  • Qantas (QAN): statutory profit after tax for the December half fell 25.1% to $A515 million on revenue of $A8.2 billion, down 3.3% on a year ago. The drop in profit largely reflects the inclusion in last year's result of a $A201 million gain from the sale of Sydney Airport terminal, it said. Underlying profit before tax fell to $A852 million from $A921 million
  • Ramsay Health (RHC): net profit for the December half rose 13.8% to $A255.9 million. Revenue rose 3.4% to $A4.3 billion and core EBITDA jumped 7% to $A648.9 million. It will pay an interim dividend of 53c a share on March 29
  • Reliance Worldwide (RWC): 1H results expected; NOTE: Co. in August forecast FY17 NPAT A$62.6m
  • Retail Food Group (RFG): 1H results expected; NOTE; Co. in November forecast underlying NPAT growth ~20%
  • Southern Cross Media (SXL): 1H results expected; NOTE: Co. in August forecast FY17 Ebitda $A177mln-$A183mln
  • Tassal Group (TGR): Says supporting regulators, to oppose proceedings by Huon
  • Viva Energy REIT (VVR): FY results expected; NOTE: Adj. net income est. $A40.2mln (3 analysts)
  • Webjet (WEB): Raises FY Ebitda target to $A80mln
  • Westfield (WDC): funds from operations for the year ended December 31 totalled $700 million ($A910 million) in line with forecasts. It said it was paying a full-year distribution of US25.10¢ per stapled security, also in line with forecasts.
  • Woodside (WPL): Courts Shell, Exxon for Pluto LNG project expansion
Broker upgrades and downgrades

  • APN Outdoor (APO): Raised to add at Morgans Financial, PT $A6.37
  • BHP Billiton (BHP): Copper strike poses supply threat even after miners return; Raised to market perform at Avior, PT ZAR235
  • Blackmores (BKL): Cut to neutral at Credit Suisse, PT $A110
  • Coca-Cola Amnatil (CCL): Cut to equal-weight at Morgan Stanley, PT $A10.50
  • Godfreys (GFY): Cut to neutral at Credit Suisse, PT $A0.95
  • Greencross (GXL): Raised to buy vs hold at Wilsons
  • Independence Group (IGO): Raised to buy at Bell Potter, PT $A4.55
  • Insurance Australia (IAG): Raised to neutral at Credit Suisse; Cut to underperform at Macquarie
  • Iress (IRE): Raised to overweight at JPMorgan, PT $A12.50
  • McMillan Shakespeare (MMS): Raised to outperform at Macquarie
  • Saracen Mineral (SAR): Cut to hold vs buy at Wilsons
  • Seek (SEK): Raised to hold at Shaw and Partners, PT $A15.50
  • St Barbara (SBM): Cut to neutral at Macquarie, PT $A3
  • Woolworths (WOW): Cut to underperform at Credit Suisse, PT $A24.50

Stock to watch: Flight Centre (FLT) 

Flight Centre continues to trade in a descending wedge pattern with a break above the upper descending trendline to serve as a significant positive development for the stock. The current base is formed at the 50% retracement level between the 2009 low to 2014 high, and a break below here coincides with a break of the lower pennant trendline, which would discount the descending wedge theory with swift losses to follow.
 
Flight Centre monthly
1
Source: SaxoTrader
 
We most recently covered Qantas where we highlighted the double bottom formation and the gradual recovery the stock has made towards the key resistance level at $A3.59, which coincides with a 61.8% retracement between the 2016 high at $A4.22 and the 2016 low at $A2.58. A break of this level is necessary to argue for a further bullish shift for the stock.
 
Qantas monthly
2
Source: SaxoTrader 

AUDUSD and AUS200.i

AUDUSD has been maintaining an uptrend since mid January 2017 and it is quite clear to see that the January resistance level 0.76 handle became the support level this month. Bullish exposure is expected to remain unchanged while private capex numbers at 1130 ADST could cause some temporary volatilities.
 
AUDUSD monthly
3
Source: SaxoTrader
 
AUS200 recently formed a double top at 5,826 and it has been underperforming US major indices, which have been making record highs. However, this week’s price actions suggest upside momentum continues to exist while the key resistance level remains at 5,826.
 
AUS200 monthly
4
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more 

Today's data 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. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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