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The European Central Bank meets this afternoon in the wake of the Italian referendum and, despite the fallout not yet of the magnitude that analysts had predicted, it looks likely that the central bank will calm a nervy market with an extension of its bond-buying programme.
Article / 10 October 2016 at 23:52 GMT

Today's Trade: ASX200 gets early oil-fueled bounce

Trading Desk / Saxo Capital Markets
Australia
  • Oil prices surged overnight after Russia pledged to cooperate with Opec
  • Energy companies pushed US stocks up
  • ASX200 and AUD got an early lift fueled by oil
  • CNN poll gave the second US presidential debate to Clinton 

By Saxo Capital Markets (Australia)

Overnight and early trade

The Australian dollar got a kick from the oil price surge overnight and the local market rose 0.4% at the open, to just below 5500 points.

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 Tension in markets is ticking higher with the US presidential election just four weeks away. Photo: iStock

US stocks rose overnight as the fresh climb in oil prices boosted shares of energy companies.
Monday’s gains came after Russian President Vladimir Putin supported international efforts to limit oil supplies. Analysts and investors said crude prices could be volatile this week with energy companies and oil producers meeting in Istanbul for the World Petroleum Congress amid hopes for a broad agreement to cut production.

The Dow Jones Industrial Average rose 89 points, or 0.5%, to 18329. The S&P 500 climbed 0.5% and the Nasdaq Composite added 0.7%. The VIX dropped to 13.38.

Energy shares in the S&P 500 rose 1.5% and US crude prices climbed 3.1% to $51.35 a barrel, their highest closing value since July 2015. Exxon Mobil and Chevron were among the biggest gainers in the Dow industrials, rising 2% and 1.7%, respectively.

Shares of Mylan NV rose 8.2% after the pharmaceuticals firm agreed to pay $465m to settle allegations that it overcharged the government for its EpiPen products. The Nasdaq Biotechnology Index rose 1.4%. 

Twitter Inc.’s shares plunged 12% on Monday as the odds of a sale appeared to dim further, shifting attention back to the social-media company’s troublesome pursuit of a strategy to jump-start user and revenue growth.

Some investors said trading volumes were thin due to holidays in Japan, Hong Kong and Canada, as well as Columbus Day in the US, with the bond market closed.

Currencies of commodity-led nations rallied as the peso advanced the most among major peers, jumping almost 2%. UK 10-year gilt yields rose on concern the plunging pound will fuel inflation.

Tension in markets is ticking higher with the US presidential election just four weeks away and the specter of higher US borrowing costs before the year is out a constant in investors’ minds. A CNN poll awarded the second debate to Democratic nominee Hillary Clinton, with Trump’s campaign hit by a 2005 video in which he made vulgar and degrading comments about women. 

Crude also loomed large over Monday trade as ministers from some of the largest producers gathered in Turkey to discuss ways of ending the supply glut.

Global trading has gotten off to a rocky start in October amid speculation that the European Central Bank will start tapering stimulus and as hawkish comments from US Federal Reserve officials boosted bets on a rate increase in 2016. Minutes from the US central bank’s September meeting will be released on Wednesday, and data on retail sales, producer prices and consumer sentiment are due on Friday. Investors are also seeking clues as to the health of corporate America, with Alcoa Inc. kicking off the next earnings season on Tuesday.
     
While analysts are forecasting a 1.6% contraction in third-quarter profits for S&P 500 companies, US firms have exceeded projections by an average margin of 3.6 percentage points in the past five years, data compiled by Bloomberg show. Should the trend continue, it would likely result in earnings growth for the period. Still, Goldman Sachs Group Inc. says both US and European equities are in for a bumpy ride into the end of the year.

Stocks in Europe recovered from an early fall in the banking sector to advance after three sessions of losses. The Stoxx Europe 600 rose 0.7%, with oil and gas stocks gaining 1.9%. Deutsche Bank AG rallied as Austria’s finance minister said the German lender should be able to “solve the problems with the United States” and that a fine of $10bn would be too much. Vivendi SA climbed as Vincent Bollore’s investment company raised its stake in the French media conglomerate to more than 20%.

Asian index futures were mixed on Monday, with markets in Japan and Hong Kong closed for holidays. Contracts on the Nikkei 225 stock average jumped 1% in Chicago, rising with futures on Australian and South Korean shares, while those on indices in Hong Kong fell at least 0.2% in most recent trading.

Gold futures rebounded from their biggest weekly drop in more than three years as data showed investors jumped into exchange-traded funds backed by the metal, lifting global holdings to their highest since 2013. Silver and copper also rallied, leaving the Bloomberg Commodity Index up 1.3% at its highest close since July.

Mexico’s peso jumped as much as 2.6% on Monday to a one-month high. The currency has been a barometer of investor anxiety over the US election, weakening when Trump advances in polls and gaining when he is perceived as doing badly. The Republican nominee has pledged to renegotiate the North American Free Trade Agreement and deport undocumented immigrants.

Elsewhere, Canada’s dollar climbed the most since July while Russia’s ruble erased an earlier slide as crude rallied. The yuan retreated the most in four months as Chinese markets resumed following a week-long break. The pound slumped for a third day as investors awaited clues as to whether Britain is headed for a so-called hard Brexit.

Yields on 10-year British gilts extended their increase above 1% after surpassing that level last week for the first time since late June. Portugal’s bonds climbed the most in three months after the country’s finance chief said that rating company DBRS Ltd. positively assessed the nation’s fiscal efforts, boosting the government’s conviction that it will retain the country’s investment-grade credit rating. 

Saudi Arabia, which is undergoing its biggest economic overhaul in recent history, will start meeting investors this week with a view to selling its first international bond, according to people familiar with the matter.

Source: Bloomberg, TradingFloor.com

Local markets

  • Bank of New York Australia ADR Index up 1.3% to highest since August 19, BHP Billiton ADR up 1.6% to A$23.61 equivalent, 0.9% premium to last traded price in Sydney, Rio Tinto ADR up 1.7% to A$44.32 equivalent, 15% discount to last traded price in Sydney
  • Gold futures snapped a six-session losing streak on Monday, rebounding after suffering their biggest weekly loss in three years. December gold rose $8.50 or 0.08%, moving slightly above the 200-day moving average. Spot gold was up 0.2% at $US1,259.48. Meanwhile, the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, reported the biggest one-day rise in its holdings since early July on Friday, of 11.3 tonnes. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • West Texas Intermediate oil for November delivery rose 3.1% to $51.35 a barrel, the highest close since July 15, 2015. Brent for December settlement increased 2.3% to $53.14 a barrel, its highest point since Aug. 31, 2015. The global benchmark closed at a $1.27 premium to WTI. Russia is willing to join Opec’s efforts to stabilise the market, which would require either a freeze or a cut, President Vladimir Putin said on Monday at the World Energy Congress in Istanbul. Many producers outside the group have expressed a willingness to cooperate on output caps, said Saudi Arabia’s Energy and Industry Minister Khalid Al-Falih, who added that he was “optimistic” there’ll be a deal that could lift prices as high as $60 by year-end. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • On the Dalian Commodity Exchange, iron ore jumped 1.2% to end at 412.50 yuan per tonne. The steel-making raw material touched 398 yuan earlier, a level last seen on September 22. Spot iron ore advanced 0.79% to 56.65. Fortescue Metals Group has today announced that it has agreed to acquire BC Iron’s 75% interest in the Nullagine Iron Ore Joint Venture for the grand total of A$1. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper closed 1.5% higher at $US4848 a tonne, aluminium rose 0.9% to $US1690 and lead added 1.1% to $US2100. Zinc prices rose, boosted by expectations of shortages because of mine closures, though analysts say the metal is still readily available and further gains could be limited. Benchmark zinc on the London Metal Exchange finished with a 0.1% gain at $US2328 a tonne. Tin climbed 0.5% to $US20,095 and nickel was up 2.9% at $US10,530 a tonne. BHP Billiton has unsuccessfully sought to spoil Newcrest Mining's bid to take a strategic stake in promising copper and gold junior Solgold, in a battle between two of Australia's biggest miners. Nickel led an advance in industrial metals on signs of manufacturing growth in China, the world’s biggest consumer. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • OrotonGroup (ORL): Trades ex-dividend
  • Abacus (ABP): Company, Investec buy 324 Queen Street for A$132m
  • Alumina (AWC): Alcoa seen reporting 3c beat, shares likely range-bound: Goldman
  • Arrium (ARI): Moly-cop sees FY17 Ebitda $146.2m vs $145.8m in FY16: AFR
  • BC Iron (BCI): Seeking up to A$25m in rights issue: AFR
  • BHP Billiton (BHP): SolGold says BHP offers to buy 10% stake; separately, BHP to test solar for remote mine sites as renewable costs fall
  • Bradken (BKN): Champ PE set to become largest holder: AFR
  • Qantas Airways (QAN), Virgin Australia (VAH): Emirates’ Dnata sees weakness in Australia, UK cargo markets
  • Rio Tinto (RIO): IFC to quit Rio’s $20bn iron project in latest setback
  • Telstra (TLS): Scheduled to host annual meeting; NOTE: Company in August forecast plans to invest A$3bn on networks; FY17 capex ~18% sales; Mid to high single-digit income growth; low to mid single-digit Ebitda growth; Free cashflow A$3.5bn-A$4bn; restructuring costs A$430m-$500m
  • Wesfarmers (WES): Curragh, Bengalla coal mines seen earning profit A$200m-A$300m in 2017: AFR
  • Woodside (WPL), Worleyparsons (WOR), Oil Search (OSH), Beach Energy (BPT), Karoon (KAR), Origin Energy (ORG), Santos (STO): Oil rises to highest in more than year amid output deal optimism

Broker upgrades and downgrades

  • BHP raised to buy from hold at SBG Securities
  • Mayne Pharma (MYX): Raised to buy vs neutral at UBS
  • Sealink Travel (SLK): Raised to buy from hold at Bell Potter

AUS200 & AUDUSD

Despite the US dollar strengthening against the other major currencies, AUDUSD lifted above the 0.76 handle as copper pushed higher and the risk-on sentiments seem to be growing. AUDUSD broke last Friday’s high of 0.7624 and commodity pairs could continue to benefit from rising crude oil prices.

AUDUSD daily chart
1
 
After forming a double bottom and a solid base throughout August and September, the AUDJPY currently trades just below a noisy resistance zone at the 79 handle and threatens a break to the topside. With the weakness expected in JPY, coupled with the strengthening momentum as evidenced by the RSI, we see buy stop opportunities at 79.10, targeting the 200-day moving average as first profit target which sits just below a multi-year down trend which starts in 2014.
 
AUDJPY daily chart
2
 
AUS200 is maintaining resilience near the key resistance level of 5,500.  Energy and mining stocks are expected to support up AUS200 today.
 
AUS200 daily chart
3
 Source all charts: Saxo Bank. Create charts with SaxoTrader. Click here to learn more   
Today's trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Susan McDonald


Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call at 1030 AEST.


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