Article / 22 March 2016 at 0:06 GMT

Today's Trade: ASX200 held back despite lift in iron ore

Trading Desk / Saxo Capital Markets
Australia
  • Local market pulled down by banks and miners
  • WTI and Brent up 2.6% and 1.9% to $39.91 and $41.69 respectively
  • Iron ore has another lift of 2.3% on China's easing of margin-lending controls
  • AUDUSD upward momentum fading but too early to say if reversal has begun



By Saxo Capital Markets (Australia)

The ASX slipped 0.2% to 5171.0 in early trade, pulled down by the big banks, with miners also weighing on the index , while the All Ords was down 0.1% at 5232.2.

iron
 Iron ore is continuing to see support with another lift of 2.3%. Photo: iStock

Overnight

  • US stocks eked out a gain overnight, albeit on a smaller range: The Dow Jones Industrial Average rose 21.57 points, or 0.1%, to 17623.87 on Monday. The S&P 500 edged up 2.02 points, or 0.1%, to 2051.60, while the Nasdaq Composite gained 13.23 points, or 0.3%, to 4808.87.
  • Trading was the lightest last night for 2016, following a string of low-volume days last week.
  • Among shares which gained overnight: Valeant Pharmaceuticals International climbed $2.00, or 7.4%, to $28.98 in the US after the company said it named William Ackman to its board and began a search for a new chief executive to succeed Michael Pearson. The drugmaker also alleged improper conduct by its top financial officers, which the former financial chief denied.
  • Information provider IHS and market-data firm Markit announced a plan to merge, joining a wave of so-called tax-inversion deals by basing the company in London. IHS gained 11.38, or 10%, to 122.09 and Markit climbed 4.02, or 14%, to 33.51.
  • Shares of social-media company Twitter added four cents, or 0.2%, to 16.89 as the company celebrated its 10-year anniversary. Since going public in November 2013, Twitter’s stock has fallen 35%. Shares have declined 27% in 2016.
  • Telecommunications and healthcare led S&P 500 advancers, while materials and energy lagged. Boeing (up 1.42%) and Nike (up 2.75%) were the top contributors to gains on the Dow Jones industrial average, while Chevron (down 1.28%), Goldman Sachs (down 0.83%) and Walt Disney (down 0.75%) were the greatest contributors to declines.
  • Meanwhile US-traded crude oil continued to rise, gaining 1.2% to $39.91 a barrel.
  • US government bonds declined after rallying last week following the US Federal Reserve’s hesitancy to lift rates. The yield on the 10-year Treasury note rose to 1.921% from 1.871% on Friday as prices fell.
  • The CBOE Volatility Index (VIX) held near 14: See trade idea below
  • Over in Europe, the Stoxx Europe 600 dropped 0.3% after gaining more than 4% over the past month. The FTSE and DAX were virtually unchanged, whilst the CAC dropped 0.78%.

See The Macro Take from Head of Asia Macro Strategist, Kay Van-Petersen

Local markets

  • Bank of New York Australia ADR Index  down 0.7%. BHP Billiton ADR down 1.2%. Rio Tinto ADR down 0.8%
  • Spot gold has given up reasonable ground as it sinks below $1,250, falling 0.9% to $1,245. There is still strong demand in the ETF gold sector as funds flow in. We are at Mar–Jun 15 floor of support. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil has risen with WTI and Brent up 2.6% and 1.9% to $39.91 and $41.69 respectively. Customs data has suggested that Chinese exports have risen almost 600% for diesel year on year. Oil's 50% rally since last month’s 12-year low has come as the markets begin to expect further falls in global supply. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore is continuing to see support in its buying with another lift of 2.3%. Rising property prices are seeing sentiment rise in this space with expectations of an uplift in construction. Whether this will eventuate to meet supply remains to be seen, but for now the market is bidding up contract prices. Easing margin-lending controls in the equity market is also helping to turn sentiment. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were subdued. Copper traded flat while aluminium lost 0.6% to $1,513. Zinc was the highlight for the day as it lifted 1.1%. Oddly, despite property prices rising in China and the boost in the iron ores price, the flow did not run to metals last night. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • ANZ Roy Morgan weekly consumer confidence data due 0930 Sydney time
  • Australia's fourth-quarter house price index seen unchanged quarter over quarter, according to Bloomberg survey; due 1130
  • Ainsworth Game Technology (AGI): Investors seek same buy-out deal as owner ahead of vote on stake sale: AFR
  • APN News (APN): Anchorage said to eye co.’s regional newspapers: AFR
  • Kathmandu (KMD): 1H net NZ$9.4m; interim div. NZ$0.03
  • South32 (S32): Baa1 rating confirmed by Moody’s; outlook negative
  • TPG Telecom (TPM): Scheduled to release 1H results; NOTE: 2- analyst rev. est A$1.14b

Stock to watch

Myer (MYR.xasx)

We are covering MYR as our stock to watch again today after only highlighting it last Friday.
Since rallying 12% on their 1H16 results, MYR has held up its gains for three days on strong volumes. After three years of lower highs and lower lows MYR has now made a higher lower and a higher high. They have also broken their downward trend. Now MYR is at a pivotal point with turning sentiment. A short term ceiling could be found at $1.30, which was the floor of support from Dec 14 to June 15. Rising above this could see a rally to the Fibonacci extension of 161.80 @ $1.56 which was May 15’s high.

Myer daily share price
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1 NEW TRADE: VIX

Trade entry is attached in the PDF.

Background 

The CBOE Volatility Index, often referred to as the VIX, closed at a seven-month low on Monday and is down 33% so far in March. The VIX is based on the prices of S&P 500 options and gauges expectations for stock swings over the next 30 days. Investors tend to rush to S&P 500 options when they are fearful of stock declines, giving the index its nickname: the fear gauge.

Broker upgrades and downgrades

ANZ Bank (ANZ): Cut to neutral vs buy at UBS

Data

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Performance

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AUDUSD

Yesterday, the People's Bank of China set the yuan to the weakest level since early January this year but we saw little reaction in the volatilities. 

Once again the US dollar strengthened against the major currencies and AUDUSD closed below the 0.76 handle, which remains as a key pivot level. Although the upward momentum of AUDUSD appears to be fading, the major commodity prices are still looking strong, therefore we believe that it is too early to say the reversal has begun until we see more clear signs of weakness from both iron ore and copper. 

The resistance level would be the recent swing high of 0.7680 and the support level is at 0.7410. Today’s focus is on RBA Governor Stevens’s speech at 1630 local time.

AUDUSD daily chart

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AUS200.I

The SPI futures yesterday gapped down and sold off sharply lower on the open, but it recovered the majority of its losses when the Shanghai Composite index closed above 3,000 as policy makers in China relaxed restrictions on margin lending. We are anticipating this gap to be filled this morning and AUS200 is expected to test the recent double top level of 5,220. If the resistance level of 5,204 becomes a support level, then the next resistance levels would be 5245 and 5,300.

AUS200.I daily chart

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Source charts: Saxo Bank. Create your own charts with SaxoTrader. Click here to learn more
Information sources for Today's Trade: 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 our daily morning call on Periscope at 9:45am: #SaxoAPAC 

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