Article / 16 October 2016 at 23:41 GMT

Today's Trade: ASX200 hit by casino losses, AUD showing resilience

Trading Desk / Saxo Capital Markets
  • US stocks were lifted by better than expected earnings from three big banks
  • The probability of the US Fed raising rates before year end is now at 65%
  • The USD is up 2.1% against the euro and 1.2% against the yen over the past week
  • Iron ore was up 2.7% to its highest since August 25 at close on Friday  
  • The AUD is showing resilience, helped by dovish remarks from Fed's Janet Yellen
  • The local market opened down on losses by casino operator Crown

By Saxo Capital Markets (Australia)

Overnight and early trade

The local market was pulled down at the open by losses in casino operator Crown. AUDUSD opened the new week at 0.7618, 1.5% higher than last Thursday's low, boosted by strength in commodities and expectations for a shallow rate hiking cycle in the US.

 A 10% plunge in Crown's share price followed reported raids on the company's offices in China. Photo: iStock

  • Gains in financial shares lifted stocks on Friday in the wake of better-than-expected earnings reports from three big US banks. Financial stocks in the S&P 500 rose as much as 1.5% after J.P. Morgan Chase, Citigroup and Wells Fargo reported earnings that beat analysts’ estimates, then pared those gains to end the day up 0.5%. Some investors and analysts said Friday’s reports provided an encouraging picture of the lenders’ health, though they weren’t strong enough to offset broader concerns about the slow pace of economic growth or challenges posed to the financial sector by low interest rates.
  • Investors are hoping for a rebound in corporate profits, which are projected to fall for the sixth consecutive quarter, according to analysts polled by FactSet. Weak earnings from Alcoa and gene-sequencing company Illumina helped send stocks lower earlier in the week.
  • The Dow Jones Industrial Average rose 39.44 points, or 0.2%, to 18138.38. The S&P 500 inched up 0.43 point, or less than 0.1%, to 2132.98 and the Nasdaq Composite gained 0.83, or less than 0.1%, to 5214.16. Major indices posted their second successive week of declines, with the blue-chip index falling 0.6%, while the S&P 500 slipped 1% and the Nasdaq lost 1.5%. The VIX dropped to 16.12.
  • Citigroup rose 14 cents, or 0.3%, to $48.61. J.P. Morgan lost 22 cents, or 0.3%, to 67.52 and Wells Fargo slipped four cents, or less than 0.1%, to 44.71. The KBW Nasdaq Bank Index of large US commercial lenders advanced 0.5%. The lenders’ earnings come as many investors expect the US Federal Reserve to nudge up interest rates by year-end, which could boost bank profits by increasing the gap between what they pay on deposits and what they charge on loans. Federal funds futures, used by traders to place bets on central-bank moves, now point to a roughly 69% chance of a rate rise by December, according to CME Group data. Nevertheless, some analysts said they don’t expect interest rates to climb quickly, and banks’ profits are likely to remain pressured.
  • US retail sales also managed to meet analysts’ expectations, increasing 0.6% in September from the previous month, the Commerce Department said on Friday. Retail sales are a key gauge of consumer spending, which has been a main driver of the US’s economic growth. US government bonds weakened, with the yield on the benchmark 10-year Treasury note rising to 1.792%, from 1.739% Thursday. Yields rise as prices fall.
  • The Stoxx Europe 600 rose 1.3% on Friday, with banks climbing 2.1%. One of the biggest gainers was London-based Man Group, one of the world’s biggest hedge-fund firms. Its shares were up 14% in London after it reported an increase in funds under management and announced the purchase of real-estate investment manager Aalto Invest Holding AG.
  • Investors’ expectations of higher interest rates have pushed up the US dollar, which gained 2.1% against the euro and 1.2% against the yen over the past week.
  • A weaker yen was a boon for the Japanese Nikkei Stock Average, which closed with a 0.5% gain. Asian stocks more broadly had a small rebound after losses earlier in the week spurred by lackluster Chinese trade data. Data released Friday, however, showed that Chinese producer prices turned positive for the first time since 2012, an encouraging sign for economic activity.

Source: Bloomberg,

US Earnings
  • Monday: Bank of America, IBM, Netflix, United Continental, Charles Schwab, JB Hunt Transportation, Celanese, Hasbro
  • Tuesday: Goldman Sachs, BlackRock, Johnson and Johnson, United Health, Philip Morris, Comerica, Domino's Pizza, Harley-Davidson, Kansas City Southern, Intel, Yahoo, Intuitive Surgical, Pinnacle Financial
  • Wednesday: American Express, Morgan Stanley, US Bancorp, M&T Bank, eBay, Abbott Labs, Halliburton, St. Jude Medical, Tupperware, Supervalu, Unifirst, Tractor Supply, SLM, Citrix, Canadian Pacific Railroad, Northern Trust
  • Thursday: Microsoft, Verizon, Travelers, Union Pacific, Bank of NY Mellon, Walgreens Boots Alliance, Illinois Tool Works, E*Trade, Dunkin Brands, American Airlines, Alaska Airlines, Pulte Group, Fifth Third, KLA-Tencor, Advanced Micro
  • Friday: Daimler, General Electric, Honeywell, McDonald's, Manpower

Local markets

  • Bank of New York Australia ADR Index little changed, BHP Billiton ADR down 0.2% to A$22.28 equivalent, 1.2% discount to last Sydney close, Rio Tinto ADR down 0.2% to A$41.64 equivalent, 18% discount to last Sydney close.
  • Gold futures for December delivery slid 0.2% to settle at $1,255.50, after earlier gaining as much as 0.2%. Bullion for immediate delivery was little changed. Gold has slumped this month against the backdrop of a firmer dollar and a drumbeat of commentary from Federal Reserve officials that higher US borrowing costs are needed. The probability that the Fed will raise rates before the end of this year rose to 65%, up from 52% a month ago. Meanwhile, holdings in exchange-traded funds increased to the highest since 2013. Assets in gold-backed ETFs rose 1.94 metric tons to 2,050.3 tons as of Thursday, data compiled by Bloomberg show. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil prices fell slightly on Friday as traders balanced a stronger dollar and another increase in the US oil rig count against expectations that more Opec talk of output cuts will keep crude above $50 per barrel. Brent settled down 8 cents, or 0.2%, at $51.95 a barrel. For the week, it closed flat. WTI ended down 9 cents at $50.35. It rose about 1% on the week. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore for Jan. delivery on Dalian Commodity Exchange up 2.7% to close Friday at 438.5 yuan/ton, highest since Aug. 25. Spot iron ore advanced 0.61% to 57.28. Rising Chinese steel production and disruptions to domestic iron ore trade may support iron ore imports in the fourth quarter. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper for delivery in three months fell 0.8% to settle at $4,675, capping a second straight weekly decline. The metal is down 0.6% for 2016. Copper posted a second week of losses after Aurubis AG, Europe’s top refined producer of the metal, signaled weak outlook for next year. Aluminium and tin declined, while zinc, nickel and lead rose on the LME. Suspensions of Philippine nickel mines over environmental concerns have underpinned a rally in nickel which climbed 2.5% this week. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • BHP (BHP): Says Samarco restart “not assured”, Telegraph reports
  • Crown Resorts (CWN): Affirmed at BBB by Fitch; off rating watch
  • Fantastic (FAN): Steinhoff offer of A$3.50/share looks consistent with strategy, Exane says
  • Macquarie Group (MQG): National Grid said to pick Macquarie, Fosun bids as CPPIB exits
  • OceanaGold (OGC): World Bank arbitration panel grants $8m award in favor of El Salvador
  • Deloitte Access tips property to be the 'worst investment'


5,500 is existing as a valid resistance level in AUS200 so far this month while the support level is intact at 5,400. Therefore, unless we see a clear break out of this range, further sideways price actions are likely in the near term. The financial sectors are showing resilience but the materials have been under selling pressure and could remain weak as copper is selling off.

AUS200 daily chart
As the US Treasury bond yield is regaining strength, the US dollar strengthened against the major currencies except the commodity currencies such as AUD and CAD. Since AUDUSD rebounded off the uptrend (from the Jan 16 low) last week, it continues to extend gains as the AU 10-year bond prices (XT) are struggling below a key support level of 97.75, which acted as a key resistance level in the past.

AUDUSD daily chart
 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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