Article / 12 September 2017 at 1:10 GMT

Today's Trade: ASX200 lifts as fears ebb over Irma and North Korea

Trading Desk / Saxo Capital Markets
Australia

  • The ASX200 was up 24 points or 0.4% at 5,737 in morning trade
  • The AUD was weaker against the USD, but still over 0.80
  • Overnight the S&P 500 Index rose to a record high and Treasuries tumbled
  • Hurricane Irma wreaked less havoc than forecast and North Korea tension eased
  • North Korea didn’t conduct a weapons test on the weekend, as some had expected
  • Gold, a traditional safe haven, fell 1.1% overnight



By Saxo Capital Markets (Australia)

Overnight and early trade

The local market opened higher as the mood lifted over North Korea and Hurricane Irma. The ASX200 was up 24 points or 0.4% at 5,737 in early trade.

Asian equity futures pointed to a higher start for regional markets after the S&P 500 Index rose to a record high and Treasuries tumbled as Hurricane Irma wreaked less havoc than forecast and tensions with North Korea eased.

The S&P 500 jumped the most since April to close at its first record in a month and the Dow Jones Industrial Average topped 22,000. Equities in Japan, South Korea, Hong Kong and Australia all signalled gains.

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North Korea didn’t conduct a weapons test on the country’s founding day over the weekend as some analysts had expected. Photo: Shutterstock


Stocks rose broadly and haven assets retreated Monday, a reversal from last week when major US stock indices, the dollar and Treasury yields fell as investors worried about worst-case scenarios from summer storms and threats from North Korea.

The gains sent the Dow up 259.58 points, or 1.2%, to 22057.37, its biggest one-day gain in six months. The last time the Dow closed above 22000 was August 16, and before Monday it hadn’t posted a 1% gain since April.

The S&P 500 rose 26.68 points, or 1.1%, to 2488.11 — its 31st record close of 2017 — and the Nasdaq Composite jumped 72.07 points, or 1.1%, to 6432.26.

Government-bond prices declined, pushing up yields. The yield on the 10-year US Treasury note rose to 2.125% from 2.058% on Friday, its largest one-day yield rise in more than a month.

Meanwhile, concerns about Hurricane Irma’s impact on the US economy decreased. A reduction in the storm’s strength and a shift in its expected course — there was no direct hit on Miami —meant insured damage estimates were likely to be less than originally anticipated by some analysts.

Reinsurance companies, which tumbled last week, jumped on Monday. The KBW Nasdaq Insurance index rose 1.8%, nearly wiping out last week’s 1.9% drop.

The Stoxx Europe 600 advanced 1%, boosted by gains in bank, insurance and technology shares— sectors that tend to rally when investors feel confident enough to take on more risk.

Gold, another traditional haven for money managers, fell 1.1%. The yen and the Swiss franc, which traditionally rise when markets are volatile, both fell against the US dollar.

Source: Bloomberg, TradingFloor.com, WSJ.com

Local markets

  • BHP Billiton ADRs rallied over 1% whilst Rio Tinto ADRs rocketed 2%
  • Gold prices fell overnight after tensions between the US and North Korea stayed quiet over the weekend and Irma weakened to a tropical storm. Gold for December delivery closed down 1.2% at $1,335.70 a troy ounce on Comex — the most actively traded gold contract’s largest one-day decline since July 3. Geopolitical tensions have helped the precious metal climb in seven of the last nine weeks to its highest level in more than a year, but North Korea didn’t conduct a weapons test on the country’s founding day over the weekend as some analysts had expected. The quieter-than-expected weekend weighed on gold because many investors favor the haven asset during times of geopolitical turmoil. Some analysts said Hurricane Irma being downgraded to a Category 1 storm after hitting Florida also removed some fear in the market. Gold stocks suffered losses overnight, falling 2.71%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil prices settled higher overnight, as refineries planned restarts and Saudi Arabia debated the possibility of extending a deal to curb output among major producers. Light, sweet crude for October delivery settled up 59 cents, or 1.2%, at $48.07 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 6 cents, or 0.1%, to $53.84 a barrel. Hurricanes Harvey and Irma have spurred volatile trading in energy markets in the past few weeks, as traders assess how the damage across major cities will impact demand for oil. When Harvey made landfall at the end of August, the wind and rain knocked out more than 20% of the country’s refining capacity. 
  • Meanwhile, Saudi Arabia — the world’s largest exporter of crude oil — said on Sunday that the country’s energy minister and his Venezuelan counterpart had discussed the possibility of extending Opec’s oil output cut deal beyond the March expiration date. The Organization of the Petroleum Exporting Countries, of which Saudi Arabia is the largest member, and 10 other producers including Russia first agreed late last year to cap their production at around 1.8 million barrels a day lower than October 2016 levels. The goal of the deal, which was extended in May, was meant to drain a global oversupply that has kept prices depressed amid a resurgence in US shale production. 
  • Some worries over the fallout from Irma also eased on Monday, after it was downgraded to a tropical storm. Analysts had forecast that Irma could exacerbate a drop in crude consumption, as flooding and outages negate the need for fuel. US oil futures traded as low as $47 a barrel on Monday, before reversing losses. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore prices were relatively unchanged, as traders moved to the sidelines. The calmness appears to be a spillover from Friday’s falls in the futures market in China. But with futures prices settling in Monday’s session, traders are likely to be induced back into the market, with data remaining positive. Iron ore inventories fell further last week. Stockpiles at the port have fallen for seven consecutive weeks and now sit at 133mt, according to SteelHome data. Steel rebar inventories have climbed nearly 13% over the past six weeks. However, this is still in line with normal seasonal trends and is in fact a sign of rising optimism in the outlook for steel demand. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper for December delivery closed up 0.8% at $3.0660 a pound. The industrial metal had its worst day in months on Friday, falling 3.2%, but still sits near its highest level in three years thanks to confidence in the global economy. Investors and analysts will be keeping an eye on Chinese credit and monetary supply figures, as well as industrial production data expected to be released later this week. Data released on Friday showing copper imports in China — which accounts for almost half the world’s copper consumption — were flat in August from the previous month was the main source of Friday’s selloff. Benchmark zinc closed on the London Metal Exchange 1.7% higher at $US3083 a tonne after sliding 3.1% on Friday. LME lead ended 0.5% firmer at $US2277 a tonne. Aluminium rose 1.1% to $US2122 while tin climbed 1% to $US20,750. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • QBE CEO John Neal to step down: QBE Insurance Group chief executive John Neal will step down at the end of the year after five years in the role (AFR)
  • India's Gorgon LNG price cut fuels worries over falling tariffs: Reports that India has negotiated a price cut for the LNG it is getting from ExxonMobil from the Gorgon project in Western Australia has further fueled worries about mounting downward pressure on prices for gas exports over the next few years. LNG importer Petronet LNG is reported to have negotiated to buy Gorgon LNG under its 20-year deal with the US major at a price that is 13.9% of the Brent oil price, down from an original agreement for 14.5%.

Stock to watch

Commonwealth bank (CBA) sold off more than 10% after forming an ascending wedge during May-July but it is showing signs of recovery after filling a gap (@73.26) that was created back in November 2016. CBA is still trading in oversold territory, thus we look to add bullish exposure in the anticipation of short covering towards the next resistance level 76.80.

CBA chart
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US dollar index

The US dollar index is making attempts again to rally off new lows it continues to print, with focus on the April / May / June downtrend line as next test to clear for confirmation of a turnaround in the 9-month downtrend.

DXY chart
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Source: Both charts, Saxo Bank - Create your own charts with SaxoTrader; click here for more

Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

-- Edited by Susan McDonald


Watch the video of this Week’s Macro Monday

Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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