- Tensions over North Korea subsided, diverting flows from safe-haven assets
- The ASX200 was up 0.7% in early trade
- The S&P 500 posted its biggest one-day gain since April
- The US dollar rose from last week's four-month lows against the yen
- Oil tumbled by the most in more than five weeks on fears of falling demand in China
By Saxo Capital Markets (Australia)
Overnight and early trade
The local market followed the global lead higher. The ASX200 was 0.7% up in early trade, despite a 20% fall in Domino's Pizza after it missed earnings estimates.
Equities look set to extend a rally in Asia as the prospect of war between the US and North Korea receded, buoying US equities and diverting flows away from haven assets such as gold and the yen.
Domino’s Pizza was heading for its worst day on record after missing earnings estimates and forecasting smaller-than-expected profit growth. Photo: Shutterstock
Futures across Asian stock markets pointed higher after the S&P 500 Index
surged 1%. Volatility continued to retreat, with the CBOE Volatility Index, known as the VIX, dropping 21%.
An early Wall Street Journal article confirmed that North Korean leader Kim Jong-un has decided not to launch a threatened missile attack on Guam, Pyongyang’s state media reported on Tuesday, but warned that he could change his mind “if the Yankees persist in their extremely dangerous reckless actions.”
The report, published early on Tuesday, could help dial back tensions that had spiraled last week following an exchange of threats between North Korea and US President Donald Trump.
The S&P 500 posted its biggest one-day gain since April, the latest sign of resilience in a stock market that has climbed to repeated highs this year.
A solid quarter of corporate earnings around the world, stronger-than-expected economic growth in Japan and lessened fears of conflict between North Korea and the US helped stocks rise on Monday, some traders and investors said.
The day’s moves also reflected investors’ tendency this year to buy stocks following pullbacks, some analysts said. That has helped limit both the scale and duration of selloffs in recent months, keeping major indices near their all-time highs.
Concerns over North Korea’s nuclear program and a string of disappointing corporate reports last week sent the S&P 500 and Dow Jones Industrial Average to their steepest weekly declines since March.
The Dow Jones Industrial Average
added 135.39 points, or 0.6%, to 21993.71 on Monday. The blue-chip index has gone 61 sessions without posting a move of 1% or more, its longest such streak since 1995.
The S&P 500 climbed 24.52 points, or 1%, to 2465.84, its biggest gain since April 24, and the Nasdaq Composite
rose 83.68 points, or 1.3%, to 6340.23.
Stocks rallied broadly, with technology companies and banks posting some of the biggest gains.
Assets that investors consider to be safer stores of value, including US government bonds and gold, pulled back.
Another sign of the relative calm in the markets: A measure of expected stock volatility that had spiked last week retreated on Monday. The CBOE Volatility Index, which tracks investors’ expectations of swings in the S&P 500 over the next 30 days, slumped 21%.
Earlier, data showed Japan’s economy grew faster than analysts expected in the April-June period. The report was the latest to show economic growth around the world on solid footing, something that investors say has helped power the US stock rally this year.
Source: Bloomberg, TradingFloor.com, WSJ.com
Tuesday: Home Depot, TJX, Advance Auto Parts, Coach, Dick's Sporting Goods, Urban Outfitters, Agilent, Viavi Solutions
Wednesday: Target, Cisco Systems, Tencent, Pershing Square Holdings, L Brands, Vipshop, NetApp, Performance Foods
Thursday: Wal-Mart, Alibaba, Madison Square Garden, Ross Stores, Applied Materials, Gap, Buckle
Friday: Deere, Estee Lauder, Foot Locker
- Bank of New York Australia ADR Index up 0.8%, BHP Billiton ADR up 0.3% to A$25.77 equivalent, 0.5% premium to last Sydney close, Rio Tinto ADR up 0.3% to A$57.00 equivalent, ~10% discount to last Sydney close
- In a trading update, ANZ reported unaudited statutory profit for the quarter to June 30, 2017 of A$1.67bn. Its third-quarter cash profit was lifted by 5.3% over the first two quarters to $1.79 bn due to stronger owner-occupier housing lending. ANZ chief executive officer Shayne Elliott said the bank had improved returns from moving its business portfolio away from low-returning customers, cost management and improved capital efficiency. "Although we are in period of lower sector revenue growth with some parts of the economy experiencing challenges, credit quality has improved," Elliot said.
- ANZ's net interest margin, the gap between interest earned on loans and the cost of funding, was stable but "up several basis points" when markets are excluded. Revenue decreased 0.3% while expenses were down 1% for the three months to the end of June, compared to the average of the first two quarters of the 2017 financial year. The bank included a total provision charge of $243m for the quarter, comprising an individual provision of $308m and the release of some of the "collective provision" due to the refocusing of the institutional portfolio, which reduced "risk weighted assets" a further $3bn to $156bn. Before provisions, the cash profit increased 0.3%.
- The common equity tier 1 (CET1) ratio was 9.8% at 30 June, ANZ said, after the bank generated 51 basis points of organic capital in the quarter but lost 59 basis points when it paid the interim dividend. CET 1 is 10.5% when previously announced asset sales in Asia are included. ANZ said customer deposit growth was 2.3% and net lending asset growth was 2% during the quarter. ANZ's market update comes after Bendigo and Adelaide Bank said on Monday its full-year cash profit rose 4.2% to $418.3 million driven largely by repricing of mortgages and higher margins, which sent shares up 7.5% to $12.10 on the improved margin outlook as benefits from the repricing of the bank's mortgage flow through to profits.
- Gold dropped by half a percentage point on Monday, retreating from two-month highs under pressure from a strengthening dollar and a slight easing of tensions between the United States and North Korea. Though North Korea's Liberation Day celebration on Tuesday could raise the temperature again, markets were relieved that the weekend passed without more inflammatory rhetoric. Spot gold fell 0.55% to $1,281.75 an ounce, having reached its highest since June 7 at $1,291.86 in the previous session. US gold futures for December delivery settled at $1,290.40 per ounce.
- Elsewhere, the dollar rose from last week's four-month lows against the yen and traded up against a currency basket, making dollar-priced gold costlier for non-US investors.
- Consumer prices in the United States rose less than expected in July, data showed on Friday, suggesting benign inflation that could persuade a cautious US Federal Reserve to delay raising US interest rates until December. Gold stocks in Toronto edged lower again overnight shedding 0.86% on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil tumbled by the most in more than five weeks as fears of falling oil demand in China overshadowed news that Libya’s crude supply was disrupted. Futures fell 2.5% in New York. China’s oil refining dropped the most in three years in July, while crude output retreated from the highest this year. Libya’s biggest oil field, Sharara, cut output by more than 30% because of security threats, a person familiar with the matter said. Meanwhile, the dollar strengthened, eroding the lure of commodities as a store of value. Oil has lingered below $50 a barrel in New York this month as investors weigh rising global supply against output curbs from the Organization of Petroleum Exporting Countries and its allies. Data on China’s sliding refinery runs are stoking fears that the world’s second-largest oil consumer will taper its appetite. In the US, producers keep drilling for more oil, with the number of active rigs at its highest since April 2015 and the Energy Information Administration forecasting crude output at major shale plays reaching an all-time high of 6.15 million barrels a day in September. West Texas Intermediate for September delivery fell $1.23 to settle at $47.59 a barrel on the New York Mercantile Exchange, the lowest level in three weeks. Total volume traded was about 3% above the 100-day average. Brent for October settlement declined $1.37 to end the session at $50.73 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $3 to October WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- The mixed economic data from China seemed to weigh on the steel and iron ore sector. In particular, weak data from the housing sector played to concerns of weaker demand ahead for industrial metals. According to Bloomberg data, the value of new homes rose only 4.3% y/y in July, the smallest increase since March 2015. Growth in real estate investment also fell, down to 7.9% y/y in July as weaker sales growth dented developers’ confidence. This saw steel and iron ore futures fall sharply in China. Steel rebar fell as much as 2% while hot rolled coil was down over 1.6%. Spot iron ore shed 0.6% or $0.48 to close at $74.71. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Benchmark copper ended 0.2% down at $US6397 a tonne. Prices hit their highest in more than two and a half years on August 9 at $US6515 and are up almost 8% this quarter. Hedge funds and money managers lifted their net long position in copper futures and options to a record level, US Commodity Futures Trading Commission data showed on Friday. Lead ended 0.3% higher at $US2335, tin was barely changed at $US20,300, zinc rose 0.7% to $US2917 and nickel ceded 2% to $US10,450. Benchmark aluminium on the London Metal Exchange ended 0.9% lower at $US2023 a tonne, having reached its highest since November 2014 at $US2048 on Friday. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- ANZ Bank (ANZ): NIne-month trading update; NOTE: FY16 unaudited 9-month cash profit A$5.2bn
- BHP Billiton (BHP): Escondida gets environmental approval for $1m project
- Challenger (CGF): FY results expected; NOTE: FY17 adj. net income est. A$392.8m (12 analysts); MS&AD to buy 6% stake in Challenger for $401m: Nikkei
- Charter Hall Retail REIT (CQR): FY results expected; NOTE: FY17 FFO/share A$0.306 (5 analysts)
- Commonwealth Bank of Australia (CBA): Australia bank lobby head says CBA scandal hurts entire industry
- Flexigroup (FXL): FY results expected; NOTE: FY17 adj. net income est. A$91.3m (6 analysts)
- GPT (GPT): 1H results expected; NOTE: Co. in Feb. forecast FFO/share +2% y/y
- Newcrest Mining (NCM): Bonikro under review as M&A team seeks out deals
- Telstra (TLS): Dividends in focus as sales may miss target: BI FY Preview
- Transurban (TCL): May team with AustralianSuper to bid for WestConnex project: AFR
Broker upgrades and downgrades
- Ansell (ANN): Raised to add at Morgans Financial, PT A$23.66
- Vita Group (VTG): Raised to buy at Canaccord, PT A$2.09
- Bendigo & Adelaide Bank (BEN): Raised to neutral at Credit Suisse
Tuesday: Orora Ltd, Challenger Ltd/Australia, GPT Group/The, ANZ (TRADING UPDATE)
Wednesday: Westfield Corp, SEEK Ltd, Stockland, Fletcher Building Ltd, Vicinity Centres, Origin Energy Ltd, Dexus, CSL Ltd, Pact Group Holdings Ltd, Iluka Resources Ltd, Fairfax Media Ltd, Aveo Group, Computershare Ltd, Sonic Healthcare Ltd, Woodside Petroleum Ltd, Domino's Pizza Enterprises Ltd, G8 Education Ltd, InvoCare Ltd
Thursday: Telstra Corp Ltd, Viva Energy REIT, QBE Insurance Group Ltd, IPH Ltd, IRESS Ltd, Wesfarmers Ltd, Evolution Mining Ltd, Adelaide Brighton Ltd, Tatts Group Ltd, Treasury Wine Estates Ltd, Mirvac Group, Whitehaven Coal Ltd, ASX Ltd, Nanosonics Ltd, ARB Corp Ltd
Friday: Mantra Group Ltd, Sydney Airport, Mineral Resources Ltd, Charter Hall Retail REIT, Primary Health Care Ltd, Spark New Zealand Ltd
JP225 & MQG
JP225 appears to have found a solid support level at the 200-day moving average, which also coincides with the 50% retracement (Apr 17's low 18,192 and Jun 17's high 20,317). In the anticipation of a relief rally, we would favour adding bullish exposure towards the previous uptrend near 19,815 as long as the recent swing low of 19,306 holds.
Macquarie group (MQG) is looking to push higher as it managed to maintain prices above 85 where uptrend (from 2016's low of 58.28 ) meets downtrend (from 2017's high 96.37). The last two trading sessions’ price actions signal buyers are returning and upward momentum is growing as MQG has been closing near intraday highs.
Source all charts: Saxo Bank. Create your own 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
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