Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 09 September 2016 at 0:36 GMT

Today's Trade: ASX200 lower on ECB disappointment

Trading Desk / Saxo Capital Markets
  • Local markets opened lower; the ASX200 was down 1% at the start 
  • The euro strengthened after the ECB downplayed the need for more stimulus
  • Oil jumped after the biggest drawdown in US crude inventories in 17 years

By Saxo Capital Markets (Australia)

Overnight and early trading

Local markets opened weaker than expected after the European Central Bank provided no insight on policy. At the start the ASX200 was down 1% at 5340 led by the big banks. BHP found support on the higher oil prices and was trading 0.9% higher at the open.

 Oil is heading for the first weekly gain in three weeks after US stockpiles slumped by
the most in 17 years. Photo: iStock

  • Bonds declined with stocks while the euro strengthened after the ECB downplayed the need for more economic stimulus. The ECB signal spurred a slide in debt prices around the world, with yields on Treasuries and German bunds due in 30 years climbing the most in more than a month. 
  • Global equities halted a five-day advance, exporters led European shares lower while the S&P 500 Index retreated from near record highs. The euro rose against all but one of its 16 major peers. Oil jumped after data showing the biggest drawdown in US crude inventories in 17 years.
  • Traders were taken aback by ECB President Mario Draghi’s signals that the ECB is in no rush to boost its asset purchases at a time of mounting concern over a Eurozone recovery after the UK’s secession. Stimulus measures by Europe and Japan have hampered the Federal Reserve’s efforts to raise rates after liftoff from near zero in December.
  • In the US, where policymakers are watching for consistent signs of strength in the labour market before raising interest rates, filings for unemployment benefits unexpectedly dropped to the lowest level in seven weeks.
  • Europe’s benchmark sovereign securities extended losses after Draghi’s announcement. German 30-year bund yields jumped nine basis points, or 0.09 of a percentage point, to 0.51%. The yield on 10-year Spanish bonds increased six basis points to 0.99%, after earlier falling to a record-low 0.90%.
  • A gauge of the Treasury yield curve widened to the steepest in three weeks as the ECB’s move was seen crimping overseas demand for longer-dated debt, which offers some of the highest sovereign yields. Treasury 30-year bond yields rose seven basis points to 2.30% in New York.
  • The euro added 0.2% to $1.1256, the highest level since August 25, on a closing basis. The Stoxx Europe 600 Index fell 0.3% as the euro advance hurt prospects for profits of the region’s exporters. Daimler AG and BMW AG dragged Germany’s Dax Index lower a day after it became the first major euro-area equity gauge to recoup its losses for the year.
  • The S&P 500 Index fell 0.2%, after closing little changed on Wednesday. Apple was the biggest drag on the gauge, falling the most in two months, a day after the introduction of its latest iPhone. Tractor Supply tumbled 17%, the biggest drop in 16 years after cutting its profit outlook. Energy producers rallied with crude.
  • West Texas Intermediate for October delivery rose $2.12, or 4.7%, to $47.62/barrel on the New York Mercantile Exchange. It was the biggest gain since April. Crude inventories fell 14.5 million barrels last week, according to the Energy Information Administration. That was the biggest drop since January 1999. A 905,000-barrel gain was projected by analysts surveyed by Bloomberg before the release. 
  • Tropical Storm Hermine moved into the Gulf of Mexico on August 28, disrupting shipping and output before moving northeast. Imports tumbled 1.85 million barrels.

Source: Bloomberg,

Key earnings

  • FridayAltura Mining, Stavely Minerals, Rex Minerals

Local markets and commodities

  • Bank of New York Australia ADR Index little changed, BHP Billiton ADR +0.6% to $A20.43 equivalent, 0.8% premium to last Sydney close, Rio Tinto ADR +1.4% to $A41.18 equivalent, 14% discount to last Sydney close
  • Gold prices fell on Thursday after the US dollar strengthened and the European Central Bank left interest rates unchanged. Gold for December delivery settled down 0.6% at $1,341.60/troy ounce on the Comex division of the New York Mercantile Exchange, reversing course after trading as high as $1,352.50 earlier in the session. The drop marked the second consecutive day of losses for the precious metal. 
  • Gold has rallied 27% this year as the Federal Reserve held off on raising US borrowing costs and central banks including the ECB boosted stimulus to support growth. While signs of cracks in the US economy pushed gold futures to a two-week high on Wednesday, uncertainty on the path of easing in the euro area helped sap momentum. Gold stocks in Toronto dropped 1.92% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil headed for the first weekly gain in three weeks after US stockpiles slumped by the most in 17 years. US crude oil for October delivery settled $2.12, or 4.66%, higher at to $47.62 on the New York Mercantile Exchange. 
  • Brent, the global benchmark, rose $2.01, or 4.19%, to $49.99/barrel for November delivery on ICE Futures Europe, and briefly burst back above $50/barrel. Crude inventories fell 14.5 million barrels last week, the biggest drop since January 1999, according to the Energy Information Administration.
  • Imports tumbled 1.85 million barrels. Crude oil prices have swung higher this week, rising 10.33% in the past four sessions. But they have still struggled to break out of the $40 to $50 range in which they have been moving in recent weeks, amid uncertainty over whether the world’s major oil producers will take steps to curb output when they meet later this month. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore is continuing its fall, down another $0.32 or just over 0.5% overnight to $58.14. A contraction in Chinese steel demand hasn't slowed iron-ore shipments from Brazil, which make up about 25% of the global iron ore seaborne trade and about 15% of China's imports. 
  • Brazil's iron ore exports surged to 34.5 million tonnes in August, the most in 2016 and up 27% from a year earlier. The amount shipped during the first eight months jumped 5.7% from last year. The increase could pressure iron ore prices, which have declined 6.1% since August 1. 
  • Meanwhile we continue to ramp up output as mining companies compete to be the lowest-cost supplier. Shipments in May rose 4% sequentially to 68 million tonnes, the highest since September. That brought exports in 2016 to 321.2 million tonnes, up 6.3% from a year earlier. Our exports to China, more than 80% of the total, advanced 7.1% in May as steel production rose 1.8% in the month. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper hovered just below a two-week high, supported by a fall in inventories and a softer US dollar, though lower imports into China last month kept prices in check. Inventories in London Metal Exchange warehouses fell for the first time in three weeks, signalling returning demand after the slower summer months. 
  • LME copper stocks fell 1375 tonnes to 339,600 tonnes, the latest data showed, but remained around the highest in almost a year. London Metal Exchange copper closed up 0.3% at $4664 a tonne, after nudging to its highest in two weeks to $4688.50. 
  • Best-performing nickel rose to its highest in three weeks at $10,370/tonne, and was up 1.3% at $10,340 at close. Tin closed up 0.1% at $19,575/tonne, trading $95 shy of its highest since January 2015 hit earlier this week. The premium of nearby tin futures over the LME benchmark has spiked to the highest in almost a year after one investor amassed up to half of the remaining LME inventories. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • First profit target reached over OZL.xasx short
  • AGL Energy (AGL): Policy steps needed to close old coal plants: BNE
  • Austal (ASB): US Navy to refocus training, crew rotations of Littoral ships
  • BHP Billiton (BHP), Whitehaven (WHC), Wesfarmers (WES): Surprise surge in coal prices a windfall for miners; BHP cools on coal price outlook as metallurgical surges on China. Australian premium hard coking coal reached $173.40/ton yesterday, the highest in Bloomberg data going back to 2013. The majority of sales are based on quarterly contracts, which were set about 88% below the current spot price. Producers should now be better placed to negotiate higher prices for fourth-quarter contracts.
  • Trades ex-div.: Bluescope (BSL), ERM Power (EPW), Retail Food Group (RFG), Sandfire Resources (SFR), Shine Corporate (SHJ)
  • CC-Amatil (CL): Peer Asahi seeks to cut 30bn yen from costs: Nikkei
  • Cooper Energy (COE): Says Sole to produce 25 PJ per annum gross of gas
  • Qantas (QAN): Babcock gets contract to support Qantas across Australia
  • Santos (STO): Could reap $2.7bn windfall from PNG LNG sale: Macquarie
  • Woodside (WPL): Sells $800mln, 10-year notes

Broker upgrades and downgrades

  • Charter Hall Retail (CQR): Raised to buy vs neutral at Goldman Sachs
  • GPT Group (GPT): Raised to neutral vs sell at Goldman Sachs
  • NIB Holdings (NHF): Raised to buy vs hold at Bell Potter
  • Sigma Pharma (SIP): Raised to neutral vs sell at Goldman Sachs; Raised to buy vs neutral at UBS

Stocks to watch: Bega Cheese (BGA.xasx)

Since Bega Cheese (BGA.xasx) broke above the key resistance level 5.40 back in October last year, 5.40 became a huge support level. The 50% retracement between the record high 8.13 and the breakout level 5.40 became a recent resistance level at 6.83. A breakout below the uptrend (from the July low) and the 200DMA could signal a further decline towards 5.40.
Bega Cheese monthly
 Source: Saxo Bank

AUS200.i and  AUDUSD

AUS200 looked weak yesterday afternoon but it found support level at the last Friday low of 5,353, although AUS200 extended the losses below this level in the SYCOM. US500 sold into the close despite the massive rally from crude oil, therefore further weakness may exist today for AUS200.
AUS200 monthly
Source: Saxo Bank
AUDUSD broke above the 0.77 handle but failed to test the August high of 0.7755 as the US dollar rebounded. The major resistance levels remain strong between 0.77-0.7755 where we would look to sell. Today’s focus is on the Chinese CPI and PPI at 1130 AEST.

AUDUSD monthly  
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more 

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

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call. Watch us on Periscope: #SaxoStratsAPAC. Follow us on


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