Article / 31 May 2017 at 0:50 GMT

Today's Trade: ASX200 on track for woeful performance in May

Trading Desk / Saxo Capital Markets
Australia
  • The S&P 500 slips from an all-time high
  • Expectations dwindle for Trump deregulation and tax cuts
  • Amazon.com breaches $1,000 a share for the first time
  • Oil falls as the market awaits stronger signs Opec-led curbs are having an effect
  • UK poll shows Conservative position weakening ahead of election
  • ASX200 opens steady, heading towards worst month since January 2016 


By Saxo Capital Markets (Australia)

Overnight and early trade

The local market was largely steady at the open after US markets slipped. The ASX200 opened higher by just 0.07% and is on track for its worst monthly performance since January 2016.

Treasuries advanced while Asian equities were poised for a mixed opening after US Federal Reserve Governor Lael Brainard said soft inflation could cause her to reassess the monetary policy path. Futures on benchmark stock indices in Japan and Australia pointed to slight declines, after the S&P 500 slipped from an all-time high.

t
 A poll in Britain showed Prime Minister Theresa May's lead over the opposition Labour Party dropping ahead of the general election next week. Photo: Shutterstock

US stocks edged lower Tuesday, pressured by declines in banks and oil firms. Major indices traded in a tight range throughout the day, echoing Friday’s quiet session ahead of the long weekend.

US stocks overall have climbed with few large swings so far this year, bolstered by strength in corporate earnings and the US economy. Many investors say they are now trying to gauge how long favorable economic data and relatively low market volatility can last, especially as expectations dwindle for deregulation and tax cuts from the Trump administration.

The Dow Jones Industrial Average fell 50.81 points, or 0.2%, to 21029.47. The S&P 500 slipped 2.91 points, or 0.1%, to 2412.91 and the Nasdaq Composite edged down 7.00, or 0.1%, to 6203.19. The VIX rose 5.81% to 10.38.

Amazon.com breached $1,000 a share for the first time before paring gains to settle up 92 cents, or 0.1%, to $996.70. The firm’s shares, which are categorised as part of the S&P 500 consumer-discretionary sector but are often compared with technology stocks, have climbed 33% in 2017.

Energy was one of the worst-performing sectors in the S&P 500 on Tuesday, falling 1.3%. US crude for July delivery lost 0.3% to settle at $49.66 a barrel. Pipeline operator Kinder Morgan fell 83 cents, or 4.3%, to 18.42, Chesapeake Energy shed 19 cents, or 3.6%, to 5.10 and Devon Energy declined 1.33, or 3.7%, to 34.49.

Bank stocks retreated, with the KBW Nasdaq Bank index of leading US commercial lenders losing 1%.

Government bonds strengthened, with the yield on the 10-year US Treasury note falling to 2.217% from 2.248% on Friday. Yields fall as bond prices rise.

Moving forward, some money managers say they are concerned that a few sectors of the US economy — such as the auto industry — are flashing warning signs after years of solid performance.

Elsewhere, the Stoxx Europe 600 fell 0.2%, weighed by declines in the shares of banks.

Source: Bloomberg, TradingFloor.com

Local markets

  • Bank of New York Australia ADR Index little changed, BHP Billiton ADR up 0.4% to A$24.09 equivalent, 0.4% premium to last Sydney close, Rio Tinto ADR up 0.8% to A$55.33 equivalent, ~13% discount to last Sydney close
  • Gold steadied after setting a one-month high on Monday as rising political uncertainty in Europe stoked safe-haven demand. The metal benefited with the Japanese yen and US Treasuries from a risk-averse mood in global markets. Spot gold touched a one-month high of $1,270.47 before pulling back 0.27% to $1,262.91 per ounce. US gold futures slipped $5.70 to settle at $1,265.70 an ounce as the dollar picked up. Investors were concerned about next week's election in Britain, as well as the prospect of early elections in Italy and worries over Greek debt, which analysts said supported gold and dented stocks. A poll in Britain on Tuesday showed Prime Minister Theresa May's lead over the opposition Labour Party dropping to six percentage points ahead of the general election next week. Gold stocks in Toronto dropped 0.5% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil fell as the market awaits stronger signs that Opec-led production curbs, extended at a meeting last week, are having an effect. Opec and Russia’s deal to extend output limits through March was met with a selloff as it didn’t include deeper cuts, a plan for the rest of 2018 or a new ally. Saudi Arabia’s Energy Minister Khalid Al-Falih, who sought to reassure markets last week, saying stockpiles will drop faster in the third quarter, met Russian Energy Minister Alexander Novak in Moscow on Tuesday to discuss cooperation between the world’s two top oil exporters. West Texas Intermediate for July delivery settled 14 cents lower at $49.66 a barrel on the New York Mercantile Exchange on Tuesday. There was no settlement on Monday because of the US Memorial Day holiday. Brent for July settlement closed 45 cents lower at $51.84 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $2.18 to WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore prices were unchanged in Asia with Chinese traders out on holidays. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper edged lower in quiet trade ahead of data on Wednesday that is expected to show a slowdown in Chinese industrial growth. A weaker dollar helped London Metal Exchange copper recoup some of its early losses to finish down $US1.50 at $US5656 a tonne. Three-month aluminium ended down 1.3% at $US1926 a tonne. Zinc finished down 0.5% at $US2625 a tonne and lead fell 0.8% to $US2105. Tin ended up 0.1% at $US20,435 and nickel finished 0.4% higher at $US9115. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Orica (ORI): Trades ex-dividend
  • ANZ Bank (ANZ), Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC): Aussie bank levy will not have material impact, regulator says
  • Automotive Holdings (AHG), AP Eagers (APE), Scentre Group (SCG), Vicinity Centres (VCY), Westfield (WFD): Aussie consumers unhappiest since financial crisis hit retailers

Broker upgrades and downgrades

  • Henderson Group (HGGDA): New buy at UBS, PT $35.25; New market perform at KBW, PT $32
  • Myer Holdings (MYR): Raised to neutral at Credit Suisse, PT A$0.82
  • PSivida (PVA): Climbs in US after Rodman & Renshaw analyst Raghuram Selvaraju initiates coverage at buy
  • Super Retail (SUL): Raised to neutral at Credit Suisse, PT A$7.56
  • Seek (SEK): Cut to sell at Citi

Stocks to watch

Whilst Commonwealth Bank of Australia (CBA.xasx) reversed off a major 50% retracement level yesterday, National Australia Bank (NAB.xasx) and ANZ fell slightly short of this halfway retracement mark. Perhaps this is what the buyers have been waiting for as positive momentum continued into the close yesterday. The session test ahead is to continue with its gains: We watch for CBA.xasx to settle above the 200-day moving average.
 
CBA daily chart
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NAB daily chart
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 ANZ daily chart
3
 
GBPJPY & NZDUSD

Since the formation of a double top near 148 early this month, GBPJPY has been slumping massively and has now erased half of all the gains from the April rally. There is still scope for further decline towards the next support level of 140.40.
 
GBPJPY chart
4
 
NZDUSD is outperforming other commodity currencies as it has now climbed above the March high of 0.7090. The key resistance level remains at the 0.71 handle where the 200-day MA crosses 50% retracement (Feb high 0.7375 and May low 0.6817), although upside momentum cannot be ruled out.
 
NZDUSD chart
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Source: SaxoTrader. 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 Susan McDonald


Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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