Article / 19 March 2017 at 23:37 GMT

Today's Trade: ASX200 retreats on Wall St slide, trade policy worries

Trading Desk / Saxo Capital Markets
Australia
  • Russia’s energy minister says it’s too early to discuss extending crude output curbs
  • There are fears of rising protectionism after a G20 meeting failed to back free trade
  • Expectations of a slower pace of rate increases are weighing on the US dollar
  • Gold has made gains on weakness in the US dollar
  • Another weekly close above 0.77 could confirm that AUDUSD has bottomed out

By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX200 lost ground in early trading, taking its lead from a lower close on Wall Street on Friday. It was down 0.36% to 5,779.00 at 1021 AEST (2321 GMT on Sunday evening).    
  • Investors poured money into government bonds and dividend-paying stocks Friday, pushing major indexes to weekly gains.
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 Crude prices look fragile, after Saudi Arabia said it would like to extend oil output curbs, but Russia’s energy minister says it’s too early to discuss any extension. Photo: Shutterstock

  • The Dow Jones Industrial Average slipped 19.93 points, or 0.1%, to 20914.62 on Friday, while the S&P 500 fell 3.13 points, or 0.1%, to 2378.25, and the Nasdaq Composite added 0.24 point, or less than 0.01%, to 5901.00. U.S. stocks ended the week higher, with the Dow industrials up 0.1% and the S&P 500 gaining 0.2%.
  • Government bond prices and bond-like stocks got a boost after the Fed signaled that interest rates could stay low for longer than expected, even as officials continue to gradually nudge them higher.
  • Utilities stocks in the S&P 500 rose 0.6% on Friday, the best performers in the index, while the real-estate sector, which mainly includes real-estate investment trusts that distribute most of their income to shareholders, climbed 0.2%.
  • The two sectors, often considered bond proxies for their relatively high dividends, notched weekly gains of 1.3% and 1.7%, respectively.
  • This past week marked the 16th-consecutive week of inflows into exchange-traded funds that invest primarily in companies that dole out dividends, according to EPFR Global data through Wednesday. During that time, $6.9 billion have flowed into these funds.
  • The inflows come even as the Federal Reserve has raised interest rates twice and is on pace to raise rates an additional two times in 2017.
  • The yield on the 10-year U.S. Treasury note declined to 2.500% Friday, according to Tradeweb, compared with 2.526% on the previous day. Yields decline as prices move higher.
  • Leading up to the central bank meeting, many Fed officials spoke about how the case for raising rates had strengthened due to improving economic data. Their tone sparked worries among some investors that the central bank may be more aggressive and raise rates four times in 2017.
  • US-traded crude-oil prices added to weekly gains on Friday, rising less than 0.1% to $48.78/barrel. This past week they have gained back 0.6%, after falling more than 9% the prior week because of concerns about resilient output from the US and uncertainty over how much Opec will cut production.
  • The S&P 500 energy sector ended Friday slightly lower, but posted weekly gains of 0.3%, a slight bounceback from the prior week’s 2.6% loss, its worst since September.
  • Friday brought a surge of end-of-day volume as a host of futures and options contracts are set to expire at the close. The quarterly event, known as “quadruple witching,” signals the expiration of index futures, single-stock futures, index options and single-stock options, and can increase volatility in the market.
  • The dollar slipped on Friday, weighed down by investors’ expectations of a slower pace of interest-rate increases.
  • Stocks in Europe ended the week higher, with the Stoxx Europe 600 rising 1.4%. In Asia, the Shanghai Composite added 0.8% in the past week, while the Hang Seng Index gained 3.1%.
Source: Bloomberg, TradingFloor.com

Local markets
  • Bank of New York Australia ADR Index +0.6%, BHP Billiton ADR +0.7% to A$24.78 equivalent, 0.2% discount to last Sydney close, Rio Tinto ADR +0.2% to A$55.85 equivalent, ~11% discount to last Sydney close.
  • Gold rose on Friday and was on course for its first weekly gain since February as the dollar hit a five-week low following the Federal Reserve's cautious message on interest rates, making bullion cheaper for holders of non-U.S. currencies. The Fed raised U.S. rates on Wednesday as expected, but left its earlier forecast of three rate increases this year unchanged, disappointing some investors who had hoped for hints of a possible fourth hike in 2017. Spot gold advanced 0.26% at $1,229.56/oz. On Thursday the metal hit $1,233.13, its highest since March 6. US. gold futures for April delivery settled up $3.10 at $1,230.20. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil ended Friday little changed as Russia’s energy minister said it’s too early to discuss extending an output-reduction deal, reducing optimism a day after Saudi Arabia indicated that a rollover to the second half of the year is a near certainty. 
  • Saudi Arabia is ready to extend the cuts if supplies stay above the five-year average, Energy Minister Khalid Al-Falih said Thursday on Bloomberg Television. Russian Energy Minister Alexander Novak said that Opec and its partners should decide in late April or mid-May whether to continue curbs. Opec members exceeded their pledged cuts in February, two delegates said. West Texas Intermediate for April delivery rose 3 cents to settle at $48.78/barrel on the New York Mercantile Exchange, up 29 cents for the week. Total volume traded was about 33% below the 100-day average. Brent for May settlement advanced by 2 cents to end the session at $51.76/b on the London-based ICE Futures Europe exchange. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore spot prices dipped 27 cents to $92.34 however optimism on the outlook continued to improve following the recent release of better than expected economic data in China. There are also signs that the level of price gains is worrying authorities in China. The NDRC released a statement on Friday saying the recent increases in coal and steel prices are temporary and short term. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Three-month copper on the London Metal Exchange ended up 0.4% at $5,934 a tonne, charting a weekly gain of 3.5 per cent. Aluminium ended up 0.7% at $1,914.Russian aluminium giant Rusal forecast demand growing by 5% this year and a global market deficit widening to 1.1 million tonnes. Zinc ended up 1.95 at $2,882 on expectations the closure and suspensions of big mines will create shortages. Lead ended up 2.1% at $2,290 while nickel closed up 0.4% at $10,260. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • The world's biggest lithium producer will consider mergers and acquisitions on top of an expansion of its Australian lithium mine, as it seeks to supply what it believes will be strong growth in lithium-ion batteries over the next five years. US company Albemarle predicted over the weekend that demand for lithium-ion batteries would rise 8% per year for the next five years, fuelling demand for the soft, light metal that is sourced from hard rock spodumene in Australia and brine extraction in the Americas. Albemarle used the event to announce an expansion of the Greenbushes spodumene mine in Western Australia, which it owns in partnership with Chinese company Tianqi. Albemarle also said it would also consider growing its lithium footprint via mergers and acquisitions. Lithium companies: AJM, GXY, KDR, NMT, MIN, ORE, PLS.
  • Trading ex-dividend: Amaysim, Auckland Airport, Chorus, Costa Group, Link Admin, Spotless Group.
  • BHP Billiton (BHP) Considers Kelly, Hewson for role of Chairman: Sunday Times; BHP sweetens offer before meeting with striking Chile miners.
  • Fletcher Building (FBU): Sees FY17 Ebit $NZ610m-$NZ650mln vs prev. target. $NZ720mln-$NZ760mln; NOTE: FY17 Ebit est. $NZ739.7mln (11 analysts, range NZ$722mln-$NZ758mln): Bloomberg data.
  • Qantas (QAN): CEO Joyce, supporter of gay marriage, faulted by Aussie lawmaker.
  • Rio Tinto (RIO): CEO says key iron ore uncertainty is Chinese capacity: CNBC.
  • Slater & Gordon (SGH): Lenders sell ~$400m of Slater & Gordon debt in auctions.
  • Sydney Airport (SYD): Scheduled to release February traffic results.
  • Teranga Gold (TGZ): Reports fatality at Sabodala gold mine.

Companies going ex-dividend this week
  • Monday: AYS, AIA, CII, CNU, CGC, FFI, KSC, LPD, LNK, RNE, SHJ, SPO.
  • Tuesday: KME, PBP, WEB.
  • Wednesday: BBL, CGR, FLT, NCM, NST, ODY, OVR, PPC, SFL.
  • Thursday: AVJ, AGG, AWN, BPS, BEL, BYI, FBU, FRE, IPE, MXI, SDI, WPP, CAR.
  • Friday: MYR, SND, ABC, IMF, JHC, MAI, SEK.

Broker upgrades, downgrades
  • Sandfire Resources (SFR): Cut to sell at Morningstar.
  • Trade Me (TME): Raised to hold at Morningstar.

Stocks to watch: Brazilian equities

The Brazilian stock market has enjoyed a strong run since the start of 2016, snapping a six-year downtrend and trading towards all-time highs. Most recent news saw stocks fall sharply on Friday after a federal police inquiry into alleged bribery of food inspectors and politicians. JBS slumped 11% and BRF tumbled 7.3% at Friday’s close in Sao Paulo, the worst performers on Brazil’s benchmark stock index. 

The investigation has now widened beyond the borders of the world’s biggest beef and poultry producer outside of the US as trade partners begin their own probes to ensure the safety of imported meat. We interpret this weakness to be short term in nature and as an opportunity to enter into a strategic medium to long term long position targeting a minimum of a 30% upside move.

A quick look at the technicals: In late 2015, iShares MSCI Brazil Capped ETF (EWZ) formed a bullish RSI divergence and in the following year, recovered all of its losses from 2015. However upside was limited to the long term downtrend (from the 2008 high at 102.20) which also coincided with 200 weekly moving average. 

This year EWZ is looking strong again, as it has broken above the 2016 high at 38.50 and the long term downtrend looks to have been clearly breached. So the technical picture looks bullish and we are anticipating EWZ to have the potential to push a lot higher towards the projected resistance levels at 50 and 70. Ideally we would like to see the short term uptrend (from 2016 low of 17.30) to act as support level in the near term.

Brazilian equities
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AUDUSD gains ground

The weekly close of AUDUSD looks promising as it managed to settle above 0.77 handle last week for the first time since April 2016. 

Another weekly close above 0.77 could confirm AUDUSD has bottomed out.
 
AUDUSD trend
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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets

Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

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