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27 September 2016 at 0:35 GMT
Today's Trade: ASX200 slides ahead of Clinton-Trump debate
- Traders and investors are braced for the first US presidential debate
- Treasury yields decline most in almost three weeks
- AUDUSD recovers on the back of USD weakness
- Oil surges on Saudi offer to cut output
By Saxo Capital Markets (Australia)
- Aussie shares slide below 5,400 at the open, ahead of the first US presidential debate between Hillary Clinton and Donald Trump at 1100 Sydney time.
- Traders bracing for a heated US presidential debate today had another element to contend with – a sell-off in global banks.
- Equities wiped out their monthly advance as Deutsche Bank AG tumbled to a record low on speculation Germany’s largest lender will need to raise capital. Treasury yields declined the most in almost three weeks, while the yen led gains among major peers. Emerging-market shares slumped after Turkey’s credit rating was cut to junk by Moody’s Investors Service. Oil surged as Saudi Arabia’s offer to cut output opened the door to a future Opec deal.
- Investors piled into safer assets as Deutsche Bank’s plunge spurred a rout in global financial companies on concern the lender is struggling with tougher capital standards, negative interest rates and soaring legal bills.
- Haven assets were also in demand as traders awaited the first of three US presidential debates ahead of the November 8 election amid a Bloomberg poll showing Donald Trump and Hillary Clinton were deadlocked. Citigroup, which last month said that victory for the Republican candidate could hit equities, warned on Monday that such an event could cause heightened volatility in both gold and currency markets.
- The debate, hosted by Hofstra University in New York, starts at 11am AEST. The Republican and Democratic nominees each won the support of 46% of likely voters in a head-to-head contest in the latest Bloomberg Politics national poll. Trump gets 43% to Clinton’s 41% when third-party candidates are included.
- The S&P 500 Index slipped 0.9% to 2,146.10, while the Stoxx Europe 600 Index dropped 1.6%, its biggest slide since early July.
- The VIX shot up 18% to 14.50.
- JPMorgan Chase, Bank of America and Wells Fargo led losses in US financial shares, while Deutsche Bank sank 7.5%. Chancellor Angela Merkel’s government sees “no grounds” for speculation over state funding for the lender, her chief spokesman said, pushing back against a magazine report that the German leader has ruled out any such aid.
- Futures on most Asian indices foreshadowed further losses, with contracts on Japan’s Nikkei 225 Stock Average dropping 1.8% in Chicago as the yen bounced. Futures on stock gauges in Australia and South Korea fell at least 0.5%, while those on Hong Konng’s Hang Seng Index gained 0.1%.
- Yields on 10-year Treasuries fell four basis points, or 0.04 percentage point, to 1.59%. Germany’s 10-year bund yields fell four basis points to minus 0.12%, extending a drop of nine basis points from last week. Yields on similar maturity Italian bonds retreated three basis points to 1.18%, while the rate on Spanish debt slid five basis points to 0.9%.
- Mario Draghi said euro area governments must act to stem rising public discontent, in his latest warning to politicians that the European Central Bank can’t sustain the region’s recovery alone. The central bank’s program to buy €80bn ($90 bn) a month of debt faces scarcity concerns and its negative interest rates have prompted criticism by banks and savers.
- The yen rose against all but one of its major peers, while the pound was little changed after more than three-quarters of chief executive officers in a KPMG survey said they’d consider moving operations outside the UK following the vote to leave the European Union.
- West Texas Intermediate crude rose 3.3% to $45.93 a barrel in New York after slumping 4% on Friday. Total volume traded was 11% below the 100-day average. Prices have averaged about $44.80 this quarter.
- While Saudi Arabia and Iran didn’t reach an agreement after two days of preparatory talks ahead of Wednesday’s gathering of producers in Algiers, the Saudis did offer to pump less crude if Iran caps output, according to two people familiar with the negotiations. The kingdom proposed to cut its production to January levels, Algerian Energy Minister Noureddine Boutarfa said Sunday.
Source: Bloomberg, TradingFloor.com
The debate, hosted by Hofstra University in New York, starts at 11am AEST. Photo: iStock
Local markets
- Bank of New York Australia ADR Index little changed, BHP Billiton ADR up 0.3% to A$21.37 equivalent, 0.8% discount to last Sydney close, Rio Tinto ADR down 0.7% to A$42.13 equivalent, 16% discount to last Sydney close
- Gold futures for December delivery rose 0.2% to settle at $1,344.10. Bullion’s 60-day volatility fell to the lowest since October 2014, while aggregate trading in futures was 38% below normal for this time. Gold stocks were down 0.5% in Toronto on Monday. Gold may be in for a bumpy ride in the final quarter as Republican candidate Donald Trump now has a 40% chance of winning the presidential election and investors will be preparing for the possibility of higher US interest rates, according to Citigroup Inc. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil advanced as Saudi Arabia’s offer to cut output opened the door to a future Opec deal, though the kingdom doesn’t expect an agreement when members of the group meet this week. While Saudi Arabia and Iran didn’t reach an agreement after two days of preparatory talks in Vienna, the Saudis did offer to pump less crude if Iran caps output, according to two people familiar with the negotiations. The kingdom proposed to cut its production to January levels, Algerian Energy Minister Noureddine Boutarfa said Sunday. West Texas Intermediate for November delivery rose $1.45 to close at $45.93 a barrel on the New York Mercantile Exchange. Brent for November settlement climbed $1.46, or 3.2%, to $47.35 a barrel on the London-based ICE Futures Europe exchange. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore for Jan. fell as much as 1.3% on Dalian Commodity Exchange to 408 yuan/ton in retreat from its best week since August. Spot iron ore closed pretty much flat for the day. The world’s two largest iron-ore exporters, Brazil and Australia, will each add about 100m metric tons of supply through the end of the decade, boosting a global glut and hurting prices in a slump that will then force marginal miners to cut output, according to Citigroup Inc. SGX AsiaClear futures point to lower prices, with the contract for October trading at $55.67 a ton, January’s at $50.60 and next September’s below $45. Miners’ shares were mixed in Sydney on Monday, with BHP closing 0.1% higher, Rio Tinto Group rising 0.6% and Fortescue Metals Group Ltd shed 0.2%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Nickel for delivery in three months fell 1.2% to settle at $10,530, retreating from its biggest weekly gain in almost three months, as Citigroup Inc. forecast fourth-quarter price declines and said the impact of supply disruptions from the Philippines will probably be “underwhelming”. The world’s top miner of nickel ore is shutting operations that fall short of environmental or welfare standards. Ten mines have been suspended so far and Environment Secretary Gina Lopez said last week more than ten additional suppliers face closure. Stockpiles of aluminium tracked by the LME fell 0.5% on Monday, the most since March. Citigroup called for “caution” on aluminium due to a pick-up in Chinese output. Copper retreated 0.3% to $4,841 a ton ($2.20 a pound) in London. Copper futures for December delivery slid 0.1% to $2.1985 a pound on the Comex in New York. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Bapcor (BAP): Offers NZ$3.30/share for Hellaby
- Cover-More (CVO): Agrees to buy Travelex Insurance Services for $105m; plans entitlement offer
- Monash IVF Group (MVF): Ironbridge said to sell stake, AFR says
- Origin Energy (ORG): Gets expressions of interest from Chinese suitors for its wind farm project
- Rio Tinto (RIO): Offers to buy back $3bn of bonds
- Labor says bank profits are too high: Labor is preparing a dossier on bad behaviour by banks, including fresh victim case studies, ahead of public hearings next week, says AFR
Broker upgrades and downgrades
- Fortescue Metals (FMG): Downgraded to underweight from equalweight at Morgan Stanley
- Newcrest Mining (NCM): Raised to buy from neutral at Goldman Sachs
Stock to watch
Transurban Group
We covered a long opportunity over TCL.xasx near 10.60 earlier this month and it appears to have received solid support at these levels and we are currently witnessing a reversal in the weakness seen since July/August. The next resistance/profit target levels would be 11.30 and 11.50 if the current retracements continue.
TCL daily chart
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more
AUS200, AUDUSD and USDJPY
AUS200 failed to push above the interim resistance level of 5,435 and sold off aggressively on the SYCOM open as the European session began. The US open wasn’t great either as it gapped down. The support level 5,400 of AUS200 was broken, therefore the downward momentum seems to be growing stronger. This sell-off looks like a profit taking given AUS200 enjoyed a nearly-300-point rally since mid-September. Ideal retracement levels would be 5,368 and 5,326.
AUS200 daily chart
The support level 0.76 handle held on as AUDUSD recovered some of the previous day’s losses on the back of weakness from the US dollar. The US dollar index (DX) is likely to remain stuck in the range between the uptrend and the 200-day moving average. The major focus today would be on the US presidential debate at 11am local time and the Fed vice chair Stanley Fischer's speech at 1:15am.
AUDUSD daily chart
USDJPY is forming a clear descending triangle pattern which usually indicates bearish outlook once we see a break out below the support level. In this case, the major breakout level would be 100, although there were a number of false breaks previously back in June and Aug. USDJPY may bounce off 100 for now but we are anticipating a proper breakout eventually.
USDJPY daily chart
Source: Saxo Bank
Today's Trade information 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. Watch the recording of this Week’s Macro Monday Call at 1030 AEST. Watch our daily morning call on Periscope at 9:45am: #SaxoStratsAPAC and follow us up on twitter.com/SaxoAustralia
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