Article / 04 February 2018 at 23:32 GMT

Today's Trade: ASX200 slumps on Wall St's sharp selloff

Trading Desk / Saxo Capital Markets
Australia
  • The S&PASX200 slumped in early trading, following Wall Street's sharp selloff
  • Equities are being tested by the surge in bond yields
  • Banks and miners did the heavy weighing; BHP was down 2.4% and CBA 1.1%
  • The 10-year Treasury yield popped above 2.85% for the first time since early 2014
  • The AUD tumbled to 0.7909, down from last week's high of more than 0.81

Overnight

  • The Dow Jones Industrial Average tumbled 666 points in the biggest plunge since June 2016, as the worsening bond rout stirred angst that the Federal Reserve will accelerate its rate-hike schedule. US stocks last week suffered their largest weekly drop in two years.
  • Solid jobs data that underscored the strength of the economy sent bond bulls scurrying and rattled equity investors who haven’t seen a week this bad in two years. The tandem selling accelerated after Dallas Fed President Robert Kaplan suggested officials may need to hike more than three times this year to cool the advance. The 10-year Treasury yield popped above 2.85% for the first time since January 2014.
  • There was nowhere to hide on the stock market, with all 11 S&P 500 sectors lower. The index’s five-day rout reached 3.9% – marking its first pullback of at least that much in a record 404 days. Energy shares sank 4.1% as earnings disappointed and crude slumped. The tech selloff worsened, sending the Nasdaq 100 Index lower by 2.1%. Its weekly rout hit 3.7%, the most since February 2006. Not even a record rally at Amazon.com could rescue the measure, as the world’s biggest company, Apple hit its lowest since October.
  • Volatility also vanished after the 2016 rout. The CBOE Volatility Index, known as Wall Street’s “fear” gauge, climbed more than 50% last week to its highest level since the 2016 US presidential election.
  • US hiring picked up in January and wages rose at the fastest annual pace since the recession ended, as the economy’s steady move toward full employment extended into 2018. Equities are being tested by the surge in bond yields, with some fund managers saying 3% US 10-year rates would signal a bond bear market. The level is seen by many stock-watchers as a potential trigger for a correction in equities.
  • In Europe, a bond selloff deepened across the continent, and equities dropped for a fifth straight day, the longest streak since November. Disappointing results from companies including Deutsche Bank AG and BT Group paced losses, with Germany’s Dax giving up the year’s gains, capping the worst weekly decline since 2016.
  • Bund yields reached a fresh two-year high, while the euro and British pound weakened. Japanese debt gained and the yen declined after the Bank of Japan intervened to stem the rise in rates.
  • In the currency market the US dollar erased losses for the week. The euro declined 0.4% to $1.2457. The British pound fell 1% to $1.4123. The Japanese yen fell 0.7% to 110.144 per dollar, the weakest since January 23.

Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC


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 BHP was down 2.4% at the start of trading today. Photo: Shutterstock


Local markets and commodities

  • Bank of New York Australia ADR Index is down 1.9% to 290.8, BHP Billiton ADRs are down 3.0%, most since June 20, to A$30.14 equivalent, a 2.2% discount to last Sydney close, Rio Tinto ADRs are down 3.9%, most since April 12, to A$68.66 equivalent, a 12.3% discount to last Sydney close
  • Gold prices declined on Friday as the US dollar ticked up against the euro after US jobs data showed a robust rise in jobs and wages and 10-year US Treasury yields peaked. Spot gold dropped 1.48% at $1,328.91/ounce, while US gold futures for April delivery settled down $10.60, or 0.8%, at $1,337.30. 
  • Gold ended the week 1.1% lower, after rising in six out of the last seven weeks and hitting its highest in 17 months last week at $1,366.07. Gold stocks in Toronto were hit hard on Friday shedding 3.0%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • After its best January since 2006, the oil market wrapped up the week on a slump as a stronger dollar and weaker stocks added to concerns over booming shale production. Futures slipped 0.5% in New York on Friday, with oil inversely tracking the US dollar and American equities headed for the worst week in two years. A stronger greenback reduces the appeal of raw materials as an investment. At the same time, worries over higher shale production added to the downward price momentum. 
  • Crude in New York lingers near $65/barrel, threatening to bring a flood of US shale to the market. West Texas Intermediate for March delivery dropped 35 cents to settle at $65.45/barrel on the New York Mercantile Exchange. Prices posted a 1% decline this week. Brent for April settlement fell $1.07 to end the session at $68.58/b. The global benchmark crude closed at a premium of $3.51 to April WTI, the smallest since August. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Bulks were stronger, as iron ore futures rallied strongly across Asia. Rumours of further curbs on steel mills in Hebei saw steel prices in China rise sharply, which ultimately dragged iron ore higher. Traders were also buoyed by the first fall in inventories at Chinese ports for over 10 weeks. 
  • According to Steelhome data, stockpiles fell by 0.4% to 152.6 million tonnes. Reports that China is close to allowing international investors to trade iron ore futures on the Dalian Exchange also seemed to help improve sentiment in the market. Despite the strength in the futures market spot iron ore was down 3.9% or $2.99 closing at $72.87. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Lead prices hit 6-1/2 year highs on Friday on worries about shortages after key Chinese mines shut for the winter. Lead pared gains and other industrial metals sunk into the red under pressure from a rebound in the dollar following strong US jobs data. Benchmark lead on the London Metal Exchange hit a peak of $2685/tonne, the strongest since July 29, 2011, before closing 0.6% firmer at $2680. 
  • Three-month LME copper shed 1% to finish at $7,045/tonne, retreating from the highest in a week at $7,188.50. Tin bucked the weaker trend and added 0.6% to finish the day at $21,530/tonne after LME on-warrant inventories - those not earmarked for delivery and therefore available to investors - slid 16% to 1155 tonnes, very close to the record low of 1125 tonnes seen in November 2016. 
  • LME aluminium fell 0.7% to close at $2210/tonne, zinc declined 1.6% to $3502 and nickel slid 4.1% $13,430. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • AWE (AWE AU): Asks China Energy For New Bid Statement Over Funding Concern
  • BHP (BHP AU): Iron Ore Exports From Top Miners Climb Over Week, Bernstein Says
  • Beach Energy (BPT AU): Moving up to 80 Jobs Adelaide to Post Lattice Deal
  • Commonwealth Bank (CBA AU): Said to Consider ~A$1.5bn of New Listed Hybrid: AFR
  • CSL (CSL AU): U.S. Peer Merck Full Year Sales Forecast 2.1% Above Estimates
  • Nine Entertainment (NEC AU), Seven West (SWM AU): Nine Tops Seven in 2017 Ad Market Share for First Time in 13 Years: SMH
  • QMS Media (QMS AU): Said to Be on Radar of Suitors: Australian
  • Rio Tinto (RIO AU): Goldman’s $85 Iron Forecast Sets Up Contest With Barclays Bears
  • Telstra (TLS AU): Telkom, Telstra Sign MOU to Form Delivery Centre in Indonesia

Broker upgrades and downgrades

  • Brickworks (BKW AU): Upgraded to Buy at Bell Potter; price target $A15.76
  • Elders (ELD AU): Downgraded to Sell at Wilsons; PT $A6.80
  • GPT Group (GPT AU): Downgraded to Neutral at UBS; PT $A5.20
  • GTN (GTN AU): Rated New Outperform at Credit Suisse; PT $A3
  • Harvey Norman (HVN AU): Cut to Underperform at Credit Suisse; PT $A4.03
  • Independence Group (IGO AU): Upgraded to Hold at Morningstar; PT $A3.90
  • Insurance Australia (IAG AU): Downgraded to Hold at Bell Potter; PT $A7.75
  • James Hardie (JHX AU): GDRs Cut to Neutral at Credit Suisse; PT $A24.75
  • Mirvac Group (MGR AU): Downgraded to Neutral at UBS; PT $A2.32
  • Premier Investments (PMV AU): Cut to Neutral at Credit Suisse; PT $A15.28
  • Primary Health (PRY AU): Downgraded to Hold at Morningstar

Scope for AUDJPY downside

AUDJPY appears to have formed an ascending wedge during the last two years, and the resistance level has remained at the ¥89 handle since October last year.

Last week’s close below ¥87.50 suggests a scope for a further downside moves in the near term to test the uptrend of the wedge while VIX spiked up close to 18 last Friday. We look to add bearish exposure with stops above ¥89.
 
 AUDJPY monthly
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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 Gayle Bryant

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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