Article / 15 November 2016 at 23:57 GMT

Today's Trade: ASX200 up early despite metals drop

Trading Desk / Saxo Capital Markets
Australia
  • A drop in metals prices failed to stop an early rise in the ASX200
  • The US election fallout eased on financial markets
  • Treasuries and emerging markets halted their slide, and stocks jumped
  • Gold rose as the USD fell for the first time since last week’s presidential election
  • Oil surged the most in seven months on renewed signs of a deal to cut output

By Saxo Capital Markets (Australia)

Overnight and early trade

Gains in the banks and energy were able to offset falls in miners after a metals plunge overnight and the ASX200 was up 18 points, or 0.3%, at 5344 at the open.

The fallout from Donald Trump’s election to the US presidency eased off in financial markets with Treasuries and emerging markets halting their slide. Stocks jumped with crude.

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 The initial fallout from Donald Trump’s election win eased off in financial markets. Photo: iStock
     
US Treasury 10-year note yields fell from this year’s high and Italy’s bonds outperformed German bunds, which investors tend to favour in times of turmoil. The Dow Jones Industrial Average climbed to a record and shares in developing nations rallied after a four-day slump. The dollar advanced to a five-month high against the yen, and Mexico’s peso led gains among major currencies. Oil surged the most in seven months as Opec members were said to be making a final diplomatic push toward securing a deal to cut output.
     
Trump’s election victory, which came with pledges to cut taxes, spend more than $500bn on infrastructure and restrict imports, triggered a record selloff in global bonds as traders assessed the implication for inflation and interest rates.
     
The yield on benchmark Treasury 10-year notes dropped three basis points, or 0.03%, to 2.23%. The 41 basis-point jump over the last three trading sessions marked the steepest climb in more than seven years and the 14-day relative strength index for the securities indicated they were the most oversold since 1990, a potential signal that they may be set for a reversal.
     
Federal Reserve Bank of Richmond President Jeffrey Lacker said on Monday that easier fiscal policy may require higher rates, but it’s too early for the central bank to react to potential policy changes by the incoming administration.
     
Italy’s 10-year yield slid 12 basis points to 1.96%, after rising for five consecutive days, and that on Spanish securities with a similar due date dropped to 1.45%, from as high as 1.66% on Monday. German bund yields were little changed at 0.31%, as a report showed growth in Europe’s biggest economy slowed to the weakest pace in a year last quarter.
     
Indian bonds rallied on expectations liquidity would improve in the wake of Prime Minister Narendra Modi’s surprise November 8 crackdown on unaccounted wealth through the withdrawal of high-denomination bills. Japan’s 10-year bond yield increased to zero, having been negative for almost eight weeks, as a gauge of demand weakened at a sale of five-year securities on Tuesday.
     
A broad index of the greenback fluctuated after a four-day rally, its longest in a month, as US retail sales figures were stronger than forecast, while Federal Reserve Bank of Boston President Eric Rosengren said the central bank would tighten monetary policy faster with more fiscal stimulus. The president-elect’s proposals to increase spending and cut taxes are fueling bets economic growth will accelerate and push the US Federal Reserve to raise interest rates.
     
The greenback rose 0.8% to 109.23 yen. The pound fell for a second day versus the dollar as a report showed UK inflation unexpectedly slowed in October. Bank of England Governor Mark Carney told lawmakers that sterling weakness was due to the outlook for slower growth.
     
The MSCI Emerging Markets Currency Index rose 0.4% as Mexico’s peso and South Africa’s rand rallied more than 1.8%. China’s yuan slipped to its weakest level since 2008.
     
Iron ore slid 9% in Singapore, extending the last session’s retreat from a two-year high. The price soared by a record 27% last week, driven by speculative interest in China and optimism Trump’s policies would boost steel demand.
     
Copper pulled back from near a one-year high, while gold rebounded from a five-month low. It slid 4.4% over the last three days as the dollar strengthened.
     
Crude oil rose 5.8% to $45.81 a barrel. Qatar, Algeria and Venezuela are leading the effort to finalize a deal, a delegate familiar with the talks said.
     
The S&P 500 Index rose 0.8% to 2,180.39, after edging lower on Monday for a second straight decline. The Dow Average advanced for a seventh straight day, while the Nasdaq Composite Index rallied 1.1%. The VIX slid significantly by 7.67% to 13.37.
     
As central bankers look for signs of stronger growth, a report today showed sales at retailers rose more than forecast last month in a broad advance after an even stronger September than initially estimated, marking the biggest back-to-back increase since 2014. A separate reading on November manufacturing in the New York region unexpectedly rose.
   
The Stoxx Europe 600 Index rose 0.3%. It has swung between intraday gains and losses for six sessions, matching a streak last seen in August, and has struggled to break out of a trading range of about 20 points since July.

Source: Bloomberg, TradingFloor.com

Local markets

  • Bank of New York Australia ADR Index down 2.3%, the most since October 11, BHP Billiton ADR down 3.3%, the most since Sept. 13, to A$24.15 equivalent, 1.6% discount to last Sydney close, Rio Tinto ADR down 4.1%, most since Sept. 13, to A$50.40 equivalent, ~15% discount to last Sydney close.
  • Gold snapped its biggest three-day drop in more than a year amid signs that prices fell too far, too fast and as the dollar weakened. Bullion’s 4.4% slump in the previous three days pushed its 14-day relative-strength index below 30, signaling to some traders and analysts that prices were oversold. The metal also rose on Tuesday as the dollar fell for the first time since last week’s US presidential election, Treasury yields dropped from this year’s high and base metals slipped. After initially jumping on haven demand following Donald Trump’s surprise election win, gold then plunged as the president-elect’s pledge to cut taxes and boost infrastructure spending sent the dollar and industrial metals higher. Because those plans may lead to faster growth, traders are almost certain that the Federal Reserve will raise US interest rates next month, curbing the appeal of owning gold, which doesn’t provide any yield. Bullion for immediate delivery rose 0.1% to $1,223.08 an ounce at 1:54 pm in New York, according to Bloomberg generic pricing. It reached the lowest since June on Monday. Gold futures for December delivery gained 0.2% to settle at $1,224.50. Trump's victory defied most poll-based forecasts for gold to climb and hedge funds were among those caught on the wrong end of the election result. Fund managers increased their net long position in gold by 2.2% in the week ended November 8, just before prices dropped, US government data show. Holdings in gold-backed exchange-traded funds fell 4.88 metric tons to 1,966.3 tons as of Monday, capping the biggest three-day drop in more than three years, data compiled by Bloomberg show. Goldies in Toronto soared 4.23% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil surged the most in seven months as Opec members were said to be making a final diplomatic push toward securing a deal to cut output. West Texas Intermediate oil rose 5.8% on Tuesday, rebounding from an eight-week low. Qatar, Algeria and Venezuela are leading the effort to finalise a deal, a delegate familiar with the talks said. Speculators raised short positions, or bets on lower prices, by the most in more than four years in the week ended November 8, Commodity Futures Trading Commission data show. WTI for December delivery rose $2.49 to settle at $45.81 a barrel on the New York Mercantile Exchange. Prices dropped 9 cents to $43.32 on Monday, the lowest close since Sept. 19. Contango, the structure in which prices for delivery today are lower than those in future months, is narrowing. A weakening may signal stronger near-term demand or tighter supply. The December WTI discount to futures for the next five months shrunk on Tuesday. Brent for January settlement increased $2.52, or 5.7%, to $46.95 a barrel on the London-based ICE Futures Europe exchange. The contract fell to $44.43 on Monday, the lowest close since August 10. The global benchmark closed at a 56 cent premium to WTI for January delivery. Iran is considering a proposal to freeze oil production near the level the nation says it currently pumps -- almost 4 million barrels a day -- rather than Opec’s estimate of about 3.7m, the delegate said. Opec pledged at a September meeting in Algiers to bring its total output down to a range of 32.5m to 33m barrels a day, which compares with output of 33.6m last month. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Copper prices fell on Tuesday as analysts cautioned the market was due for a correction after a dramatic rally stoked by Donald Trump’s election. Copper for December delivery closed down 0.6% at $2.5050 a pound on Comex whilst copper for delivery in three months closed down 0.6% at $5,525 a metric ton on the London Metal Exchange. Prices for the metal are up more than 19% from their October lows, driven by expectations of increased US infrastructure spending under a new administration and a steadier economic outlook for China. Speculative interest in China has been a big driver of the rally. In the four trading days through Monday, copper prices on the LME peaked between 10:30am and 6pm Shanghai time, and declined during London and New York hours. On Tuesday, while metals rose during Asian trading hours, the gains reversed as the London trading day began. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Iron ore prices tumbled for a second day as buying in the physical market dried up after prices surged over 20% over the past week. Loses were even greater in futures markets, with losses of over 10% in Singapore and China. Spot iron ore settled down 6.5% to $US72.68 a tonne. The retreat in copper and iron ore prices hit mining stocks. The Bloomberg World Iron/Steel Index fell for the first time in nine sessions, with AK Steel Holding Corp. among the worst performers. Teck Resources Ltd. and Freeport-McMoRan Inc. also declined as a gauge of base-metal producers slid. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Aveo Group (AOG): Annual meeting scheduled; NOTE: Co. in August forecast FY17 adj. EPS A$0.183, FY18 EPS growth 7.5%
  • Bendigo & Adelaide (BEN): Sells A$400m of February 2020 notes
  • BHP Billiton (BHP): Said to seek Samarco restructure as Vale wants more time
  • Brambles (BXB): Annual meeting scheduled; NOTE: Co. in October affirmed FY17 underlying profit guidance $1.055bn-$1.075bn constant FX terms
  • CSL (CSL): Heart drug found safe with more trials needed on benefits
  • Duet Group (DUE): Annual meeting scheduled; NOTE: Co. in August forecast FY17 distribution A$0.185
  • DuluxGroup (DLX), Tamawood (TWD): Trades ex-div.
  • Fonterra (FSF): Whole milk powder avg. price rises to $3,423/t
  • Graincorp (GNC): FY results scheduled; NOTE: Adj. net income est. A$47.8m (9 analysts)
  • IPH (IPH): Annual meeting scheduled; NOTE: Co. in August forecast Australia, Asia growth in line with underlying market trends
  • Medibio (MEB): In halt pending major capital raising announcement
  • Navitas (NVT): Annual meeting scheduled; NOTE: Co. in August forecast FY17 Ebitda broadly in line with FY16
  • Pact Group (PGH): Annual meeting scheduled; NOTE: Co. in August forecast rev., adj. profit rising in FY17
  • Paladin Energy (PDN): Q1 sales $15.1m; says uranium turnaround imminent
  • Rio Tinto (RIO): To halt some iron ore mining for first time since 2008
  • Thorn Group (TGA): 1H net A$15.2m, down 1.4% y/y
  • Wesfarmers (WES): Said to start $1.5bn Australia coal mine sale

Broker upgrades and downgrades

  • Charter Hall Retail (CQR): Raised to neutral vs sell at UBS
  • Mirvac (MGR): Cut to underweight vs overweight at Morgan Stanley
  • Newcrest (NCM): Rated new sector outperform at CIBC
  • OFX (OFX): Rated new buy at APP Securities
  • OZ Minerals (OZL): Raised to buy vs neutral at UBS

Australian releases due this week

Wednesday:
AGM: Aveo Group, IPH Ltd, DUET Group, Pact Group Holdings Ltd, Navitas Ltd, Brambles Ltd, Earnings: GrainCorp Ltd
Thursday:
Investor Day: Telstra
AGM: Sonic Healthcare Ltd, ResMed Inc, Mirvac Group, Platinum Asset Management Ltd, Goodman Group, Seven Group Holdings Ltd, iSentia Group Ltd, Gateway Lifestyle, BHP Billiton Ltd, Mantra Group Ltd, Mineral Resources Ltd, Infigen Energy, Costa Group Holdings Ltd, James Hardie Industries PLC, ResMed Inc
Friday:
AGM: Altium Ltd, Link Administration Holdings Ltd, Vicinity Centres, Myer Holdings Ltd, Regis Resources Ltd, Automotive Holdings Group Ltd, Independence Group NL, Sydney Airport
Earnings: James Hardie Industries PLC, AusNet Services

Stock to watch

Bluescope steel (BSL.xasx) fell short of $9.35 in August of this year but after finding support above the previous resistance line, it has made another attempt to test $9.35 yesterday and failed again. $9.35 acted as a previous triple bottom during 2009-2011, therefore this level seems to have become a solid resistance level now as a shooting star pattern appears to have formed yesterday. We see a shorting opportunity on the open with a stop above 9.58 which is a 50% retracement between Jul 09 high 17.69 and 2012 low 1.47. Furthermore declining weekly RSI also supports our bearish bias on BSL.xasx.

 Bluescope weekly chart
1
 
 Bluescope daily chart
2
 

AU 10-year bond and gold

While the US 10-year treasury bond (ZN) continues to remain under selling pressure, the AU 10 years bond (XT) found a triple bottom at 97.30, which has been acting as a solid support level since March this year. The uptrend (from July 15's low) was broken on Monday night but the price rebounded immediately. 97.30 is expected to exist as a key support level and we believe XT is trading at an oversold territory.

AU 10-year bond daily chart
3
 
The support level of 1,211 seems to be valid as gold (XAUUSD) is making some recovery despite a strong US 10-year bond yield and US dollar. The recent rally from the bond yield has been aggressive so we are cautiously anticipating some pullback ahead of upcoming US CPI data towards the end of the week. The support area of gold remains unchanged at 1,200-1,211 and resistance would be at the previous support level of 1,250. We maintain our bullish exposure as long as 1,200 holds up the prices.

XAUUSD daily chart
4
Source charts: Saxo Bank. Create your own charts with SaxoTrader. Click here for more
 
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.


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