Today's Trade: ASX200 up on tariff exemption hopes
- The ASX was slightly higher at the start; up 2 points to 5944
- The positive sentiment was on hopes Australia may gain a tariff exemption
- Oil prices resumed their slide overnight
- The ECB dropped a pledge to accelerate its bond purchases if warranted
By Saxo Capital Markets (Australia)
- US stocks rose Thursday, reversing declines from earlier in the session, after the White House said widely debated tariffs on metals imports would spare some key US allies.
- Major indices wobbled around the flatline for much of the day, then climbed in the final hour of trading, as the administration said it would take a narrower approach than initially suggested in imposing tariffs on steel and aluminium imports.
- Stocks came under pressure last week as investors worried that the tariffs – which the White House had said would be “strict” and not exclude any countries – could lead to retaliatory trade measures.
- Yet on Thursday, President Donald Trump suggested the administration would take a more flexible approach to the rollout – including exemptions for Canada and Mexico, and opening the way for other countries to negotiate tariff reductions.
- That concession, along with others the administration had hinted at earlier in the week, helped stocks regain some ground, with the Dow Jones Industrial Average adding 93.85 points, or 0.4%, to 24895.21 on Thursday. The blue-chip index is on track to post a weekly gain.
- The S&P 500 rose 12.17 points, or 0.4%, to 2738.97, while the Nasdaq Composite advanced 31.30 points, or 0.4%, to 7427.95 for its fifth consecutive gain.
- Still, investors say volatility, which spiked in February on concerns about rising inflation, will remain elevated as details about the trade plan continue to trickle out.
- A flurry of corporate news drove swings in individual stocks.
- Cigna shares fell $22.25, or 11%, to $172.00 after the health insurer said it planned to buy Express Scripts, a St. Louis-based pharmacy-benefits manager, for more than $50 billion. Express Scripts shares jumped $6.30, or 8.6%, to $79.72.
- Meanwhile, shares of Kroger – one of the largest supermarket chains in the US – tumbled $3.25, or 12%, to $22.98 after the company said its profits would suffer as it expands its e-commerce platform in an attempt to take on the likes of Walmart and Amazon.com.
- Elsewhere, the European Central Bank left interest rates unchanged Thursday but dropped a pledge to accelerate its bond purchases if the economy deteriorates.
- The Stoxx Europe 600 rose 1% and notched its fourth straight daily advance, supported by a rally in technology shares.
Local markets and commodities
- Bank of New York Australia ADR Index is down 1.3% to 273.1, BHP Billiton ADRs are down 2.8% to A$28.64 equivalent, a 0.6% discount to last Sydney close, Rio Tinto ADRs are down 1.3% to A$66.61 equivalent, a 12.1% discount to last Sydney close
- Gold was down for a second straight decline on speculation that a US jobs report Friday will bolster the case for the Federal Reserve to accelerate the pace of interest-rate hikes. Spot gold lost 0.3% to $1321/ounce with a rally seen in the US dollar keeping pressure on prices.
- Friday's nonfarm payrolls data for February, a key barometer of the US economy, is now being awaited for further clues on the pace of Federal Reserve rate increases. Gold is highly sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
- Gold traders are also awaiting further news on plans for US tariffs on some imported goods. Goldies lost 0.49% in Toronto overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil prices resumed their slide overnight, under pressure from rising US production, a rise in the US dollar, and falling gasoline prices. US crude futures fell $1.03, or 1.68%, to $60.12/barrel on the New York Mercantile Exchange.
- Brent, the global benchmark, fell 73 cents, or 1.13%, to $63.61/barrel on ICE Futures Europe. Both benchmarks settled at their lowest level since February 13. Thursday’s move extended a sharp selloff that began Wednesday after the US Energy Information Administration data showed crude inventory rose 2.4 million barrels and production hit a new record high in the week ended Friday, March 2.
- The EIA expects US crude production to average a record 10.7 million barrels/day this year, rising to 11.3 million barrels in 2019. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- Chinese steel and iron ore futures tumbled, pressured by soft demand in the world's top consumer of both commodities. Positive import figures did not filter down to support prices: China's iron ore imports edged up by 0.9% on the year in February despite the Chinese New Year break.
- The world's largest buyer of the steelmaking raw material took in 84.27 million tonnes last month, up from 83.49 million tonnes a year earlier. Iron ore futures have given up all of their 2018 gains as investors try to figure out what’ll happen when the winter curbs on mills are lifted on March 15.
- The state-led clampdown has buoyed consumption of higher-quality material, aiding miners including Vale SA and Rio Tinto Group, and also seen mills and traders build up their steel and ore holdings. The pressure’s now on to clear out inventories, including record holdings of ore held at mainland ports. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Copper has retreated to levels not seen since the correction earlier this year as investors continue to wonder if an economic slowdown in China could limit demand for the industrial metal. Front-month copper for March delivery was down 1.8% at $3.0585/pound on the Comex division of the New York Mercantile Exchange. Prices have fallen 6.7% so far this year after hitting a roughly four-year high in late December, with some analysts warning that the market is still currently well supplied and demand could slow moving forward.
- Data has recently shown a slow start to the year in the country’s manufacturing sector, with activity slowing last month around the Lunar New Year holiday: Data released Thursday showed a 20% drop in Chinese copper imports from the previous month, the third straight month they have declined. Concerns about the impact of US tariffs on steel and aluminium and other protectionist trade policies on global economic growth have also hurt sentiment. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- BHP (BHP AU): Shell, Blackstone Are Said to Team up for BHP Shale Bid: Sky
- Fortescue (FMG AU): Fortescue Metals Group Accepted for Purchase $446.9m of Notes
- Santos (STO AU): No Chance Sunrise LNG Will Be Developed in Darwin, Santos Says
Broker upgrades and downgrades
- LendLease (LLC AU): LendLease Cut to Underweight at JPMorgan; Price Target A$17
- National Storage REIT (NSR AU): National Storage REIT Cut to Underweight at JPMorgan; PT A$1.42
- National Tyre & Wheel (NTD AU): National Tyre & Wheel Access Event Set By Morgans for Mar. 9
- Pro Medicus (PME AU): Pro Medicus Rated New Outperform at RBC; PT A$10Viva Energy (VVR AU): Viva Energy Upgraded to Overweight at JPMorgan; PT A$2.30
A couple of weeks ago, we highlighted the bullish bias on USDHKD, which was one of the rare US pairs that showed plenty of strength. Yesterday 1 month implied volatility of USDHKD spiked almost 40% as the Hong Kong dollar sold off hard to a fresh three-decade low.
The move was driven when the Hong Kong Monetary Authority (HKMA) indicated no plans to offer additional debt. The pair is now approaching the lower limit band of 7.85 where (HKMA) is required to step in if it touches 7.85. The one-month Hibor is more than 100 basis points below Libor, the widest spread since the GFC. We will continue to monitor the reactions near 7.85 in the anticipation of potential pull back.
Source: SaxoTrader and Bloomberg. 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.