Article / 11 January 2018 at 23:51 GMT

Today's Trade: AUD, ASX move higher on rising commodities

Trading Desk / Saxo Capital Markets
Australia

  • The local index, the S&P/ASX 200, rose 0.2% to 6083 in early trading
  • WTI crude futures rose 0.5% at $63.80/b, spot iron ore up the same at $77.96/t
  • AUD at US78.89¢ after rising sharply on stronger numbers for retail sales

By Saxo Capital Markets 

Overnight and early trading

US stocks rebounded from the first retreat of the year to set fresh records, as resource producers and industrial shares rallied on optimism in the global economy. The dollar fell and Treasuries halted a decline.

Energy shares surged amid rising oil prices and optimism about corporate earnings, boosting major US indexes to fresh records.

The S&P 500 regained its footing a day after it snapped its longest winning streak to start a year in more than half a century. The index has risen seven of the first eight trading sessions of 2018, gaining more than 3% so far.

A confluence of events have contributed to the new year rally: a steadily expanding US economy as many countries around the world are also growing, the expectation companies will continue to report big gains in earnings and the passage of a broad tax overhaul that is expected to bolster profits even further.

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 Red gold? The price of iron ore has risen 35% since October. Photo: Shutterstock

The S&P 500 rose 0.7%, while the Dow Jones Industrial Average gained 205.60 points, or 0.8%, to 25,574.73. The Nasdaq Composite added 0.8%.

Shares of energy firms were among the biggest movers Thursday, with those companies in the S&P 500 climbing 2%. Energy stocks in the broad index have gained 6.2% - the best of any other sector - to start the year, extending a late-year rally that has coincided with a rise in oil prices.

Chevron added 3%, putting it among the Dow’s biggest point contributors, while Hess rose 3.2%
Energy stocks could get an added boost in the coming weeks, as those companies in the S&P 500 are expected to more than double their fourth-quarter earnings from the year-earlier period, according to estimates from FactSet and analysts, the best of any other sector.

Consumer discretionary stocks also moved higher throughout the session, with retailers among the biggest gainers after several reported upbeat holiday sales in recent days.
Shares of Target rose 4.6%, while Kohl’s added 3.9%.

Other big movers include shares of Xerox. The Connecticut company’s stock jumped 5% after The Wall Street Journal reported the company is in talks to potentially strike a major deal with Japan’s Fujifilm Holdings Corp.

Meanwhile, the US rise in shares has coincided with a selloff in Treasuries as some investors consider whether inflation is turning higher. A pickup in inflation could alter the speed at which global central banks withdraw easy monetary policies.

The yield on the 10-year US Treasury note edged down to 2.535%, according to Tradeweb, from 2.551% on Wednesday. The 10-year’s yield, which moves inversely to price, has been trending upward since it fell below 2.1% in early September.

Shares of real estate firms and utility companies, considered bond proxies because of the regular dividends they generate, were trading lower.

Elsewhere, the Stoxx Europe 600 edged down 0.3% after minutes from the European Central Bank’s December meeting showed it might change its guidance to investors early this year to better reflect the Eurozone’s robust economic recovery.

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

Local markets and commodities

  •  S&P/ASX 200 Index futures are unchanged at 6,017 as of 7:00 a.m. Futures relative to fair value suggest an early gain of 0.1%.
  •  Bank of New York Australia ADR Index is up 0.8% to 294.6, BHP Billiton ADRs are up 1.6% to A$31.44 equivalent, a 1.9% premium to last Sydney close, Rio Tinto ADRs are up 2.0% to A$72.49 equivalent, a 8.5% discount to last Sydney close.
  • Movement in the USD continued impacting gold prices on Thursday, with the precious metal extending Wednesday’s gains as the US currency fell. Front-month gold for January delivery rose 0.2% to $1,320.60/oz on the Comex division of the New York Mercantile Exchange. Prices have risen to their highest level since September and stayed above $1,300/oz recently, boosted in large part by a weaker dollar. 
  • Gold has rallied by more than $80 since a low in mid-December, helped by a weaker dollar, but will struggle to rise much further in the short term, says Saxo Bank analyst Ole Hansen. "We see gold higher this year but it really is in need of a correction to test the strength of this move," he says. Gold stocks in Toronto added 0.03% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil briefly topped $70/barrel in London for the first time in three years, as crude markets continued an almost unblemished run of gains for 2018. The surge waned towards the end of the session, with the global Brent benchmark settling just 6 cents higher for a fourth day of gains. An eight-week long downward spiral in US crude inventories has helped boost prices, with some analysts suggesting $80 is achievable if Opec and its allies stay disciplined in limiting output. 
  • US crude output declined by the most in almost three months last week as a deep freeze forced drillers to suspend operations. This led to draw-downs at the biggest American storage hub in Cushing, Oklahoma, where inventories sit at the lowest level since February 2015. Brent for March settlement ended the session at $69.26/b on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.58 to March WTI. 
  • West Texas Intermediate for February delivery advanced 23 cents to settle at $63.80/b on the New York Mercantile Exchange, the highest level since December 2014. Total volume traded was about 62% above the 100-day average. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore spot markets rallied on Thursday, hitting the highest level in close to five months. However, with futures down heavily in overnight trade, it looks like those moves may be reversed in the session ahead. It has now rallied 35% from the end of October, in line with a similar move in Chinese steel markets. The move in spot markets mirrored continued strength in rebar futures in Shanghai which rallied for a third consecutive session. Spot iron ore added $0.36 or 0.5% to close at $77.96/tonne. In company news, Brazilian miner Vale’s iron ore shipments probably fell in fourth quarter while two biggest competitors Rio Tinto and BHP Billiton saw increases, according to a Bernstein report led by analyst Paul Gait. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Among base metals, front-month copper for January delivery swung between small gains and losses and closed down less than 0.1% at $3.2135/pound. A favourable global economic backdrop has pushed the industrial metal near four-year highs recently, with supply disruptions also boosting prices. Still, some analysts have wondered whether the rally has gotten ahead of supply-demand fundamentals given the amount of aboveground stocks that could boost supply. 
  • Nickel fell as traders took profits after pushing the metal to its highest level in 2-1/2 years in the previous session, while zinc headed towards its highest in more than a decade amid a supply crunch. Four nickel mines in the Philippines, a key nickel exporter, remain shut on environmental grounds, an official said, while Japan's Sumitomo Corp suspended output at a mine in Madagascar following a cyclone. Benchmark nickel on the London Metal Exchange (LME) ended down 2.4% at $US12,625 a tonne, having touched $US13,200 on Wednesday, its highest since June 2015. Zinc ended up 1.5% at $US3386, near its highest for more than decade hit earlier this week at $US3400. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: BHP Billiton (BHP AU), Rio Tinto (RIO AU): Port Hedland to Be Closed Ahead of Potential Cyclone; Base Resources (BSE AU): Unit Base Titanium Sees Increased Demand for Mineral Sands This Year; Beach Energy (BPT AU): Reports Gas Field Discovery in Otway Basin; CBA (CBA AU): Is Said to Mull Indonesia Insurance Unit Stake Sale: Reuters; AIG Is Said to Show Early Interest in CBA Gen. Insurance Ops: AFR; Wagners Holding (WGN AU): In Talks With Adani on Airport for Carmichael Coal Mine.

Broker re-gradings 

- Charter Hall Retail (CQR AU): Moody’s Lowers Outlook on CQR to Negative

AUDEUR

Despite stronger than expected AU retail sales (1.2% against 0.4%) yesterday, AUDEUR failed to impress as it reversed the early rally to close below the key resistance level 0.6566 that previously acted as major support level in 2017.  

The downtrend (from 2017 high 0.7338) appears to be broken, but recent price actions have formed a rising wedge which could signal potential downside risk. Furthermore yesterday’s outside day candlestick suggest scope for near term weakness.

AUDEUR monthly chart
Source: Saxo Bank 

Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters


-- Edited by Adam Courtenay

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