Article / 09 June 2016 at 1:39 GMT

Today's Trade: AUD, ASX retain upwards trajectory

Trading Desk / Saxo Capital Markets
  • Shares have opened higher, following decent leads from global markets
  • Commodity prices continue to rise, lifting resources stocks
  • AUD has now jumped past the US 75c mark, its highest in a month

By Saxo Capital Markets

Overnight and early trading

The Australian sharemarket has edged higher in opening deals as sharp gains in the resources sector pulled the bourse higher despite some retail weakness.

At the 1015 AEST (0015 GMT) open, the benchmark S&P/ASX 200 index lifted 11.8 points, or 0.22%. This continues a strong period for the market, after yesterday’s flat close.

BHP was the strongest contender in early trading, pushing up 1.8%, but this was surpassed by gold miner Newcrest which shot up 2.7%. South32 was up 4.4% and Rio Tinto up 1.7%.

In overnight trading:

US stocks edged closer to an all-time high, while advances in government bonds pushed some yields to record lows and emerging market assets extended a rally on speculation central banks will continue policies aimed at jump-starting global growth.

The S&P 500 Index rose to a 10-month high and is 0.6% from its record more than a year ago on bets the Federal Reserve will continue to support moderate economic growth. The European Central Bank began buying corporate bonds, helping drive average yields on investment-grade corporate debt below 1%.

Emerging markets equities and currencies rose for a fifth day, while commodities had the longest run in three months. Oil rose to surpass $51/barrel.

The S&P 500 added 0.3% to 2,119.12, the highest level since July. The index sits 0.6% below its record of 2,130.82, set on May 21, 2015.

It hasn’t moved more than 0.5% on a closing basis for more than nine straight days. The Dow Jones industrial average closed above the psychologically key 18,000 level for the first time since April 27 after gaining 0.37% for the day.

The Nasdaq Composite closed up 12.89 points, or 0.26%, at 4,974.64. Companies that benefit from a sagging dollar were the strongest performers, with raw material and industrial companies leading the climb.

Caterpillar increased 1.7% to post its longest winning streak in two months, and miner Freeport-McMoRan added 3%. Banks were little changed with Treasury yields near three-week lows.

Traders have pushed back bets for a US rate hike after last week’s disappointing jobs report. They are pricing in no chance of a boost in June, and December is now the first month with more than even odds of higher borrowing costs.

The MSCI Emerging Markets Index rose for a fifth day, advancing 0.9%. The longest run of gains in two months sent the 14 day relative strength index above the 70 reading that signals to some analysts that an asset is about to fall.

The Stoxx Europe 600 Index retreated 0.5%. Roche Holding AG and Novartis AG were the biggest drags. Travel and leisure companies and banks posted the biggest declines of the
19 industry groups on the equity gauge.

The Bloomberg Commodity Index, which tracks returns on raw materials, surged 1.9% to the highest since October as crude jumped to a 10-month high and silver rallied.

West Texas Intermediate crude climbed 1.3% to $51.02/b after touching $51.34/b, the highest intraday level since July 16. Crude stockpiles dropped by 3.23 million barrels, according to the US Energy Information Administration, in line with analysts’ projections in a Bloomberg survey.

Global coal consumption dropped the most on record last year as the US and other major economies started turning away from the most polluting fossil fuel, according to BP’s annual review of energy trends.

 On the move: The AUD has returned to some strength based on a sagging
US dollar and a pick up in oil and a host of other commodities. Photo: iStock

Nickel climbed to the highest in almost four weeks, leading industrial metals and producers higher, as monetary stimulus by the European Central Bank and an improving trade outlook in China boosted investor appetite for resources.

Silver in the spot market surged 3.9%, the biggest jump since April. Gold added 1.5%, advancing for the third time in four days.

Treasuries gained, after a $20 billion sale of the securities garnered the strongest demand on record from a class of investors that includes foreign central banks and mutual funds.  Benchmark Treasury 10-year note yields fell two basis points, or 0.02%, to 1.70%.

The European Central Bank made its first purchases of corporate debt as part of efforts to revive investment and inflation in the region. Its program has helped drive average yields on investment grade corporate debt in the single currency to the lowest in more than a year, according to Bank of America Merrill Lynch index data.

Germany’s 10-year bond yields, already at a record-low, are likely to test zero as soon as this week, according to the top-ranked primary dealer of the nation’s debt.

“The market looks poised to test the level,” said Michael Leister, the Frankfurt-based head of rates strategy at Commerzbank AG.

The dollar extended its slide for a second day as traders ruled out the possibility that the Fed will raise interest rates at its meeting next week. The Bloomberg Dollar Spot Index fell 0.4%. The US currency slipped 0.3% against the euro to $1.1395 and lost 0.3% to 107.08 yen.

The MSCI Emerging Markets Currency Index advanced 0.8%, the highest close since May 2. The South African rand gained 1.2% against the dollar amid the rise in commodity prices. Brazil’s real added 2.2%.

Sources: Bloomberg,

Local markets and commodities

  • The S&P/ASX 200 Index futures were up +0.2%; futures relative to estimated fair value suggest an early gain of 0.2%.
  • Bank of New York Australia ADR Index +1.4% to highest in five weeks, BHP Billiton ADR +3.1% to A$19.81 equivalent, 1.4% premium to last Sydney close , Rio Tinto ADR +1.8% to A$39.98 equivalent, 11.5% discount to last Sydney close.
  • Gold prices rose to a three-week high on Wednesday, buoyed by a weaker US dollar and low interest rates around the world. Gold for August delivery ended up 1.2% at $1,262.30 a troy ounce on the Comex division of the New York Mercantile Exchange, hitting its highest level since May 18.
  • Gold has risen 19% year to date as concerns over the health of the global economy and low interest rates have spurred investors to buy the safe-haven metal. Gold stocks in Toronto were up close to 2% and we expect our gold stocks to follow this performance today. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil rose to the highest level in more than 10 months in New York as government data showed US crude supplies declined, reducing a glut. West Texas Intermediate for July delivery rose 87 cents, or 1.7%, to settle at $51.23/b on the New York Mercantile Exchange, the highest close since July 15.
  • Brent for August settlement climbed $1.07, or 2.1%, to end the session at $52.51/b on the London-based ICE Futures Europe exchange. The global benchmark traded at a 67c premium to August WTI. Crude stockpiles dropped by 3.23 million barrels, according to the US Energy Information Administration, in line with analysts’ projections in a Bloomberg survey.
  • Futures briefly reversed direction after the report showed unexpected gains in inventories of gasoline and distillate fuel, a category that includes diesel and heating oil. An upsurge of unrest in Nigeria also buoyed crude prices. Oil has now surged more than 90% from a 12-year low in February amid unplanned disruptions and a steady slide in output from the US, which is under pressure from Opec's policy of pumping without limits. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • The iron ore market was in a lull on Wednesday as Chinese participants took off for the Dragon Boat Festival holiday over the rest of the week. Iron ore delivered to Qingdao were up $0.02 per tonne to $52.56. Yesterday’s China trade balance showed that Iron ore imports were 86.75 million tonnes in May against 83.92mt in April.
  • Meanwhile National Australia Bank raised its 2016 iron ore forecast to $46.50/tonne from $44.40/t citing expectations that China’s steel consumption will continue to decline in coming years which will be a major constraint on iron ore demand. The bank also stated that while influence of paper trading on iron ore appears to have eroded, impact of property-led rebound in China’s steel production may continue in short term. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Nickel climbed the most in more than three months, leading industrial metals and producers higher, as monetary stimulus by the European Central Bank and an improving trade outlook in China boosted investor appetite for commodities. Wednesday’s rally erased nickel’s losses this year, as all the main metals traded on the London Metal Exchange climbed, helping send a gauge of 18 industrial metal producers tracked by Bloomberg Intelligence to the highest in more than a month.
  • Vedanta Resources, Anglo American and Teck Resources paced gains in the index. Freeport-McMoRan Inc. was the fourth biggest gainer on the Standard & Poor’s 500 Index. Nickel for delivery in three months advanced 4.4% to settle at $8,960 on the London Metal Exchange, swinging to a 1.6% gain this year from a 2.7% loss as of Tuesday. Aluminium, copper, zinc, lead and tin also gained on the LME, while copper futures advanced 0.2% in Comex. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • In other news: ANZ Bank (ANZ), Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC): Australian banks face risks from rising home prices: Moody’s Aurizon (AZJ), Asciano (AIO): May be among potential buyers for Glencore Hunter Vallley rail unit: AFR; Bank of Qld (BOQ): Among most preferred global banks at Morgan Stanley Independence Group (IGO AU): Sees more upside in base metals than gold prices; Origin Energy (ORG), Infigen (IFN): Infigen might be potential buyer for Origin’s Stockyard Hill: AFR; OzForex (OFX)& Tower (TWR): Trades ex-dividend; Rio Tinto (RIO): Notes buyback encouraging, debt reduction positive: Investec; Sky Network TV (SKT): Vodafone adds pay TV in New Zealand with control of Sky TV.

Broker upgrades and downgrades

  • Kathmandu (KMD): Rated new buy at Canaccord Genuity
  • Bellamy’s Australia (BAL): Rated new sell at Religare; PT A$6.40
  • Charter Hall Group (CHC): Cut to underperform at Credit Suisse
  • Fisher & Paykel Healthcare (FPH): Raised to neutral vs sell at UBS
  • South32 (S32): Raised to outperform vs neutral at Exane BNP Paribas
  • Woodside (WPL): Cut to underperform vs neutral at Credit Suisse

Open positions
XAUUSD: Find original trade set-up here


The US dollar extended its slide for a second day as traders ruled out the possibility that the Federal Reserve will raise interest rates at its meeting next week which concludes on June 15.

Price gains across major metals and the further run up seen in oil overnight managed to push the AUDUSD towards the 75 handle. The intra day high was 0.7497 and the AUDUSD is currently trading at the 50% April high to the May low retracement.

Whilst the market risk appetite is strong which should technically continue to boost AUD buying, these levels on the AUDUSD are too attractive to ignore for those looking at building short positions or for those that wish to add to their current shorts.

Any short positions taken here (currently trading 0.7481 here in early Asia session) could consider stops at 0.7524. Intra day support would be between 0.7440-0.7450 and below that could see a retest of the green up trend line as marked in the chart below. Looking ahead in the day in Asia we have Chinese CPI due 1130 AEDT (0130 GMT).
The EURUSD after forming a bullish pennant broke to the upside in the European session overnight after finding support intraday support at the 50% May top to bottom retracement.

While it failed to test the 61.8% retracement overnight, this would be the first test of resistance for the EUR at 1.1417. Momentum is building for a further sell down on the US dollar so the market would be looking at buying the dips on the Euro with support to test for the day at 1.1380 down to 1.1350.

AUDUSD monthly chart
 EURUSD monthly chart
Source: Saxo Bank
AUS20 & US500

The US500 is now within striking distance of its 2015 highs as marked on the chart (red horizontal line) with the next level to test and clear at 2128.

Momentum is building on the back of rising oil, metal prices and markets expectations of a no hike chance in June so the market is on stand by mode to see a clear break above last night’s high which could come early in the Asia session today should oil take out last night’s high and provided the broader Asia indices play ball.

Despite the large gains in oil and industrial metals including the relative positive performance seen in US equities, the Australian SPI futures gained a measly nine points overnight which translates to an early gain of less than 0.2%.

Resistance is being found on the AUS200 at 5,400 which can be visualised on the chart as areas where the ASX had faced numerous headwinds in the past.

A clear break and settlement above 5,400 today or in the coming days will allow our ASX to drift higher however caution should be exercised given we are heading in the end of the financial year where tax related selling could keep a lid on gains.

Levels of support to watch over the AUS200 would be at 5360 for the day.
US500 monthly chart

AUD200 monthly chart

5 Both charts, Saxo Bank - Create your own charts with SaxoTrader; click here to learn more
Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

-- Edited by Adam Courtenay

Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Join them for the weekly macro call each Monday at 1030 AEST (0230 GMT) and watch their daily morning call on Periscope at 9:45am: #SaxoStratsAPAC


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