Article / 15 December 2016 at 0:37 GMT

Today's Trade: AUD, ASX spooked by USD-led crush

Trading Desk / Saxo Capital Markets
Australia
  • AUDUSD loses a cent,  trading at US74.09 cents at 0800 AEDT (2100 GMT)
  • Santos shares plunge more than 10% after yesterday's capital raising note
  • The local sharemarket opens 0.7% low in response to Fed's 25 point hike

By Saxo Capital Markets

Overnight and early trading

The local market opened this morning 0.7% weaker at 5544 points after yesterday coming within 16 points of a new 2016 high.

Miners and energy stocks lead the falls after commodity prices fell overnight after the USD gained heavily in overnight trading after the Federal Reserve voted to raise its benchmark interest rate for the first time since December 2015. 

BHP fell 1.3%, followed by Santos, which has plunged nearly 10% following last night's surprise $1.5 billion capital raising announcement.

Gold miners were also doing it tough after the gold price fell to a 10-month low following the Fed's decision.

Major US indexes initially zig-zagged after the Fed announcement, then headed lower. The Dow Jones Industrial Average lost 0.6%, or 119 points, in its worst day since October.

The Fed’s widely expected move suggested confidence in the US economy as the central bank pulls back from policies adopted after the financial crisis, some analysts and investors said.

But some said an acceleration in the pace of increases could also threaten a bull market fueled by central-bank accommodation.

Last night’s broad stockmarket declines derailed the Dow industrials’ surge toward 20,000. The blue chip index closed at 19,793 after its biggest daily decline since October 11.

The S&P 500 fell 0.8% and the Nasdaq Composite lost 0.5%. The Fed said it would raise the federal-funds rate by a quarter percentage point - to between 0.50% and 0.75% - and that officials now expect to raise short-term rates more often in 2017.

Higher rates, however, make the dollar more attractive to yield-seeking investors, and the US currency rallied Wednesday.

The US dollar index jumped 1%. US government bonds pulled back, with the yield on the 10-year US Treasury note rising to 2.523% Wednesday - the highest yield since September 2014 - from 2.479% on Tuesday.

Yields rise as prices fall. Shares of utilities companies, often considered bond proxies because of their dividends, slid 2% in the S&P 500 and were among the worst-performing sectors. The VIX rose to 13.19.

Falling energy prices also weighed on stocks, as US crude oil lost 3.7% to $51.04/barrel. That dragged down energy shares in the S&P 500, which shed 2.1%.

xxx
Thanks a billion: The Fed has put paid to any strength the AUD had this week. Photo: IStock

Stocks have rallied since the US election on the belief that President-elect Donald Trump’s proposals to cut corporate taxes and ramp up fiscal stimulus would accelerate growth and inflation - factors that could also speed up the pace of interest rate rises.

Most investors have expected the pace of interest-rate rises next year to be gradual.

Local markets and commodities

  • The S&P/ASX 200 Index futures contract fell 0.7%; futures relative to estimated fair value suggest an early decline of 0.7%.
  • Bank of New York Australia ADR Index -1.6%, most since Nov. 16, BHP Billiton ADR -1.8% to A$25.67 equivalent, a 0.5% discount to last Sydney close, Rio Tinto ADR -1.3% to A$54.32 equivalent, ~11% discount to last Sydney close.
  • Gold’s recovery from 10-month lows proved short-lived as the US Federal Reserve signalled more monetary tightening than previously thought. Spot gold was down 1.2% at $1,143.30/oz, after falling to the lowest since February 5 at $1,149.66/oz, as yields on shorter-dated Treasuries hit their highest in more than five years. US gold futures for February delivery settled up 0.4% at $1,163.70/oz prior to the Fed's statement. New projections show Fed officials expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates. Gold stocks in Toronto plunged lower by 4.44% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil tumbled as the dollar climbed against its peers after the Federal Reserve raised interest rates for the first time this year. WTI oil for January delivery dropped $1.94 to close at $51.04/b. The contract climbed to $52.98/b on Tuesday, the highest settlement since July 14, 2015. Brent for February settlement fell $1.82, or 3.3%, to $53.90/b a barrel. Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI, rose by 1.22 million barrels to 66.5 million in the week ended Dec. 9, according to the Energy Information Administration. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Steel and iron ore futures in China retreated on Wednesday after a two-day run-up that lifted the industrial commodities to multi-year highs amid Beijing's efforts to address overcapacity in its steel sector. Iron ore for delivery to China's Qingdao port dropped $US4.24 or 5.1% to $US79.18 a tonne, a day after hitting its strongest level since October 2014, according to data from Metal Bulletin. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper rebounded after China pumped more credit into financial system to support economy. The metal spiked almost $100/tonne within five minutes in London, before paring, after details of China’s biggest credit expansion since March were announced. Three-month copper on the LME ended up 0.5% at $US5,722/t. Zinc, nickel and aluminium also rose on the LME, while lead and tin fell. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Australia’s AAA rating could be threatened as early as next week: The fate of the nation's AAA credit rating – and the impact of any change on interest rates – could be known before Christmas with key ratings agencies saying they could make a decision as soon as Monday afternoon.
  • With the government due to release its mid-year budget update at midday on Monday, spokesmen for both Moody's and S&P Global Ratings said if there was a clear case for either downgrading the coveted rating or leaving it as is, then that could be made fairly quickly. If not on Monday, then in the few days before Christmas.
  • In other news: G8 Education (GEM): Trades ex-div; ANZ Bank (ANZ): Another bidder may have emerged for UDC Finance, amid talks with HNA: AFR; Boral (BLD): Completes retail shortfall bookbuild at clearing price of A$5.15; CSL (CSL): AFSTYLA approved by Health Canada; Emeco (EHL): Merger plans blocked by activist holder: Australian; Fortescue (FMG), BHP Billiton (BHP), Rio Tinto (RIO): Iron ore falls 5.1%, most since Nov. 30, according to prices compiled by Metals Bulletin; Goodman (GMG): To pay A12.7c/unit distribution on February 24; Orica (ORI): Annual meeting scheduled; NOTE: Co. in Nov. forecast FY17 capex A$300m-A$320m, marginally higher tax rate; Paladin Energy (PDN): Sells non-core Australia exploration assets for A$2.5m; Santos (STO): To raise ~A$1.5b via placement & share buy; SCA Property (SCP): Half-year distrib. of A6.4c/unit to be paid January 30; TPG Telecom (TPM): Wins Singapore bid to become 4th telco; Woodside Petroleum (WPL), Worleyparsons (WOR), Oil Search (OSH), Beach Energy (BPT), Karoon (KAR), Santos (STO), Origin Energy (ORG): Oil Falls First Time in Five Days as Supply Climbs at US hub.

Broker gradings

- APN Outdoor (APO): Cut to neutral vs outperform at Credit Suisse
- Duluxgroup (DLX): Raised to neutral at JPMorgan; PT A$5.90
- Iluka Resources (ILU): Reinstated neutral at Goldman, PT A$7
- Ooh!Media (OML): Cut to neutral vs outperform at Credit Suisse

AUS200.i & AUDUSD

The hawkish rate hike from the Fed earlier this morning reinforced the strength of US dollar and 10-year US treasury yield made a fresh high while safe haven assets (JPY and gold) sold off.

The upside momentum of US dollar is likely to persist in the near term but tonight’s US CPI numbers would need to be watched closely.

The major focus for AUDUSD is employment figures at 1130 AEDT (0030GMT) and overnight price actions of AUDUSD seem to signal further risk to the downside as it failed below 200 Day Moving Average and also has broken the recent uptrend.
 
AUDUSD monthly chart

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Equity indices showed negative reactions on the back of the FOMC meeting and AUS200 also followed the weak leads from US session, however this morning’s price actions are expected to be a temporary pull back as market should digest the Fed’s comments tonight when the US cash market opens.

20,000 of US30 should be monitored and the double top level 5,600 should remain as a key resistance level for AUS200.
 
AUS200 monthly chart

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Source: Both charts, Saxo Bank - create your own charts with SaxoTrader. Click here for 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

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