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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 19 November 2017 at 23:53 GMT

Today's Trade: AUD, ASX suffer early declines

Trading Desk / Saxo Capital Markets
Australia
  • Four major banks and Macquarie all down between 0.5% and 0.7%
  • Support level is 5890 - a 38.2% retracement of the June-November rise
  • AUDUSD fell over the weekend and was down 0.3% today at 0.7564 

By Saxo Capital Markets

Overnight and early trading

Australia’s S&P/ASX 200 share index fell as much 0.6 per cent to 5922.6 in early trading this morning, with the banks bleeding the most.

All sectors - bar energy and telecoms - were weaker and apart from the banks, utilities were the weaker players in the market in the first hour of trading.,

The big supermarket owners Woolies and Wesfarmers, as well as CSL, were all down and only the energy sector, headed by Santos, enjoyed any real gains, based on a recovering oil price.

Futures on share indices in Japan, Hong Kong and Australia all pointed to small declines as the week’s trading gets underway. 

That follows a drop in US equities on Friday, when the gap between two- and 10-year Treasury yields hit the tightest level in a decade, adding to concern about the pace of future economic growth.

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 Oil stocks have enjoyed a rise this morning, but that's about it for the ASX. Photo; Shutterstock

Losses in US stocks marks the second-straight week of declines for both indexes, which previously had been on a two-month-long stretch of gains, boosted by strong corporate earnings and solid economic growth around the world.

Major indices have wobbled over the past several sessions, hurt by a drop in the price of oil even as consumer companies have risen.

The Dow Jones Industrial Average fell 100.12 points, or 0.4%, to 23,358.24 on Friday and the S&P 500 shed 6.79 points, or 0.3%, to 2,578.85 after both indices notched their biggest one-day gains since September on Thursday. 

The Dow Industrials ended the week down 0.3%, while the S&P 500 declined 0.1%. It was their biggest two-week declines since mid-August, when worries about rising tensions between North Korea and the US weighed on stocks.

The Nasdaq Composite edged down 10.50 points, or 0.2%, to 6782.79 on Friday, but finished the week up 0.5%.

Oil futures gained Friday, with U.S. crude for December delivery up 2.6% to $56.55 a barrel. Still, oil ended the week with losses as rising U.S. inventories and wavering demand forecasts have weighed on the commodity, dragging down shares of oil producers.

Energy companies in the S&P 500 closed the week down 3.4%, its worst weekly performance since January 2016. The losses offset gains among some consumer companies.

Wal-Mart Stores jumped to an all-time high Thursday after the company reported its strongest US sales in years, while Mattel’s stock soared Monday after The Wall Street Journal reported that fellow toy maker Hasbro approached it about a possible merger. 

Wal-Mart’s stock ended the week up 7.2%, while Mattel closed out the week with a gain of 28%.

Shares of fashion startup Stitch Fix rose 15 cents, or 1%, to $15.15 in their stock-market debut Friday after the company priced shares below expectations in its IPO on Thursday.

Debate over the prospect of a significant tax overhaul in the US also has swung stocks this week. On Thursday, the House of Representatives passed a bill that would reduce the corporate tax rate to its lowest point since 1939 and cut individual taxes for most households in 2018. 

The passage invigorated small-company stocks, which investors anticipate will be some of the bigger beneficiaries of a corporate tax cut, sending the Russell 2000 small-cap index up 1.2% during the week, its biggest percentage gain in more than a month.

Still, hurdles remain as focus now shifts to the Senate, which is contending with debate over its own bill.

The Stoxx Europe 600 fell 0.3% Friday and posted a weekly decline of 1.3%. Japan’s Nikkei Stock Average added 0.2% Friday and recorded a 1.3% drop for the week.

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

Local markets and commodities

  • S&P/ASX 200 Index futures are unchanged at 5,959. Futures relative to fair value suggest an early fall of 0.1%.
  • Bank of New York Australia ADR Index fell 0.1% to 267.2, Rio Tinto ADRs are down 0.1% to A$62.89 equivalent, a 11.3% discount to last Sydney close, BHP Billiton ADRs unchanged at A$27.35 equivalent, a 0.8% premium to last Sydney close.
  • Gold prices rose Friday, supported by a weaker dollar as investors focused on the Senate’s debate over its tax bill. Gold for December delivery advanced 1.4% to $1,296.50/oz on Comex - its highest close in a month. Prices had stayed between $1,270/oz and $1,290/oz for much of the past month before Friday’s surge - their best day in six months. They are still roughly 4% off their year-to-date highs from early September, with a stronger dollar and interest-rate concerns weighing on the precious metal recently.
  • On Friday, the dollar fell as traders monitored tax bill news and possible hurdles out of the Senate. Investors are also monitoring central-bank signals leading up to the Federal Reserve’s December meeting for clues about the future of monetary policy. Although the market expects the Fed to raise rates again in December, changes to its outlook for future rate increases could move gold out of its current trading range. Gold stocks in Toronto closed higher by a%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil ended the week on a rebound as Saudi Arabia moved to dissipate doubts that Russia is ready to extend output curbs. Futures rose 2.6% in New York on Friday after Saudi Arabia’s Energy Minister Khalid Al-Falih said Opec should announce an extension of the cuts when it meets on November 30. But that wasn’t enough to completely erase losses from the past few days, when uncertainty over a deal and surging US production set the tone. Prices were 0.3% lower for the week, snapping the longest streak of weekly gains in a year.  
  • Brent for January settlement closed 2.2% higher at $62.72/barrel on the London-based ICE Futures Europe exchange. Prices are down 1.3% last week, the first weekly drop since the start of October. The global benchmark was at a premium of $6.01 to January WTI. Opec is unlikely to reduce excess oil inventories to average levels by the time the current supply deal expires, Al-Falih said Thursday. The kingdom has had extensive consultations with Russia and the minister said he feels “fully convinced” the country will be “fully on board” when a resolution is made. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Spot iron ore prices rose as traders were enticed back into the market after selling earlier in the week threatened to push it below $60/tonne. News that China will continue to close unwanted steel capacity didn’t faze the market. The Ministry of Industry and Information said China will conscientiously implement measures to resolve overcapacity in the steel industry. They also warned that they will prevent the resurgence of illegal plants and prohibit new capacity from being built. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Nickel and copper led the base metals complex higher on Friday, supported by a softer dollar, though both metals ended the week lower. Benchmark copper on the London Metal Exchange closed 0.6% up at $6777/t but was off by 0.5% on the week. Nickel added 1.8% to $11,572/t, but ended the week with a 4.4% decline. Aluminium ended the session and the week barely changed at $2,103/t, having shed almost 4% last week. Expected capacity cuts in China and falling inventories in LME-approved warehouses have helped to push up aluminium prices by 24% this year. Lead closed 1.2% up at $2,432 a tonne, tin rose 0.6% to $19,475/t and zinc finished with a 1.1% gain at $3,179/t. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC

- Companies trading ex-dividend today: Ausnet, Elders
- A2 Milk (A2M AU): Has Become Fastest Growing Infant Formula Brand in China, Doubling Market Share to 4.1% in Past Year, Asia-Pacific Chief Executive Peter Nathan Says: Australian
- AGL Energy (AGL AU): Seeks Bids for LNG Supply to Proposed Import Terminal: AFR
- Australian Pharmaceutical Industries (API AU): Peer Chemist Warehouse May Be Considering ASX Listing: AFR
- BHP Billiton (BHP AU): BHP-Vale Deal Distances Brazil Mine From $53 Billion in Lawsuits
- Cochlear (COH AU): FDA OKs Telehealth Option to Program Cochlear Implants Remotely
- Mayne Pharma (MYX AU): Mithra Reports Positive Outcome of Myring Study
- Qantas (QAN AU): Agrisoma says Qantas in Pact to Use Carinata Oilseed for Bio Jet Fuel
- Rio Tinto (RIO AU): Is Said to Line Up Advisers for Stake in SQM

Broker regradings

- ALS (ALQ AU): Upgraded to Neutral at Goldman; PT A$7
- Pro Medicus (PME AU): Reinstated at Moelis & Company With Buy; PT A$8.26
- Santos (STO AU): Upgraded to Neutral at UBS; PT A$5.10
- WorleyParsons (WOR AU): Upgraded to Neutral at Goldman; PT A$13.70

Corporate events

Monday: AGM: Ardent Leisure Group, IPH Ltd. Sydney Airport: Scheduled to Release October Traffic Data
Tuesday: AGM: a2 Milk Co Ltd, Monadelphous Group Ltd. Earnings: Fisher & Paykel Healthcare Corp Ltd, GrainCorp Ltd, Technology One Ltd, CYBG PLC
Wednesday: Sonic Healthcare Ltd, Qube Holdings Ltd, NEXTDC Ltd, Webjet Ltd, Mantra Group Ltd, Mineral Resources Ltd, Growthpoint Properties Australia Ltd, REA Group Ltd, Shopping Centres Australasia Property Group, Infigen Energy
Thursday: IOOF Holdings Ltd, Woolworths Ltd, Investa Office Fund, Beach Energy Ltd, Primary Health Care Ltd, Evolution Mining Ltd, Regis Resources Ltd, South32 Ltd, Saracen Mineral Holdings Ltd,
Western Areas Ltd
Friday: Orocobre Ltd, Myer Holdings Ltd, Automotive Holdings Group Ltd, Independence Group NL

NZDUSD

Last week, we indicated a bearish flag on the Kiwi dollar and since then NZDUSD has declined below the previous double bottom 0.6817.  

NZDUSD is expected to remain under further selling pressure and it is difficult to see any reversal of the current momentum in the near term. Resistance level is at 0.69 handle and support level would be at 0.67 handle.

NZDUSD quarterly chart
1
 
XPTUSD

Platinum has spiked to break out of the triangle formation and October high 947.20 has been breached. 

XPTUSD is currently outperforming other similar precious metals such as gold and silver, therefore we would look to add bullish exposure on platinum.

XPTUSD monthly chart
Source: All charts, Saxo Bank

Today's Trade information source: 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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