Article / 04 December 2015 at 1:02 GMT

Today's Trade: AUD digs in as ASX crumbles

Trading Desk / Saxo Capital Markets
Australia
  • ASX follows European stocks lower as ECB's stimulus falls short of expectations
  • Aussie banks between 1.5% and 1.9% lower in early trading
  • AUDUSD shows more strength, moving up to the next resistance level of $0.7379

By Saxo Capital Markets

The local market has plunged at the open, sliding well below the 5,200 mark in a broad-based selloff sparked by global disappointment in what's seen as an underwhelming move to ease monetary policy in the Eurozone.

At 1028 AEDT (2328 GMT), the ASX/S&P 200 was down 1.6% at 5,143.6. The big banks were leading falls, shedding between 1.5% to 1.9%, with Telstra also losing 1.8%. BHP hit a new low of $A17.88, but has since clawed back a bit and is currently down 0.9% at $A18.03.

Newcrest was one of the few winners, adding 1.6%, after the gold price rose overnight.

In overnight trading:
  • Stocks and bonds tumbled while the euro soared after the European Central Bank’s stepped-up stimulus efforts fell short of investors’ expectations.
  • The Dow Jones Industrial Average shed 252 points, or 1.4%, to 17478, losses that snowballed as the trading session entered its final hours. The S&P 500 declined 1.4%, while the Nasdaq Composite lost 1.7%.
  • Losses for US stocks cascaded through the day. Traders said the mounting declines were most concentrated in some of this year’s more popular bets, including retail stocks, the biotechnology sector and shares of some Internet companies.
  • A popular retail stock fund, the $798 million SPDR S&P Retail Exchange Traded Fund, lost 1.8% after starting the session higher. Shares of Dow component Nike lost 2.7%. The Nasdaq Biotechnology Index dropped 3.4%. The S&P’s healthcare index slid 2.2%, and a 2.3% loss in Merck dragged the Dow.
  • Last night’s move comes ahead of tonight’s jobs report, the last major update on the labor market before the Fed’s December meeting.
  • A rebound in the price of crude oil failed to lift energy stocks. The S&P’s energy sector fell 2% after posting the biggest decline Wednesday. Chesapeake Energy was the worst performer, falling 12% to a new 52-week low. WTI rose $1.14, or 2.9%, to $41.08 a barrel.
  • European stocks also fell sharply as investors were left disappointed by the measures announced by the ECB. The Stoxx Europe 600 lost 3.1%, its biggest daily loss since August 24. Both the Dax and the CAC were annihilated, the former down 3.58% while the FTSE lost 2.27%.
  • Investors were left disheartened following the latest news out of the ECB monetary policy committee meeting. The ECB president Mario Draghi said that the bank would extend its asset purchase program until at least March 2017.
  • The ECB also announced that it would extend the range of assets eligible for purchase to include debt issued by local and regional governments.
  • Sectors with high exposure to exports fell dramatically following the disappointing news out of the ECB, as the euro soared.
  • Autos finished down 3.2%, while luxury brands plummeted. LVMH, Christian Dior and Burberry all closed 2.8% or more down. National Bank of Greece tanked 30%.
  • Out of the handful of stocks trading up, Snam was Europe's top performer, up 3.4%, after Italy's energy regulator set new criteria for investment returns. Fellow Italian grid TERNA also finished higher, at 0.6%.
  • Shares in Delta Lloyd plummeted over 10.5%, after Credit Suisse downgraded the stock to "neutral" and Morgan Stanley cut its target price.
  • Anheuser-Busch InBev's shares slipped 3.6% following an announcement that it was looking to sell SABMiller's premium beer brands to address potential EU antitrust concerns over its acquisition of SABMiller.
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 The AUD is defying expectations while resources flag, but for how long? Photo: iStock


See macro piece and week ahead here by our Asia Macro Strategist, Kay Van-Petersen.

Local markets and commodities


  • Gold futures rallied from a five-year low after the ECB cut its deposit rate, boosting demand for the metal as a store of value. The move pushed the floor for borrowing costs deeper below zero as officials sought to prevent too-low inflation from becoming entrenched. The ECB will extend its quantitative easing program until at least March 2017 and broaden the range of assets purchased, ECB President Mario Draghi said. Gold fell to a five-year low earlier amid speculation that the US Federal Reserve will soon tighten monetary policy, cutting the appeal of the metal because it doesn’t pay interest. Gold futures for February delivery gained 0.7% to settle at $1,061.20 an ounce at 1341 on the Comex in New York, after touching $1,045.40, the lowest since February 2010. The euro jumped the most against the dollar since 2009 after the scale of the ECB’s stimulus measures disappointed some investors. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil prices gained Thursday on a weaker dollar and speculation that Opec might decide at its Friday meeting to curb production. Light, sweet crude for January delivery settled up $1.14, or 2.9%, to $41.08/barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $1.35, or 3.2%, to $43.84/b on ICE Futures Europe. The USD fell sharply against other major currencies, including the euro, after the European Central Bank announced smaller stimulus measures than investors expected. A weaker dollar makes oil, which is priced in dollars, cheaper for foreign buyers. Traders also kept a close watch on news from Vienna, where Opec ministers are meeting. After a gathering of Opec ministers on Thursday, Iran’s oil minister, Bijan Zanganeh, said there remained “lots of disagreements” among ministers and the cartel was “not at all” close to a deal on its output strategy. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore fell 0.9% to $40.75/tonne on Thursday, a record low in daily prices compiled by Metal Bulletin dating back to 2009. It’s dropped each day this week, losing 8.4%. Iron ore is on the cusp of dropping into the $30/t as the biggest producers expand supply and the onset of winter in China dulls demand that’s been hurt by the slowdown in growth in the world’s top user. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Nickel fell to the lowest in a week, leading losses in industrial metals, on mounting concern that mining companies are reluctant to cut production even as demand weakens. Nickel for delivery in three months slipped 1.4% to settle at $8,850 a metric ton on the London Metal Exchange, after touching $8,670, the lowest since November 25. Copper futures for March delivery gained 1.4% to $2.061 a pound on the Comex while on the LME, aluminium, copper, zinc, lead and tin declined. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, PAN; Aluminium stocks: AWC
  • Other news: S&P scheduled to release Dec. qtr rebalance; Australian October retail sales +0.4%, according to median est. in Bloomberg survey of 28 economists; AMP Bank (AMP): Prices A$300m 2019 note at swap + 110bps; ANZ Bank (ANZ) chairman endorses CEO Mike Smith’s Asia- focused vision and may seek 2nd-round offers for Panin Bank stake; Asciano (AIO), Macquarie (MQG), Qube (QUB): Brookfield working on renewed offer for Asciano; BHP (BHP) derailment occurred on Pilbara rail line, no injuries; CEO bearish on commodities price outlook; Orica (ORI): Martin Parkinson resigns after his appointment to head Department of Prime Minister and Cabinet.
Open positions
 
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Broker gradings

Santos (STO): Raised to outperform vs neutral at Credit Suisse.Woodside (WPL) cut to neutral vs outperform at Credit Suisse'Oil Search (OSH) cut to neutral vs outperform at Credit Suisse

Data points

Friday:
- AUS: Retail Sales m/m (11:30am)
- EUR: German Factory Orders m/m
- US: Employment report, International trade,
- OPEC meets in Vienna
Speeches:
- Minneapolis Fed President Narayana Kocherlakota on policy renormalisation
- Philadelphia Fed President Patrick Harker welcoming remarks at policy forum
- St. Louis Fed President James Bullard on policy challenges
- ECB President Draghi at Economic Club of NY

AUDUSD

All the major bond markets (Bunds, US Treasury and AU 10 years) tumbled on the back of the disappointing ECB’s QE measures. The US dollar index plunged, while EURUSD made the fourth biggest gain in history and the rally was the biggest since 2009 when Fed announced QE.

AUDUSD broke through 0.7335 where the downtrend of the pennant was crossing. This price action signals further upside momentum to be followed towards the next resistance level 0.7379.

If this level is broken, we expect AUDUSD to extend gains up to 0.7520. The AU retail sales figures are released at 1130 AEDT (0030 GMT) and the major data for today is the nonfarm payroll data at 0030 AEDT. Unless we see solid NFP numbers, US dollar is expected to remain under further selling pressure.
 
AUDUSD monthly chart

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Source: Saxo Bank

AUS200.i

Despite showing yet more resilience in yesterday’s day session, the AUS200 wiped out all those gains to sell off to break below two key support levels 5,224 and 5,170 as it followed very weak leads from both Europe and US markets.

The downtrend of the E-mini S&P500 futures held at 2,100 level and AUS200 looks to have formed a double top at 5,290. Two consecutive declines from US markets indicate the momentum appears to have shifted to the downside for the equities. The next support level lies at 5,124 and the resistance level should be at 5,200.

 AUS200.i monthly chart

Source: Saxo Bank - create your own charts with SaxoTrader. Click here to learn more 

-- Edited by Adam Courtenay

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945am: #SaxoAPAC

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