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Article / 30 March 2016 at 0:13 GMT

Today's Trade: AUDUSD breaks US76c after Yellen caution

Trading Desk / Saxo Capital Markets
Australia
  • AUDUSD breaks above US76 cents after Federal Reserve chair's dovish comments 
  • AUS200 rallies early to breach psychological 5,000 level
  • Crude oil loses ground, WTI and Brent down 1.7% and 1.6% to $38.47 and $39.32 
  • Iron ore has declined now for a fifth day, losing 1.2% to $55.11. 


By Saxo Capital Markets (Australia)

Investors returned to the big banks to push up the local market, after the dovish comments from US Federal Reserve Chair Janet Yellen overnight. The ASX 200 was up 42 points in early trade, or 0.8%, at 5047, while the All Ordinaries was up 41 points at 5117.
dollars
 Despite the declines in both crude oil and copper prices, AUDUSD rallied to break above 0.76. Photo: iStock 

Overnight

  • US stocks got a boost overnight following Janet Yellen’s comments over global economic uncertainty which warranted a cautious approach to raising interest rates. The Federal Reserve chairwoman’s remarks at the Economic Club of New York came after other Fed officials gave upbeat assessments of the US economy in recent days and left the door open to a rate increase as soon as April.
  • The Dow industrials and the S&P 500 closed at their highest levels of the year and the S&P 500 returned to positive territory for 2016, up 0.5%. For the day the Dow Jones Industrial Average rose 97.72 points, or 0.6%, to 17633.11, after being down as much as 101 points early in the session. The S&P 500 climbed 17.96, or 0.9%, to 2055.01 and the Nasdaq Composite rose 79.84, or 1.7%, to 4846.62.
  • Apple closed 2.37% higher to contribute the most to gains in the Dow, while 3M, down 1.14%, was the greatest contributor to declines.
  • Federal funds futures, used by investors and traders to place bets on central-bank policy, showed a 5% likelihood of a rate increase from the US Federal Reserve at its April 2016 policy meeting, according to data from CME Group. The odds were 12% Monday.
  • US government bonds strengthened, pushing yields to their lowest level in a month. The yield on the 10-year Treasury note fell to 1.814% from 1.870% on Monday.
  • The yield on the two-year note, which is highly sensitive to expected changes in interest rates, also reached its lowest level in a month. The yield declined to 0.796% from 0.869% on Monday.
  • Bank shares lagged as higher interest rates tend to increase the difference between what banks charge on loans and pay on deposits, which should boost earnings. The KBW Nasdaq Bank index of large US commercial lenders declined 0.8%. Bank of America declined 20 cents, or 1.5%, to $13.42. Wells Fargo & Co. fell 65 cents, or 1.3%, to 48.05, and J.P. Morgan Chase & Co. fell 37 cents, or 0.6%, to 59.03.
  • The CBOE Volatility Index (VIX) fell below 14.
  • In commodities, US crude oil fell 2.8% to $38.28 a barrel on concerns that the global supplies of crude remain too high to keep prices near $40 a barrel. Gold for March delivery rose 1.3% to $1,235.60 an ounce.
  • Over in Europe the Stoxx Europe 600 edged up 0.5%, snapping a four-day streak of declines. The DAX rose 0.37%, the FTSE closed virtually flat and the CAC40 rallied by 0.85%.
  • Basic resources delivered some of Europe's sharpest declines on Tuesday with the sector closing 2.2% down, amid a slump in oil and metal prices. Glencore fell close to 5%, closely followed by Anglo American which shed 4.33%, Rio Tinto which lost 3.84% and BHP Billiton which shed 3.65%.
  • The European banking sector got off to a good start but quickly reversed gains to end lower. Germany's Deutsche Bank slipped 1.6% after board member Karl von Rohr told a local newspaper that a culture change at the lender will take some time.
  • In Italy, the chief executive of Banco Popolare told Il Sole 24 Ore over the weekend that the €1 billion capital raised required for it to merge with Banca Popolare di Milano could be a 50% rights issue and 50% in direct placements to institutional investors. Exane BNP Paribas cut its price target for Banco Popolare but raised its price target for Banca Popolare di Milano. Both banks however finished over 3.5% lower,
  • Shares in Banca Monte Dei Paschi Di Siena opened higher after it denied a report that the European Central Bank had asked it to carry out a €3 billion capital raising. But the lender's stock reversed course, tumbling to close almost 5% down after a report that US fund Apollo is considering buying a majority stake in rival Carige and also purchase its bad loans.

See attached “The Macro Take” from Head of Asia Macro Strategist, Kay Van Peterson

Local markets

  • Bank of New York Australia ADR Index  down 0.8%. BHP Billiton ADR up 0.2%. Rio Tinto ADR down 0.5%
  • Spot gold has seen its biggest rally in two weeks as it ran up $20 to $1,241. Janet Yellen reiterated her dovish stance from March’s FOMC meeting. China’s February gold imports from Hong Kong increased from 17.6 tonnes to 42.9t. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil lost ground, with WTI and Brent down 1.7% and 1.6% to $38.47 and $39.32 respectively. Iran announced it would join talks in Qatar on April 17 but has stated it will not join in production freezes. In the next 24hrs the EIA will release US inventories data. Recently rising inventories have been above market expectations. Will the 15 oil rigs taken off-line last week impact total weekly surplus? We wait to find out. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore has declined now for a fifth day, as it lost 1.2% to $55.11. Rebar steel prices which were at odds with iron ore's rally at the beginning of the year, have now climbed 7% in two weeks. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were mostly sold down despite the USD weakening. Copper inventories saw their first decline for the month, but this did little to aid price support. In the end copper lost 0.6% to trade at $4,917. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • ANZ Roy Morgan weekly consumer confidence data at 0930 Sydney time
  • Australia mulls plan for states to charge income tax: Sky News
  • Barclays warns commodities may slump on “rush for the exits”
  • Global copper demand may be 15% lower than expected: BI
  • Dexus Property (DXS): Said to improve offer for Investa Office (IOF): AFR
  • Medibank Private (MPL): New CEO to tackle ’unsustainable’ costs: AFR
  • Recall (REC): Expands data protection portfolio
  • Virgin Australia (VAH): CEO succession planning could become part of wider review: AFR

Stock to watch

Qantas (QAN.xasx)

QAN has failed to make new highs and hold ground as its share price continues to consolidate. As it has just come off its ceiling of resistance, selling pressure could be seen when it breaks $4.00 and covers its recent technical gap of $3.97. The 200-day moving average at $3.85 would be the first profit target level, with the second level being at its upward trending line around $3.75.

Qantas share price daily chart
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Broker upgrades and downgrades

  • APA Group (APA): Raised to buy vs neutral at Goldman Sachs
  • BT Investment (BTT): Cut to equal weight vs overweight at Morgan Stanley

Performance

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AUDUSD

Despite the declines in both crude oil and copper prices, AUDUSD rallied to break above 0.76 handle on the back of the dovish comments from Yellen overnight. The upward momentum still remains strong, therefore we would not be surprised if AUDUSD tests the previous swing high of 0.7680 this week, but if commodity prices continue to fall, it is likely that the double top could be formed at 0.7680 ahead of next Tuesday’s RBA rate decision

AUDUSD daily chart
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AUS200.I

The E-mini S&P500 broke above the recent high of 2,048.75 as the near-term rate hike prospect diminished on the back of Yellen’s concerns about the inflation outlook. AUS200 sold off aggressively in the past two days but it looks to have found a support level near 4,962, which is the 50% retracement of the February low of 4,701 and the March high of 5,224. The key support levels are 4,962 and 4,986, while the resistance level is at 5,100. We are expecting a positive session today above the psychological level of 5,000.

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Charts: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more.
Source: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters


– Edited by Susan McDonald


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




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