Article / 17 April 2015 at 1:02 GMT

Today's Trade: AUDUSD rallies, ore price dips, S&P/ASX 200 opens lower

Trading Desk / Saxo Capital Markets
Australia
  • The benchmark S&P/ASX 200 opened lower, echoing stocks in the US and Europe
  • Falling ore prices mean more pain for miners, but oil has had a welcome rise
  • The resilient Aussie dollar rallied overnight, defying the pessimists


By Saxo Capital Markets Australia

Overnight / early trading

Trends in global markets overnight and fears of a Greek exit from the Eurozone have set the tone and direction for the Australian sharemarket. Resources and financial stocks are down, and yet another fall in the iron ore price has hurt the top miners. But the firming oil price has given a boost to energy stocks. The benchmark S&P/ASX 200 had dipped by 0.48% to 5,918.9 at 10:57 am.

US stocks stalled last night following two sessions of gains, as a stream of positive earnings reports and well-received initial public offerings failed to lift major benchmarks higher. The Dow Jones Industrial Average slipped 6.84 points, or less than 0.1%, to 18105.77. The S&P 500 index lost 1.64 points, or 0.1%, to 2104.99. The Nasdaq Composite Index slipped 3.23 points, or 0.1%, to 5007.79.


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Strong Australian employment figures gave the AUDUSD a boost, and it extended its rally overnight. Photo: iStock
 

Investors focused on a flurry of positive earnings reports from some of the biggest banks in the US, which helped buoy the financial sector. Financial companies in the S&P 500 gained 0.1%.
Shares of Citigroup Inc. rose 1.5% after the bank reported its first-quarter profit jumped a bigger-than-expected 21%. Goldman Sachs Group Inc. said its first-quarter profit and revenue rose, with results beating analysts’ expectations. Still, shares fell 0.4%.

Losses in European markets had kept U.S. shares under pressure last night: Germany’s DAX fell 1.9% and France’s CAC 40 lost 0.6%, as German government bonds hit record highs.
Oil gains, failed to pull energy stocks out of negative territory, with the S&P 500 Energy Index losing 0.3%.

Local markets

  • The S&P/ASX 200 Index futures contract fell 0.1% to 5,938; futures relative to estimated fair value suggest an early gain of 0.1%.
  • Bank of New York Australia ADR Index +1.6%, BHP Billiton ADR +1.5% in 3rd day rise, Rio Tinto ADR -0.3%
  • Spot gold shed 0.3% last night Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR
  • Oil rose but only slightly, with Brent lifting the most at 0.4% to trade at a 2015 high of $63.79. Al-Qaeda took over some key assets in southern Yemen, including an oil terminal. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore lost 1.1% to fall below USD 50 a tonne, now at $49.78. FMG yesterday reported their quarterly earnings. It is their plan to lift output another 10 million tonnes this financial year. Iron ore stocks to watch: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were strong across the board with copper up 2.1% to US$6,088/t. With the share rally in China really taking a grip, according to Stanley Druckenmiller we can expect a kick in growth from China within the year. It is the lift in their stock market that is beginning to flow over to base metals. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Ex-Dividend: New Hope (NHC)
  • BHP (BHP): Colombia nickel mine strike cuts output to 60%: union
  • Fortescue (FMG): Corporate family rating cut to Ba2 from Ba1 by Moody’s
  • Primary Health (PRY): Hires UBS as strategic adviser. NOTE AFR in March said co. attracts interest from private equity
  • Rio Tinto (RIO): CEO says iron ore output $17/ton vs $19.50/ton yr ago; under fire from indigenous group on iron ore: AFR
  • Santos (STO): 1Q output expected
Data points

Friday
  • EUR: Current Account, Final CPI y/y, Final Core CPI y/y
  • GBP Average Earnings Index 3m/y, Claimant Count Change, Unemployment Rate
  • G20 Meetings
  • CAD: Core CPI m/m, Core Retail Sales m/m, CPI m/m, Foreign Securities Purchases, Retail Sales m/m
  • US CPI m/m, Core CPI m/m, Prelim UoM Consumer Sentiment
  • US Earnings: GE, Honeywell, Synchrony Financial, Comerica


A pending ASX trade

Australian Agricultural Company Limited (Ticker: AAC.xasx) –  one of our top picks for the year, as outlined in Special edition: Australia market forecast, 2015 –  is Australia’s largest provider of beef and agricultural products, servicing both domestic and international markets. The company has three main profit drivers: meat sales, cattle sales, and crop sales. With a market capitalization of $833 million and a recent introduction to the S&P/ASX200, AAC will begin to get much more coverage from both institutional, retail and international investors.

Fundamental view on AAC

  1. Key tailwinds for AAC; a sound business restructure has moved their revenue away from the volatile live cattle sales income, to the more stable and predictable meat packaging. In the past 12 months meat packaging has increased from 50% to 76% of total revenue.
  2. AAC has strategically moved up the supply chain for value adding purposes, choosing the key export hub of Darwin in northern Australia for its abattoir. Darwin is a key for distribution throughout the Asian markets.
  3. A key driver for live imports into the future is the Indonesian cattle market. This quarter Indonesian allowed 250,000 head of live cattle to be imported from Australia. The main reason for this being the rising prices of meat in Indonesia for the upcoming Ramadan festival.
  4. Recent free trade agreement with China and Korea will also boost sales
  5. AAC receives US dollars for their exports and the current long-term decline in the AUD is a benefit.
  6. Domestic cattle sales in the first half of 2015 have seen a slight decline, due to a prolonged dry season, there has been an increase in grain and fodder costs. Farmers are opting to hold off on the purchase of new livestock until conditions improve. However this may provoke international accumulation for strategic investment purposes.
  7. AAC operates within a consumer defensive sector of the economy
  8. First half of 2015 meat sales were USD 115.5 million
  9. Examining recent price action, we feel the stock has finally reversed bearish trends and now looks to make a further move to the topside.

Technical factors that back our view

  1. Earlier this year, on January 27 and 30, this stock managed to close above $1.60; also making a four-year high of $1.67, however failed to continue its momentum and was sold down to a low of $1.48. After months of consolidation, the stock has now rebounded back above $1.60 and has closed above $1.60 for three straight weeks and is also on track to close above this level again for the fourth straight week – a price which has acted as major resistance level during the past 4 years.
  2. On the weekly chart the RSI and Stochastic is building momentum to breakout to the upside marked by points A and B.
  3. A look at the monthly chart below reveals that the stock has fallen 70% from a high of $3.40 made back on January 31, 2008 to a low of $0.95 in June 2012 and has since consolidated in a trading range between $1.60-$1.00, for four years.

AAC weekly chart
Weekly
























 

AAC monthly chart

Monthly
























Trade idea

Buy AAC.xasx on stop $1.68, limit $1.70

Stop loss: at $1.58

Profit target: $2.20.

Time horizon: This is a good until cancel trade

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NOTE: CFD Margin is 25%



Current ASX trades

  • AMP Limited (Ticker: AMP:xasx): Entered long position on February 6 at $6.10. First profit target was reached on February 18 at $6.49 (C +6.4%) and second profit target at $7.12 (C +16.7%) and third and final profit target at $8.00 (C +31%) remains in place. Stop loss trailed to entry price of $6.10
  • Flightcentre (Ticker: FLT:xasx): Entered short position on March 9 at $43.05. Stop loss has been trailed now to our open price of $43.05 (-0.0%). First profit target was reached on Mar 11 at $40.56 (+5.8%), second profit target is $39.74 (+7.6%) and final profit target is $38.40 (+10.8%).

Broker upgrades

  • No upgrades today

Broker downgrades
   
  • Aurizon (AZJ): Cut to sector perform vs outperform at RBC Capital
  • Echo Entertainment (EGP): Cut to underperform vs outperform at Credit Suisse
  • Iluka (ILU): Cut to underweight vs neutral at Commonwealth Bank
  • Whitehaven (WHC): 3Q output expected; cut to hold vs add at Morgans

Bullish on ASXSP200.I

The S&P/ASX200 is still managing to trade above the uptrend line as the S&P500 continues to hover around the all-time high levels, which for now is acting as a point of resistance (see chart below).

We retain the view that ASXSP200 is forming a bullish ascending triangle in order to push above 6,000 level and this is expected to happen either when S&P500 makes a fresh high above the current triple top or when the RBA cuts the interest rate by 25 basis poinst. Our long trade from yesterday was filled (at 5,923) and we are currently 13 points in the money (see yesterday's edition of Today's Trade, entitled Today's Trade: US stocks up as ASX200 uptrend intact).

S&P/ASX200 uptrend
  SP200 DO



















 
S&P500 CFD trend

SP500





















Jobs news drives AUDUSD rally

Following strong Australian employment figures yesterday, the AUDUSD extended its rally overnight reaching high of 0.7821 as US dollar weakened on the back of the soft economic data (building permits, unemployment claims and housing starts) and also some dovish comments from some Fed officials indicating that the rate hike should be delayed.

We expect AUDUSD to remain bullish but it should find some resistance near 0.7850 level, which has been a key resistance level previously. Tonight’s US CPI (10:30pm) will be a major economic data release that will have influence on major currencies.

Short AUDUSD

Entry: Limit 0.7847

Target: 0.7759

Stop loss: 0.7876

AUDUSD DO


















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Sources: AFR, SMH, CNBC, BBG, WSJ



– Edited by Robert Ryan

For more on forex, click here.

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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