- Local shares are jumping higher, led by banks and miners
- Aussie dollar is hovering around 10-month highs
- A Kuwait strike is keeping oil prices off daily lows and iron ore is up 3.6% to $60.36
- Australians look set for possible double-dissolution election on July 2
- RBA minutes today but reaction should be minimal
By Saxo Capital Markets (Australia)
Australian stocks jumped at the open, the ASX 200 braking through 5200 points for the first time since January
, and the Australian dollar was up as oil recovered lost ground.
Australia looks to be heading towards a July 2 double-dissolution election, which would make interest rate cuts unlikely in the second quarter.
Rate cuts by the RBA look to be off the table in the second quarter as a national election campaign is carried out. Photo: iStock
- Stocks rose overnight as crude reversed early losses. Energy stocks rose most in the S&P 500, gaining 1.6% despite US crude oil clocking a loss of 1.4% to $39.78 a barrel.
- The Dow Jones Industrial Average rose 107 points, or 0.6%, to 18004, closing above 18000 for the first time since July 20. The S&P 500 added 0.7% and the Nasdaq Composite gained 0.4%.
- All of the S&P 500’s sectors rose — marking a reversal from early losses. Consumer discretionary and health care were the second and third-best performers in the S&P.
- The Dow has now gained nearly 15% since mid-February, as early-year fears about the US economy faded, oil prices rebounded and the Federal Reserve signalled a cautious approach to raising rates. With last night’s advance, the Dow is up 3.3% for the year.
- The biggest gainer in the S&P 500 was Hasbro, which saw its shares rally 5.8% as sales for the toy maker in the US and Canada rose.
- Walt Disney shares rose 2.9% after a new version of “The Jungle Book” opened this weekend and topped the box office with strong sales. Disney’s move added about 20 points to the Dow industrials.
- Morgan Stanley posted better-than-expected earnings per share with revenue coming in roughly in line. Its shares closed slightly lower by 0.12%.
- The CBOE Volatility Index (VIX) closed at 13.35.
- Over in Europe, the Stoxx Europe 600 advanced 0.4%. The DAX gained 0.68%, the FTSE added 0.15% and the CAC rose 0.26%.
- Energy, along with technology, was Europe's worst-performing stock sector, with France's Total among the worst-hit, down 0.71%.
- In corporate news, Spain's Caixabank launched a full takeover bid for Portugal's BPI offering to pay €1.113 ($1.26) per share to buy the stake which it doesn't already own. Shares of the Spanish bank closed 2.99% lower.
- Autos was another top-performing sector, with BMW leading the way, up 2.6%, after Goldman Sachs raised its rating on the stock from sell to buy.
Key earnings this week:
Tuesday: Goldman Sachs, Johnson & Johnson, UnitedHealth, Harley-Davidson, Kansas City Southern, Northern Trust, TD Ameritrade, Intel, Yahoo, Discover Financial, VMWare, Intuitive Surgical, Philip Morris, Omnicom
Wednesday: American Express, Coca-Cola, Abbott Labs, EMC, SLM, F5 Networks, Mattel, United Continental, Qualcomm, Stryker, Las Vegas Sands, Tractor Supply, Yum Brands, U.S. Bancorp, Illinois Tool Works, Canadian Pacific, St. Jude Medical
Thursday: Alphabet, Microsoft, General Motors, Visa, Starbucks, Bank of NY Mellon, Biogen, Under Armour, Southwest Air, Stanley Black and Decker, Imax, Novartis, Union Paicific, DR Horton, Fifth Third, Johnson Controls, Pulte Group, Polaris, Alaska Air, Verizon, Travelers, ETrade, Norfolk Southern, Boston Beer
Friday: General Electric, Caterpillar, McDonald's, Honeywell, AutoNation, American Airlines, Synchrony Financial, Kimberly-Clark, SunTrust, Lyondell Basell, Steve Madden, Daimler
- Bank of New York Australia ADR Index up 1.6%. BHP Billiton ADR up 3.4%. Rio Tinto ADR up 2.5%
- Spot gold gave up just 0.1% in yesterday’s trade, finishing at $1,233. Indian jewellers have now given up on their strike, which will contribute to the need for physical demand worldwide. During the day’s trading there was unusually little volatile in the price given the swings taken place in oil prices. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Crude oil fell as much as 7% yesterday before closing well off its daily and monthly lows. In the end WTI and Brent closed down just 1.4% and 0.5% to $39.78 and $42.86 respectively. A strike in Kuwait, which looks to cut output levels by more than half, is keeping prices off their daily lows. Goldman Sachs, citing a gradual decline in non-Opec production as well as maintenance of oil fields following Q1 price lows, is seeing fundamentals being restored slowly. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore has stepped up 3.6% to $60.36. Strong demand from steel mills at present is propping up iron ore prices and allowing for higher margins. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Base metals were up across the board as a recovery in oil added support to metals. Nickel was the best performer as it rose 2.2% to $9,115/t. Copper, which had broken its 100-day moving average last week is now holding at around $4,825/t. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
- APN News & Media (APN): Hires Grant Samuel for NZ demerger, Australian reports
- Beach Energy (BPT): Beach Petroleum Egypt sale for up to $20.5m
- Paladin (PDN): Sees FY16 output ~5m lb; talks advanced on investment
- Qantas (QAN): Yesterday’s drop was most in two years
- Recall Holdings (REC AU): Shareholders due to vote on takeover by Iron Mountain
- Rio Tinto (RIO) released its first quarter production results. Rio is cutting its iron ore production guidance for next year by as much as 20 million tonnes, but remains on track to meet output guidance for 2016. Rio said Pilbara production was expected to be between 330 million and 340 million tonnes in 2017, compared with previous guidance of 350 million tonnes, "subject to final productivity and capital expenditure plans".
- Oil Search (OSH): Set to report first-quarter production
- Australia heads for July 2 poll: Australians will go to the polls on July 2 in the first double dissolution election in almost three decades after the Senate voted 36-34 to defeat a key industrial relations bill
Stock to watch
QAN yesterday suffered its greatest one-day loss in two years following a company announcement on their future capacity. Down 14% intraday, QAN fought back to close off 10%.
QAN has struggled to make new highs since October 2015 after a number of attempts. However, while sold off heavily QAN has not broken prior lows, keeping it in a swinging pricing range from July 2015 to today. Yesterday’s low was 2c off November's low.
QAN has found strong support at $3.50 which held up when both the 200DMA and the double bottom at $3.68 did not. One force that may be going against QAN today, however, is the recovery in oil overnight.
QAN daily chart
Broker upgrades and downgrades
- Transurban (TCL): Cut to sector perform from outperform at RBC
AUDUSD made a fresh high to break 0.7750 on the back of the strong rebounds from both copper and iron ore. If 0.7725 becomes a support level, then AUDUSD is likely to push higher towards the next resistance level of 0.7850, which is the 38.2% retracement between the 2014 high of 0.9505 and the 2016 low of 0.6826. The upside momentum of AUDUSD is expected to remain strong given the current risk-on conditions. The RBA monetary policy meeting minutes are released at 1130 local time but the reactions should be quite minimal.
AUDUSD daily chart
The e-mini S&P500 futures (ES) rallied sharply higher to break the recent swing high of 2,081.75 and at the same time, it also made a breakout above the downtrend line that started from May last year. AUS200 also rose to touch 5,200, which has been the solid resistance level back in March, therefore we may see some selling pressure although there is a scope for further extension of the recent rally. The price actions of the banks would be the key as both CBA and WBC have been hovering at the key resistance levels of 75 and 31 respectively.
AUS200.I daily chart
Source all charts: Saxo Bank. Create your own charts with SaxoTrader. Click here to learn more
Today's trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
-- Edited by Susan McDonald