Article / 13 September 2017 at 1:11 GMT

Today's Trade: Aussie shares continue to climb

Trading Desk / Saxo Capital Markets
Australia
  • The S&P/ASX 200 index up 23 points at 5770 in the first 20 minutes
  • Westpac Consumer Confidence Index is due to be released later
  • Miners are showing the way forward with BHP and Rio the stars
  • AUD keeps its value above US 80 cents

By Saxo Capital Markets

Overnight and early trading

The Australian sharemarket is showing early signs of sustainability, capable of running forward three days in a row, something its American counterparts have been doing for months.

The miners are the big winners this morning, with BHP is up 1.2%, Rio Tinto rising 1.3% and South32 is up 1.1%.

It probably has a lot to do with the record dividend payouts announced this morning.

Woolworths and Origin were also higher, but the laggards were Telstra and Sydney Airport, down 0.8% and 0.9% respectively.

Equities in Asia look set to extend gains seen around the world and Treasuries continued to decline on bets economic growth is strong enough to withstand heightened geopolitical tension.

The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite closed at records, as investors regained confidence after skirting several dire scenarios.

In the past week: Florida was spared from the catastrophic damage many had forecast from Hurricane Irma, US refiners have ramped back up after Hurricane Harvey battered Texas, North Korea hasn’t appeared to have conducted further tests of its nuclear program, and Congress passed a bill to keep the government funded before a month-end deadline.

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 HSBC bank believes the AUD will continue to rise and hit US90 cents. Photo: Shutterstock

Stocks had suffered some of their steepest daily declines in recent weeks after North Korea flexed its nuclear capabilities, with the Dow Industrials tumbling more than 200 points on three separate occasions.

The stockmarket’s ability to keep rallying after these various crises flare up and recede shows how little it takes to keep the bull market going, many money managers and analysts say.

Economic expansion in the US as well as abroad, and solid US corporate earnings have helped markets bounce back, they say.

Companies in the S&P 500 recently posted two consecutive quarters of double-digit-percentage growth from the year-earlier period for the first time since 2011, according to data provider FactSet.

The Dow Industrials rose 61.49 points, or 0.3%, to 22,118.86 Tuesday, narrowly topping its previous record close set on August 7.

The S&P 500 gained 8.37 points, or 0.3%, to 2,496.48 and the Nasdaq Composite added 22.02 points, or 0.3%, to 6,454.28. It was the first time all three major indices notched record closes together since July 26.

Shares of banks and insurers helped lead the way, reflecting an upswing in bond yields and investors’ relief that storm damage likely wouldn’t end up as burdensome as feared.

The S&P 500 financials sector rose 1.2% and shares of Goldman Sachs Group added $4.89, or 2.2%, to $225.95, accounting for more than half of the Dow industrials’ gain.

A top Goldman executive detailed how the bank could pull in $5 billion in additional revenue over the next three years at an industry conference Tuesday.

Investors also attributed financial firms’ move to rising long-term bond yields, which boosted the prospect that lenders will make more money on the difference between what they pay to get deposits and charge to lend.

The KBW Nasdaq Bank index, a measure of big U.S. banks, rose 1.6%.

As demand waned for safer assets like US government bonds, the yield on the 10-year Treasury note rose to 2.171% from 2.125% Monday.

Yields rise as bond prices fall. Other havens fell. Gold prices declined 0.2% and the yen fell against the USD.

Utilities stocks, considered bond proxies because of their relatively hefty dividends, shed 1.8% in the S&P 500, the sector’s biggest daily percentage decline since December 2016.

Information sources: Bloomberg, TradingFloor.com, WSJ.com

Local markets and commmodities

  • S&P/ASX 200 Index futures are up 0.4% to 5770 as of 0650 AEDT. Futures relative to estimated fair value suggest an early gain of 0.5%.
  • Bank of New York Australia ADR Index is up 0.6% to 281.0, BHP Billiton ADRs are up 0.6% to A$27.40 equivalent, a 1.0% premium to last Sydney close, Rio Tinto ADRs are up 0.9% to A$61.93 equivalent, a 10.0% discount to last Sydney close.
  • Gold prices fell for the second straight day on Tuesday after United Nations sanctions against North Korea were less severe than many initially expected. Gold for December delivery settled down 0.2% at $1,332.70 a troy ounce on the Comex division of the New York Mercantile Exchange, falling further after its worst day in more than two months Monday.
  • US officials eased their demands for sanctions against North Korea Monday after North Korea didn’t conduct a weekend missile test as many had previously predicted. Some analysts said the latest developments between the two countries removed some fear in the markets, with the UN Security Council sanctions less stringent than the US initially requested. Gold stocks in Toronto recovered from previous session selling to trade over 1% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Crude futures turned higher after Opec said its oil output fell in August and as US refiners continued to ramp up following Hurricane Harvey. US crude futures rose 16 cents, or 0.33%, to $48.23/barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 43 cents, or 0.8%, to $54.27/b.
  • In its monthly oil report, Opec said its production fell for the first time since April in a sign that its efforts to rein in the global supply glut are starting to pay off. Opec said on Tuesday that its output edged lower by 0.24% to 32.76 million barrels a day in August. It also said demand will be higher than it previously thought. Meanwhile Opec and its allies are discussing extending by more than three months the oil production cuts that expire in March 2018, potentially prolonging them well into the second half of next year in an effort to boost prices, according to people familiar with the matter. An extension of that duration would be needed under the worst-case scenario for the oil market that Opec ministers are now contemplating, the people said, asking not to be named because the talks were private. One option under discussion is a six-month extension, one person said.
  • Opec and other producers including Russia, Mexico and Kazakhstan pledged to reduce output by about 1.8 million barrels a day to eliminate a global surplus that was depressing prices. The deal, reached in late 2016, initially called for a six month period, which later was extended with another nine months until the end of March 2018. Despite the cuts, oil prices have struggled to break above $50/b after being weighed down by the resurgence of US shale production. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore and steel prices rose strongly as traders start ramping up buying ahead of the peak demand season. Both spot and futures markets in iron ore were stronger, driven by a rebound in steel futures prices in China. While inventories have climbed in recent weeks, this comes amid continue supply side curbs, which is likely to keep the market tight. The sector was also buoyed by the stronger producer price index (PPI), which should help support margins in the steel sector. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper for December delivery closed down 1% at $3.0360 a pound. Since crossing $3.15 last week, the industrial metal has fallen roughly 4%. Many analysts have cautioned that record amounts of speculative buying have left copper susceptible to a pullback because the market is currently relatively balanced. Aluminium closed up 0.7% at $2,137/tonne, zinc fell 0.7% to $3,061/t, lead rose 1.5% to $2,312/t, tin slipped 0.4% to $20,675/t and nickel climbed 2% to $11,990/t. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news:Companies trading ex-dividend today: Brambles, Cleanaway, Costa Group, Seven Group; Alumina (AWC): Peer Alcoa raised to buy at Deutsche Bank on aluminum forecast hike; AMP (AMP): Advisers UBS, Macquarie Capital testing Asian buyer interest for life insurance operations, although sales process isn’t imminent; Asset review likely to include divestments: AFR; ASX (ASX): Likely to make decision on blockchain-based clearing and settlement system in next 3 months: AFR; Syrah Resources (SYR): 1H results expected.

Broker regradings

- Iluka (ILU AU): Iluka Downgraded to Neutral at Credit Suisse; PT Cut to A$9.85
- Sky Network TV (SKT): Cut to hold at Morningstar
- Superloop (SLC AU): Superloop Upgraded to Add at Morgans Financial; PT A$2.81

JP225

The Nikkei (JP225) found strong support level at 19,254 that coincides with 50% retracement (2017 low, 18,192 and 2017 high. 20,317) and since then this week’s risk on sentiments are driving up JP225 which is expected to test the downtrend (from 2017 top) in the near term.

The psychological level 20,000 is also within reach and we would feel more comfortable to sell a potential false break above 20,000.

JP225 monthly chart
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AUS 200

The AUS200 is looking strong and rallying above 200 Day Moving Average on the back of the big four banks that are surging off the recent weakness, however the key resistance level remains at 5,800 where AUS200 failed to close in the last two months.

AUD200 monthly chart
Source: Both charts, Saxo Bank


--Edited by Adam Courtenay


Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call



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