Article / 30 August 2016 at 0:49 GMT

Today's Trade: Banks and miners lead ASX200 higher

Trading Desk / Saxo Capital Markets
  • US stocks closed near a record high after an increase in consumer spending 
  • ASX200 enjoyed a modest bounce in early trade
  • The US dollar advanced against most of its major peers
  • Oil sank amid doubts producers would agree on a deal to stabilise the market
  • Iron ore fell 2.3% to its lowest since July 1
  • Japanese shares led gains among the world’s biggest equity markets

By Saxo Capital Markets (Australia)

Overnight and early trade

The ASX200 was 0.5% higher at the open, lead by the banks and resources.

US stocks closed near a record high after an increase in consumer spending underscored the strength of the world’s largest economy as traders assessed the outlook for interest rates. The dollar rose, while oil fell.

The S&P 500 Index rebounded from a three-day slide, and the dollar advanced against most of its major peers. The extra yield that 30-year bonds offer over two-year notes shrank to the lowest closing level since 2007, indicating traders are betting on higher borrowing costs. Oil sank amid doubts that producers will agree on a deal to stabilise the market when suppliers meet in September. Brazil’s Ibovespa extended the world’s biggest gain this year on speculation President Dilma Rousseff will be permanently removed from office.
  Japan's central bank chief Haruhiko Kuroda reiterated a pledge to boost stimulus if needed. Photo: iStock
The S&P 500 rose 0.5%, halting the longest slide since June. Wells Fargo & Co and Facebook contributed the most to the gauge’s advance. Herbalife Ltd climbed after billionaire Carl Icahn bought more than 2.3m shares in the embattled nutrition company, a high-profile target of fellow billionaire activist investor Bill Ackman.

The Stoxx Europe 600 Index retreated 0.2%, paring earlier losses. A gauge of automakers posted the biggest decline, while sliding oil prices dragged energy producers lower. The volume of shares changing hands was 73% lower than the 30-day average as UK markets closed for a holiday.

Japanese shares led gains among the world’s biggest equity markets after central bank chief Haruhiko Kuroda reiterated a pledge to boost stimulus if needed. 

The MSCI Emerging Markets Index fell 0.4% as Turkish and Russian shares slumped. The Ibovespa jumped amid optimism that acting President Michel Temer, who will stay on as the nation’s leader if the Senate decides to impeach Rousseff, will be able to restore confidence in Latin America’s biggest economy.

The extra yield that 30-year bonds offer over two-year notes shrank to 1.4%. History suggests that a Fed rate increase supports longer-maturity bonds more than short-dated obligations as higher borrowing costs help stem inflation and keep the economy from overheating.

The two-year Treasury yield fell four basis points, or 0.04 percentage points, to 0.81% on Monday, according to Bloomberg Bond Trader data. The 30-year yield dropped seven basis points to 2.21%. The yield on the benchmark 10-year notes slumped to 1.56%. Fed Chair Janet Yellen’s speech put the spotlight on Friday's August labor report, which is projected to show employers added 180,000 jobs, following a gain of 255,000 in July.

The dollar added 0.1% to $1.1187 per euro, and was little changed at 101.87 yen. The dollar’s advance trimmed its loss this year to 4.2%. Currency investor sentiment has shifted back and forth in recent weeks on how aggressive the Fed will be at a time when central banks in developed economies increase stimulus measures.

The MSCI Emerging Markets Currency Index fell 0.6%, with South Korea’s won sliding 1%. The rand slipped to a six-week low against the dollar as increased political risk in South Africa weighed on the currency. Brazil’s real advanced, leading gains among its major counterparts.

Source: Bloomberg,

Key earnings

AU: Ramsay Health Care Ltd, Atlas Iron, Sandfire Resources, Macquarie Atlas Roads
AU: Independence Group NL
AU: Energy World Corp Ltd

Local markets

  • Bank of New York Australia ADR Index was little changed, BHP Billiton ADR up 0.4% to A$21.26 equivalent, 1.6% premium to last Sydney close, Rio Tinto ADR up 0.5% to A$41.84 equivalent, ~14% discount to last Sydney close.
  • Gold futures touched their lowest in more than a month after Jackson Hole comments from central bankers last week boosted speculation that US interest rates may rise as soon as next month. Gold futures for December delivery added 0.1% to settle at $1,327.10 an ounce on Comex. Earlier, the metal touched $1,317.20, the lowest since July 20. Aggregate trading was 36% below the 100-day average for this time. 
  • Silver futures for December delivery gained 0.6% to $18.859 an ounce on Comex. Gold’s 2016 rally has stalled this month as rate concerns mount. Fed Chair Janet Yellen said on Friday that the case for tightening had strengthened, while Fed Vice Chairman Stanley Fischer said an increase at the September 20-21 meeting was possible. Goldies in Toronto rose 1.13%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil declined amid doubts that producers will agree on a deal to stabilize the market when global suppliers meet next month for informal talks. WTI for October delivery dropped 66 cents to settle at $46.98 a barrel on the New York Mercantile Exchange. The contract gained 0.7% to $47.64 on Friday, trimming a weekly decline. Total volume traded was 50% below the 100-day average. 
  • Brent for October settlement fell 66 cents, or 1.3%, to $49.26 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.28 premium to WTI. 
  • Oil entered a bull market on August 18, less than three weeks after tumbling into a bear market, as prices surged partly on speculation that discussions among members of the Organization of Petroleum Exporting Countries may lead to action to stabilise the market. An output freeze was proposed in February, but talks in April ended with no final accord. For a second week, money managers slashed bets on falling West Texas Intermediate crude prices by a record. 
  • While Iran supports action to stabilise the market, it won’t participate in a freeze in output before regaining its pre-sanctions share of Opec production, state-run news service Shana reported on Friday, citing Oil Minister Bijan Namdar Zanganeh. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore for January delivery in China dropped 2.3% to its lowest since July 1, falling a fourth day. According to Chinese brokerage houses, the prospect of stricter steel capacity controls and lower steel output will weigh on demand for iron ore and investors were advised to be cautiously bearish. After the ASX close yesterday, we had two rating upgrades over FMG: both S&P & Fitch upgraded FMG's rating outlook to stable. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Copper futures fell to their lowest in two months after stockpiles continue to surge: inventories tracked by exchanges in Shanghai, London and New York climbed five straight days last week to their highest since May. Copper futures for December delivery fell 0.3% to settle at $2.079 a pound on Comex in New York, after touching $2.076, the lowest since June 24. The metal slid as much as 0.6% on the Shanghai Futures Exchange before closing little changed at 36,420 yuan ($5,455) a metric ton. It dropped 2.6% last week, the most since May 13. 
  • Copper has wiped out all of its gains this year, lagging behind other metals, as supply continues to outstrip demand. Holdings in warehouses tracked by the London Metal Exchange climbed every day last week to the most since 2015 on Friday, with stockpiles in Asia surging to the most since 2013. 
  • London markets were closed Monday for a holiday so there was no trading on the LSE. Tin in Shanghai gained 0.8% to 125,200 yuan, the most since the contract was launched last March. Zinc rose 0.1% to close at 17,965 yuan, the highest since August 2011 and nickel climbed 0.3%, rebounding from the lowest close since July 8. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Trades ex-div: AGL Energy (AGL), Alumina (AWC), Bapcor (BAP), Bega Cheese (BGA), Boral (BLD), Greencross (GXL), SAI Global (SAI)
  • BHP Billiton (BHP): Scheduled to host update on Samarco; BP, BHP begin qualification process to bid for Pemex JV
  • Commonwealth Bank (CBA): To close India operations: Website
  • CSL (CSL): Gets FDA approval for 2nd quadrivalent flu vaccine
  • Flexigroup (FXL): Scheduled to release FY results; NOTE: Adj. net income est. A$96.97m (7 analysts)
  • Gateway Lifestyle (GTY): Scheduled to release FY results; NOTE: Adj. net income est. A$44.7m (6 analysts)
  • Macquarie Atlas (MQA): Scheduled to release 1H results
  • Ramsay Health Care (RHC): Scheduled to release FY results; NOTE: Adj. net income est. A$473.1m (11 analysts)
  • Sandfire Resources (SFR): Scheduled to release FY results; NOTE: Adj. net income est. A$55.5m (14 analysts)
  • Veda (VED): Among bidders for ASIC registry business: AFR
  • Woodside (WPL): Finance unit to hold fixed income investor meetings this week
  • Woolworths (WOW): Lowes accuses co. of ‘bad faith’ in JV wind up

Broker upgrades and downgrades

  • A2 Milk (A2M): Cut to neutral vs buy at Goldman Sachs
  • Evolution (EVN): Raised to buy vs neutral at UBS
  • Saracen Minerals (SAR): Raised to hold vs sell at Wilsons
  • Select Harvests (SHV): Raised to hold vs sell at Wilsons

Stock to watch

Saracen Minerals (SAR.xasx)

After almost four years of consolidation between 2012 and 2015, SAR made a break out towards the end of 2015 above 0.50. Since then it has risen nearly 300% to make an all-time high of 1.86 earlier this month but it has been erasing some of these gains in line with the recent plunge in gold prices. Yesterday’s decline pushed the price down towards the long-term uptrend (from the break-out level 0.50) which could act as an interim support level. It may continue to sell if this uptrend is broken but we see short-term buying opportunities near 1.35.
SAR weekly chart

We saw retracements across currencies, bonds and precious metals last night. Copper (HG) looks to be losing the downside momentum as it has found an interim support level above 207 and AUDUSD bounced off 0.7522, which is the 38.2% retracement level between the May low of 0.7145 and the August high of 0.7755. We now focus on the next resistance levels, 0.7580-0.76, which could be tested if the current recovery continues.
AUDUSD daily chart
 Source: Saxo Bank

The short-term uptrend (from the August low) was broken and AUS200 looked weak yesterday as the banks weighed down, but last night US500 recovered all the losses from Friday’s sell-off, so AUS200 also retraced in the SYCOM session. The resistance level would be 5,500 and the key support level is 5,400, which is likely to be tested in the near term.
AUS200 daily chart
 All 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 its daily morning call on Periscope at 0945: #SaxoAPAC. 

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