Article / 08 October 2017 at 23:32 GMT

Today's Trade: Banks and miners lift ASX200

Trading Desk / Saxo Capital Markets
Australia
  • The local market opened higher defying weaker overseas leads
  • Oil took a downward turn as concerns eased about tropical storm Nate’s threat
  • Iron ore prices jumped sharply, although liquidity remains extremely low

By Saxo Capital Markets (Australia)

Overnight

  • The S&P 500 slipped Friday but notched its fourth consecutive week of gains.
  • The broad stock index and US government-bond prices edged lower at the end of the week after data showed the labour market lost jobs for the first time in seven years.
  • Still, the S&P 500 and Dow Jones Industrial Average pared declines throughout the day and finished the week near records. The Dow industrials fell 1.72 points, or less than 0.1%, Friday to 22,773.67, and posted a 1.6% weekly gain. The S&P 500 fell 2.74 points, or 0.1%, to 2549.33 after hitting its sixth consecutive closing high Thursday – its longest streak of records in 20 years; it rose 1.2% for the week.
  • The Nasdaq Composite eked out a gain Friday, rising 4.82 points, or less than 0.1%, to 6590.18. It was the tech-heavy index’s ninth consecutive session of gains and 55th closing high of the year.
  • Economic data in the year’s second half has been largely upbeat and corporate earnings are still solid, which has helped US stocks climb even as some investors and analysts have expressed concerns about the length of the rally.
  • General Motors rose $1.08, or 2.5%, to $44.93 and recorded a weekly gain of 11%, for its biggest jump in more than five years. Data earlier this past week showed major auto makers posted solid sales gains in September.
  • Overall the market reaction was relatively muted after the Labor Department said Friday that nonfarm employment fell by a seasonally adjusted 33,000 in September. The figure missed economists’ estimates and marked the first time since September 2010 that the labour market failed to add jobs. But other parts of the report were more encouraging – showing workers’ hourly earnings jumping and the unemployment rate falling more than expected.
  • Nascent signs of wage growth could push the Federal Reserve to raise interest rates again before the end of the year, some analysts said.
  • Federal-funds futures, used by traders to place bets on the Fed’s rate-policy outlook, showed late Friday a roughly 93% chance of higher rates by year-end, according to data from CME Group, up from 73% a week earlier.
  • Expectations of higher rates helped lift Treasury yields, with the 10-year yield up for four consecutive weeks. Inflation tends to dilute the appeal of bonds since it reduces the value of their fixed returns.
  • As US government bonds weakened, the yield on the benchmark 10-year US Treasury note climbed to 2.370% Friday from 2.352% Thursday.
  • Shares of financial companies in the S&P 500 posted a weekly advance of 1.9%, rising alongside Treasury yields. Higher yields tend to improve lending profitability.
  • Elsewhere, the Stoxx Europe 600 fell 0.4%, weighed down by losses in retail and banking stocks, but posted its fourth straight weekly again.
  • Australia’s S&P/ASX 200 rose 1% Friday, bolstered by financial stocks, and snapped a two-week losing streak.
  • Hong Kong’s Hang Seng Index rose 0.3% Friday to its highest close in almost a decade, while Japan’s Nikkei added 0.3% as exporters gained.
  • Markets in China and South Korea remained closed for public holidays.

Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC


...
 Oil took a downward turn as concerns eased about Tropical Storm Nate’s threat to
offshore crude platforms and coastal refineries. Photo: Shutterstock

Local markets and commodities

  • Bank of New York Australia ADR Index is up 0.3% to 270.4, BHP Billiton ADRs are up 0.2% to A$26.62 equivalent, a 0.0% discount to last Sydney close, Rio Tinto ADRs are up 0.7% to A$63.10 equivalent, a 8.9% discount to last Sydney close
  • Gold bounced up from a two-month low on Friday, on concerns stoked by a Russian report that North Korea is preparing to test a long-range missile and on support from the US dollar's shift into negative territory. 
  • Spot gold rose 0.54% at $1,274.92/ounce. US December gold futures settled up 0.31% at $1,277.20. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, have fallen 13.6 tons so far this week, their first weekly outflow in nine weeks and the largest since late July. 
  • Demand for physical gold in India improved slightly this week because of a correction in local prices, but restrictions on the industry and increased smuggling took the sheen off the bullion market. Gold stocks in Toronto added slightly more than 1% on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil took a downward turn as concerns eased about Tropical Storm Nate’s threat to offshore crude platforms and coastal refineries while prices broke through a key technical barrier. Futures slipped 3% in New York, bringing this week’s decline to the steepest since May.
  • While BP, Chevron and other explorers cleared workers from the Gulf of Mexico and refiners in Louisiana braced for Nate to make landfall, forecasters don’t expect the storm’s strength or track to menace most energy infrastructure. 
  • Oil’s brief rally into bull-market territory last month is fading from memory amid an Opec-led effort to whittle away a global glut stretching back to late 2016. Output from Opec increased last month and Libya restarted its biggest oil field. Meanwhile, US crude output reached a two-year high in the most recent government data. 
  • West Texas Intermediate for November delivery tumbled $1.50 to settle at $49.29/barrel on the New York Mercantile Exchange, the lowest level in three weeks. The US benchmark posted a 4.6% weekly decline. Total volume traded was about 3% above the 100-day average. 
  • Brent for December settlement declined $1.38 to end the session at $55.62 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.97 to December WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore prices jumped sharply, although liquidity remained extremely low due to China’s markets being closed for National Day and the Mid-Autumn Festival. Spot iron ore added 1.2% or $0.76 to close at $62.24. Iron ore is drifting down toward a channel where bulls would rather not see it go, the mid-$50s, where it spent the fall of 2015 and 2016. 
  • With some China-related softness ahead, the Qingdao contract could really use some positive news on a US infrastructure investment plan that may carry a price tag of $1 trillion. The trouble with that major catalyst for iron ore is that it's held up behind the tax-reform package, which doesn't look like it will move too swiftly with Republican intra-party wrangling on the horizon. Which way that swings may determine whether prices rise, like they did in 4Q 2016, or sink like they did in 2015. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Base metals were largely weaker, as the risk-off tone in markets weighed on investor appetite. However, the falls were relatively limited, with investors remaining bullish on medium outlook for the sector. Benchmark copper on the London Metal Exchange ended 0.5% down at $6667/tonne after peaking at $6724, the highest since September 12.
  • Copper ended the week 2.5% higher, driven by more supply side issues. While the earthquake in Chile looks unlikely to impact the copper industry significantly, it highlights the risks a tight market present. 
  • Three-month zinc closed 1.6% down at $3235/tonne, having reached a 10-year high of $3308.75 on Wednesday. Zinc prices have risen more than 26% this year as a Chinese crackdown on polluting industry curbed output, with inventories in LME warehouses dropping to their lowest since 2009. 
  • A shortage of immediately available metal in LME warehouses pushed the premium for LME cash zinc over the three-month contract to $65.50/tonne, close to last month's 10-year high of $66. Three-month aluminium ended 0.8% down at $2154/tonne while nickel finished with a 0.6% gain at $10,600. 
  • Tin fell by 1.9% to $20,550 by the close, with lead finishing 2.3% down at $2533. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • A2 Milk (A2M AU): China Demand Drives South Pacific’s Best- Performing Stock
  • ANZ Bank (ANZ AU), Commonwealth Bank (CBA AU), National Australia Bank (NAB AU), Westpac (WBC AU): Xenophon Opposed to South Australia State Bank Tax, AFR Says
  • BHP Billiton (BHP AU): Nate Downgraded; 1.62M B/D Gulf Output Shut In
  • NZ Oil (NZO): Directors Unanimously Recommend Higher O.G. Offer
  • Platinum Asset (PTM AU): Billionaire Stock Picker on Comeback Trail Has No Buy Ratings
  • Rio Tinto (RIO AU): Rio Is Said to Weigh Sale of Europe’s Top Aluminium Smelter; To Gear Up for Hail Creek, Kestrel Sale: AFR; Anglo American CEO Says It May Consider Rio Coal Mine Bid: AFR
  • Select Harvest (SHV): Said to have raised A$45mln to pay down debt: AFR
  • South32 (S32 AU): South Africa Union Says Strike Settled at KwaZulu-Natal
  • Technology One (TNE AU): Scheduled to release business update call

Broker upgrades and downgrades

  • Appen (APX AU): Appen cut to underperform at Taylor Collison
  • Aspen Group (APZ AU): Aspen Group new buy at Roth Capital, PT $9.60

Stock to watch: Westpac (WBC)

With roughly a month left till Westpac's reporting is due (November 6), it appears as if prices are consolidating within a channel formation with the most recent resistance being experienced below the 200-daily moving average. Support is defined at the lower channel trendline and the consolidation prepares traders of Westpac's shares for some large moves to come. We are closely monitoring the lower channel trendline with a potential break to allow us to turn negative as the market would start to turn bearish given that a clear lower swing high would have formed after prices topped out in August. It is interesting to note that prices have been below the 200-weekly moving average since May this year and only a weekly close above this longer term moving average will lead to a bullish tilt over Westpac to be established.

Westpac daily
10
 Source: SaxoTrader

Westpac weekly
1
 Source: SaxoTrader

USDCHF and AUDUSD

We first flagged the potential break over USDCHF towards the end of September as we looked towards a retest of the 200DMA. The double bottom set up and prevailing USD strength allowed the USDCHF to break the 38.2% retracement between the December 2016 high to the September 2017 low however, received a classical rejection and reversal at the 200DMA. The session close today is critical as a settlement below 0.9771 would translate Friday’s moves as a false break and could signal a larger pullback for the USDCHF. A positive close above 0.9771 should allow traders to remain bullish with another push towards the 200DMA a likely event.

USDCHF monthly
2
Source: SaxoTrader
 
We flagged last week that the true retest of the Aussie breakout sits at 0.7732 and this is the level we will focus on to build long positions should we be able to witness a positive reaction here. Friday’s selling saw this level hold and this week the test remains for the Aussie to claim higher ground. From here we develop a bullish bias and look to use every opportunity to accumulate long positions over the AUDUSD.

AUDUSD weekly
3
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more 
 
Today's data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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