Article / 25 October 2017 at 23:34 GMT

Today's Trade: Banks and miners weigh on ASX

Trading Desk / Saxo Capital Markets
Australia
  • The ASX200 opened 0.34% lower on Wall St's lead
  • ANZ bank reported an 18% rise in profit but warned of tough times ahead
  • The Aussie dollar is extending yesterday's fall after the soft CPI numbers
  • Gold prices edged higher, buoyed by a weaker US dollar and falling stock market
  • Oil fell on the biggest surge in US output in half a decade 

By Saxo Capital Markets (Australia)

Overnight
  
  • US stocks dropped the most in seven weeks while the dollar slumped as an uneven batch of corporate earnings reports thwarted a risk-on rally and turmoil in Washington threatened the President’s tax overhaul.
  • A raft of downbeat earnings sparked broad declines in US stocks, sending the Dow industrials down 112 points in their worst day since early September.
  • Results from American companies have generally been solid, investors and analysts said. But after several quarters of strong earnings, some cautioned that expectations are high, which could limit gains in stocks.
  • The Dow Jones Industrial Average closed down 0.5% at 23329.46 after shedding 191 points earlier in the session. The S&P 500 declined 11.98 points, or 0.5%, to 2557.15, with all 11 of its major sectors posting losses. Both indices had their worst session since September 5. The Nasdaq Composite shed 34.54 points, or 0.5%, to 6563.89.
  • Roughly 36% of the S&P 500 has reported earnings as of late Wednesday, and 74% of those firms have beat expectations compared with the five-year average of 69%, according to FactSet.
  • Shares of Chipotle Mexican Grill fell $47.29, or 15%, to $277.01 – its worst day in five years – after the fast-casual chain missed forecasts for earnings and sales and said it would open fewer locations than previously forecast.
  • Advanced Micro Devices shares tumbled $1.92, or 13%, to $12.33 after the chip maker forecast margins to remain flat and revenue to decrease in the current quarter.
  • AT&T, Boeing and Dr. Pepper Snapple Group also traded lower after the firms released results.
  • Government bond investors largely focused on the outlook from central banks. The yield on the 10-year US Treasury note rose to 2.444% Wednesday – its highest close since March – from 2.406% Tuesday amid speculation about who the next Federal Reserve chair will be. Yields rise as prices fall.
  • Treasuries extended losses after data was released showing demand for long-lasting US factory goods remained robust last month.
  • The European Central Bank is widely expected to announce plans to unwind its massive bond-purchase program at its meeting on Thursday, keeping some investors on edge. The program has made European government debt more scarce and helped drag down yields globally.
  • The Bank of Canada on Wednesday left its policy interest rate unchanged at 1% after increases in July and September, vowing to be cautious in future deliberations as growth is expected to slow.
  • The British pound jumped 0.9% against the dollar after third-quarter UK GDP rose 0.4%, reinforcing expectations for the Bank of England to raise interest rates as soon as next month.
  • The Stoxx Europe 600 fell 0.6%, with a flurry of corporate results driving swings in individual stocks.

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

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 ANZ released its full-year reporting, which saw its cash profit rise 18% as bad debts declined. Photo: Shutterstock

Local markets and commodities

  • Bank of New York Australia ADR Index is down 1.7%, the most since August 17, to 273.1, BHP Billiton ADRs are down 1.9% to A$26.46 equivalent, a 1.3% discount to last Sydney close, Rio Tinto ADRs are down 1.8% to A$61.18 equivalent, a 12.1% discount to last Sydney close
  • Gold prices edged higher Wednesday, buoyed by a weaker dollar and a falling stock market. Gold for December delivery closed up 0.1% at $1,279/troy ounce on Comex. Gold futures also rebounded as 21,129 contracts, each representing 100 ounces, traded in a span of five minutes at around 0910 EST on Comex. Trading surged as the dollar dropped, heading for the first loss in four sessions. Goldies in Toronto fell marginally, down 0.2%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil fell as the biggest surge in US output in half a decade overshadowed record overseas demand for American crude and fuels. West Texas Intermediate for December delivery slipped 29 cents to settle at $52.18/barrel. Total volume traded was about 9% below the 100-day average. 
  • Brent for December settlement rose 11 cents to end the session at $58.44 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.26 to WTI, the widest in more than four weeks. 
  • Daily exports of American crude, diesel and other petroleum products climbed to a record 7.66 million barrels last week, signalling stronger demand, the Energy Information Administration said in a report Wednesday.  
  • In another positive sign, oil supplies at the key Cushing, Oklahoma, pipeline hub decreased for the first time since August, while gasoline supplies fell by 5.47 million barrels and distillate supplies dropped by 5.25 million barrels. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore prices were relatively unchanged, despite steel futures pushing higher in China. Spot iron ore lost 0.3% to $62.24/tonne. Hot-rolled coil and steel rebar futures pushed higher as sentiment continues to pick up off the back of steel mill capacity closures around Beijing. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper dropped 0.5% after reaching a four-year high in Shanghai and base metals in general barely kept its head above water. Copper slipped lower for the first time in three days, despite further reports of market tightness. The International Copper Study Group said that it sees a 150,000 tonne deficit forming in 2017, falling slightly to a 201,000 tonne deficit next year. 
  • Aluminium was one of the rare metals to end the day higher, after Chinese producers called for more curbs on speculation. Chalco, China’s largest producer, said that, “all of society should curb speculation that distorts markets”. Profit-taking hit nickel prices. 
  • European mining stocks dropped, led by Antofagasta and Fresnillo after both companies reported Q3 production results that missed some estimates. Stoxx Europe 600 Basic Resources index fell heavily in London. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In early reporting: ANZ released its full-year reporting, which saw its cash profit rise 18% as bad debts declined. Unaudited cash profit, which excludes one-time items, rose to A$6.94 billion ($5.3 billion) in the 12 months ended September 30, from A$5.9 billion a year earlier. That compares with the A$6.97 billion median estimate of 13 analysts surveyed by Bloomberg. 
  • ANZ Chief Executive Officer Shayne Elliott is in the process of reshaping the bank to focus on its more profitable domestic banking operations. Over the past 18 months he has sold a range of overseas businesses, including a stake in Shanghai Rural Commercial Bank and retail operations in five Asian markets, a legacy of his predecessor’s ill-fated expansion. The bank is also slimming down domestically, last week selling its wealth advisory unit to IOOF Holdings and is looking to spin off or sell its life insurance division.
  • Blackmores (BKL AU): Annual Meeting and Q1 Results Expected
  • Challenger (CGF AU): Annual Meeting Scheduled; Note: Company in August Forecast FY18 Normalised Pre-Tax Profit A$545m-A$565m
  • Cleanaway (CWY AU): Annual Meeting Scheduled
  • GrainCorp (GNC AU): GrainCorp Says Australia’s Wheat Exports to Drop Substantially
  • GUD Holdings (GUD AU): Annual Meeting Scheduled
  • Nufarm (NUF AU): Nufarm Starts Entitlement Offer Shortfall Bookbuild: Terms; Raised to Add at Morgans Financial, PT A$10
  • OceanaGold (OGC AU): Options Imply Elevated Post-Earnings Volatility
  • Origin Energy (ORG AU): Shell’s QCLNG Plant Plans Maintenance Shutdowns Nov., Feb.: AEMO
  • Resolute Mining (RSG AU): Ivory Coast Grants Gold Exploration License to Resolute Mining
  • Star Entertainment (SGR AU): Annual Meeting Scheduled; Note: Co. in August Said FY18 Showing Domestic Gaming Growth
  • Steadfast Group (SDF AU): Annual Meeting Scheduled
  • Westpac (WBC AU): Westpac International Head Swaminathan Said to be Stepping Down

Broker upgrades and downgrades

  • Appen (APX AU): Appen Raised to Market Perform at Taylor Collison; PT A$4.65
  • CBA (CBA AU): Cut to Hold at Bell Potter, PT A$82.10
  • ERM Power (EPW AU): ERM Power New Overweight at JPMorgan, PT A$1.65
  • Independence Group (IGO AU): Cut to Underperform at Credit Suisse
  • Infigen (IFN AU): Reinstated at JPMorgan With Neutral; PT A$0.72

ASX company release

  • Thursday: Tatts AGM Tabcorp merger update expected
  • Friday: Qantas AGM; Tabcorp AGM Tatts merger update expected

AUDUSD

AU CPI numbers were the highest (0.6%) this year but AUDUSD sold off sharply lower as it missed the forecast 0.8% and Trimmed Mean CPI printed lower than the previous two quarters. Another main driver behind the selloff in AUDUSD was the aggressive decline in yield spread between AU 10 years and US 10 years. This spread hit the lowest level since July as it broke below 30 basis points. AUDUSD seems to have found an interim support level near the 0.77 handle where 200DMA crosses the downtrend from 2016 high 0.7835.

AUDUSD monthly
1
 Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more 

Source: Bloomberg

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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