Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 18 August 2016 at 0:48 GMT

Today's Trade: Banks, CSL lead ASX lower

Trading Desk / Saxo Capital Markets
  • ASX200 was down at the start after initially opening higher
  • US stocks were higher after the Fed minutes ruled out an imminent rate rise
  • Oil rose for a fifth session, making it the longest winning streak since April 2015 

By Saxo Capital Markets (Australia)

Local markets are trading lower after opening slightly higher at the start. Big banks and CSL are providing the drag. At the open, the ASX200 was down 0.4% at 5514.9 and the All Ords had fallen 0.3% to 5610.4.

The big four banks, including CBA, led local markets lower. Photo: iStock 

  • US stocks edged higher as Federal Reserve meeting minutes quelled speculation that borrowing costs could rise as soon as next month. The minutes showed officials were divided in July over the urgency to raise interest rates again, but they generally agreed to wait for more data before another move. Equities rebounded in afternoon trading, as utilities’ strongest rally in seven weeks helped overcome disappointing results from Target and Lowe’s that threatened to send stocks to their first back-to-back drop in two weeks.
  • The S&P 500 Index rose 0.2% to 2,182.22, after the gauge wiped out a 0.4% slide. The Dow Jones Industrial Average rose 21.92 points, or 0.1%, to 18,573.94, erasing an early 83-point drop. The Nasdaq Composite Index increased less than 0.1%. About 6.4 billion shares traded hands on US exchanges, 7% below the three-month average.
  • Officials said they needed more data “in order to gauge the underlying momentum in the labour market and economic activity,” the minutes released in Washington said. Since the meeting, data has been mixed with hiring showing a sharp increase while retail sales stagnated in July. Producer prices contracted last month and consumer prices were flat, bolstering the argument that inflation remains subdued.
  • Equities rebounded as utilities, financial and consumer-staples stocks shook off earlier declines. Power company Dominion Resources gained 2.6%, the most in five months. Target and Lowe’s each lost more than 5.6%, while Staples dropped 7.1% after its profit outlook was short of estimates. Cisco Systems sank 1.3% before its earnings release, after a report said it will cut as many as 14,000 jobs. Urban Outfitters soared 16% after its results exceeded analysts’ forecasts.
  • Shares fell from record highs Tuesday after New York Fed President William Dudley said the central bank could potentially raise interest rates as soon as next month. His warning that investors are underestimating the likelihood of higher borrowing costs took some momentum out of a six-week rally for stocks. Traders’ bets for a rate increase were pushed back today, with February 2017 now the first month with at least even odds of such a move, versus December before the meeting minutes were released.
  • Equities climbed to fresh peaks in the month through Monday, boosted by better-than-estimated corporate results, an improving labour market and optimism central banks will stay supportive of growth. The gains have pushed the S&P 500’s valuation relative to future earnings to the highest in more than a decade. The benchmark closed Wednesday up 6.8% in 2016, after rallying more than 19% from a 22-month low in February. 
  • The earnings season is drawing to a close, with fewer than 40 of the S&P 500 companies yet to report. So far, 78% of the firms have beaten profit projections and 56% topped on sales. While results have exceeded predictions, analysts forecast index members will still post a 2.5% drop in net income, and estimate a 0.8% decline for the quarter ending in September. That would extend the slide in earnings to a sixth period, the longest since the financial crisis.
  • Last night, seven of the S&P 500 10 main industries rose, with utilities surging 1.5%, the most since June 30, after erasing a 0.9% selloff. Financials, consumer staples and industrial stocks added at least 0.3%. Phone companies rose 0.2% after wiping out a 1% drop. Raw-materials, consumer discretionary and technology shares slipped. 
  • The CBOE Volatility Index fell 3.6% to 12.19, after reversing an 8.5% jump at midday. Retailers fell for a third day, their longest losing streak in two months. Stronger-than-forecast earnings last week from Macy’s, Kohl’s and Nordstrom had helped send the group to a record on Friday, before being dragged lower today as Target and Lowe’s suffered their worst declines since at least May. Target said sales of Apple's iPods, iPhones and other devices fell 20% at its stores during the second quarter. Apple slipped as much as 1% before closing down 0.2%. 
  • Best Buy dropped 2.9%, the most in six weeks. Joining Apple and Cisco Systems to weigh on technology shares, Nvidia fell 2.3% to stretch declines to a third session, the longest in five months.
  • European stocks posted their longest run without gains in two months, as investors speculated on whether the Federal Reserve will raise interest rates this year, earlier than expected. The Stoxx Europe 600 Index slipped 0.8% to 340.47 at the close of trading, its fourth day without a rise. 
  • Miners led declines amid weak commodity prices. Stocks fell in thin trading Tuesday as a stronger euro weighed on exporters and investors assessed New York Fed President William Dudley’s warning. The volume of Stoxx 600 shares traded today was 25% lower than the 30-day average. Investors are evaluating a recent rally that helped European shares erase their post-Brexit losses and propelled UK and German benchmarks into bull markets.

Source: Bloomberg,

Key earnings

  • AUS: Whitehaven Coal Ltd, Energy Action Ltd, Asciano Ltd, MMA Offshore Ltd, ASG Group Ltd, 1300 Smiles Ltd, RXP Services Ltd, Paragon Care Ltd, IDT Australia Ltd, Mastermyne Group Ltd, Ainsworth Game Technology Ltd, ITL Ltd, JCurve Solutions Ltd, AJ Lucas Group Ltd, MGC Pharmaceuticals Ltd, Treasury Wine Estates Ltd, Konekt Ltd, SAI Global Ltd, Brambles Ltd, ASX Ltd, Investa Office Fund, Tatts Group Ltd, Bapcor Ltd, Lifestyle Communities Ltd, Collection House Ltd, Konekt Ltd, Investa Office Fund, Origin Energy Ltd, Beacon Lighting Group Ltd, Lifestyle Communities Ltd, Brambles Ltd, Charter Hall Retail REIT, Core Exploration Ltd, Brand New Vintage Ltd, Sydney Airport, AMP Ltd, IRESS Ltd
  • US: Wal-Mart, Applied Materials, Gap, Ross Stores, Hormel Foods, Mentor Graphics, Nestle
  • AUS: Automotive Holdings Group Ltd, NetComm Wireless Ltd, Mount Gibson Iron Ltd, Villa World Ltd, Aveo Group, ARB Corp Ltd, Seven West Media Ltd, SEEK Ltd, Ardent Leisure Group, Mortgage Choice Ltd, SeaLink Travel Group Ltd, Reject Shop Ltd, Ashley Services Group Ltd, Opthea Ltd, Blackwall Ltd, Cogstate Ltd, Living Cell Technologies Ltd, 360 Capital Office Fund, 360 Capital Industrial Fund, Wellcom Group Ltd, Austock Group Ltd, HiTech Group Australia Ltd, Pharmaxis Ltd, Supply Network Ltd, Minotaur Exploration Ltd, Otherlevels Holdings Ltd, IMF Bentham Ltd, Matrix Composites & Engineering Ltd, Tassal Group Ltd, Civmec Ltd, Insurance Australia Group Ltd, Medibank Pvt Ltd, Amaysim Australia Ltd, Cover-More Group Ltd, MaxiTRANS Industries Ltd, LendLease Group, Evolution Mining Ltd, Medibank Pvt Ltd, Amaysim Australia Ltd, LendLease Group, Aphrodite Gold Ltd, Elysium Resources Ltd, Woodside Petroleum Ltd, Ausenco Ltd, Reef Casino Trust, Tempo Australia Ltd, Multistack International Ltd, iCar Asia Ltd, Santos Ltd, Simavita Ltd, Champion Iron Ltd
  • US: Deere, Estee Lauder, Foot Locker, Madison Square Garden, The Buckle

Local markets and commodities

  • Bank of New York Australia ADR Index +1.3%, BHP Billiton ADR +1.3% to $A20.85 equivalent, broadly in line with last Sydney close, Rio Tinto ADR -0.6% to $A42.10 equivalent, ~13% discount to last Sydney close
  • Gold prices pared losses on Wednesday, after mixed signals in the Federal Reserve meeting minutes did little to change skepticism over the possibility of an imminent rate increase. 
  • Gold for December delivery was recently down 0.3% at $1,353.50/troy ounce in electronic trading on Comex. After an initial selloff that took prices as low as $1,340.50/ounce, gold recovered as traders shrugged off any signs that the central bank will raise rates sooner than expected. 
  • Traders have noted that gold prices seem to be stuck in a price range in recent weeks as the market awaits further clues on whether the Fed will raise rates. This has placed increased importance on Fed speeches, meetings and minute releases. Still, many analysts say that the global picture for gold is still positive, with the economic uncertainty following Brexit and monetary easing from central banks around the world. Goldies in Toronto dropped 1.31%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Evolution Mining (EVN), Perseus (PRU), Newcrest (NCM): Mining stocks have priced in gold bull run: UBS
  • Oil rose a fifth session in New York, making the longest winning streak since April 2015 as US crude and fuel stockpiles dwindle. Crude inventories fell by 2.51 million barrels in the week ended August 12, according to an Energy Information Administration report. A Bloomberg survey ahead of the data had forecast an inventory build of 950,000 barrels.
  • Gasoline supplies dropped by 2.7 million barrels, more than the 1.7 million decline that had been forecast. Refineries used 268,000 barrels/day more crude than a week earlier. Oil production climbed by 152,000 barrels/day, in part because of an adjustment to address disparities between weekly and monthly data, according to the EIA’s website. 
  • The dollar pared earlier gains after minutes from the Federal Reserve’s latest meeting indicated officials are split on the need for a rate hike soon. A weaker dollar increases investor appetite for commodities. 
  • West Texas Intermediate for September delivery added 21 cents to settle at $46.79/barrel on the New York Mercantile Exchange, the highest since July 6. Total volume traded was 37% above the 100-day average. Brent for October settlement gained 62 cents, or 1.3%, to close at $49.85/barrel on the London-based ICE Futures Europe exchange. The global benchmark crude settled at a $2.33 premium to WTI for October delivery. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore dropped 1.9% to 60.87 as Chinese steel mills moved to the sidelines after strong gains over the past week. However, with talk of further curbs on steel making in Tangshan emerging, steel mills are not likely to remain on their hands for too long. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Benchmark copper on the London Metal Exchange ended down 0.8% at $4774/tonne. A sustained break below the 200-day moving average currently at $4726, could trigger further losses as funds sell, betting on even lower prices, traders said. 
  • Three-month aluminium was little changed at $1694 from $1693 at Tuesday's close, zinc added 0.7% to $2273, lead was up 0.2% at $1878, tin lost 0.4% to $18,350 and nickel slipped 0.4% to $10,220/tonne. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • AMP (AMP): Scheduled to release 1H results; NOTE: Adj. net income est. A$560.7m (3 analysts)
  • ASX (ASX): Scheduled to release FY results; NOTE: Adj. net income est. $A423.1mln (12 analysts)
  • Bapcor (BAP): Scheduled to release FY results; NOTE: Adj. net income est. $A43.5mln (45 analysts)
  • Brambles (BXB): Scheduled to release FY results; NOTE: Adj. net income est. $631.1mln (12 analysts)
  • Charter Hall Retail REIT (CQR): Scheduled to release 1H results; NOTE: FFO/shr est. $A0.306 (6 analysts)
  • Fonterra (FSF): Confirms early div. payment $NZ0.10/shr
  • GrainCorp (GNC): ACCC reviews co.’s proposed acquisition of Cargill storage facility
  • Investa Office Fund (IOF): Scheduled to release FY results; NOTE: FFO/shr est. $A0.282 (5 analysts)
  • Iress (IRE): Scheduled to release 1H results
  • JB Hi-Fi (JBH): May consider $A350mln-$A400mln rights issue to fund successful purchase of Good Guys: Australian
  • Link (LNK): ACCC starts review of co.’s possible bid for Pillar assets
  • Mineral Resources (MIN): Scheduled to release FY results; NOTE: Adj. net income est. $A107.2mln (4 analysts)
  • Origin Energy (ORG): Scheduled to release FY results; NOTE: Adj. net income est. $A371.5mln (12 analysts; Net income GAAP loss est. $A69.3mln (6 analysts)
  • Resmed (RMD): F&P Healthcare to defend Resmed allegations
  • SAI Global (SAI): Scheduled to release FY results; NOTE: Adj. net income est. $A57.4mln (9 analysts)
  • Sydney Airport (SYD): Scheduled to release 1H results; NOTE: Rev. est. $A660.5mln (2 analysts)
  • Tatts Group (TTS): Scheduled to release FY results; NOTE: Adj. net income est. $A265.6mln (11 analysts)
  • Treasury Wine (TWE): Scheduled to release FY results; NOTE: Adj. net income est. $A215mln (10 analysts)
  • Whitehaven Coal (WHC): Scheduled to release FY results; NOTE: Adj. net income est. $A16.4mln (12 analysts)
  • GUD Holdings (GUD): Trades ex-div

Broker upgrades and downgrades

  • Crown Resorts (CWN): Results have no rating impact: S&P
  • CSL (CSL): Cut to neutral vs overweight at JPMorgan
  • BHP (BHP): Raised to neutral at Macquarie
  • Nanosonics (NAN): Cut to hold vs buy at Canaccord Genuity
  • QBE Insurance (QBE): Cut to underweight vs neutral at JPMorgan
  • ARB Corp. (ARB): Cut to underweight vs neutral at JPMorgan
  • Bluescope (BSL): Raised to overweight vs equal weight at Morgan Stanley

Stock to watch: Woodside Petroleum (WPL:xasx) 

Woodside made a clear break yesterday above a short-term trendline that connects this year’s highs. WPL.xasx has also for the best of 2016 look to have completed a healthy consolidation phase and yesterday’s moves indicates further strengths to come. Any long positions opened today would have stops below the orange trendline. However, a conservative entry would involve a limit buy just above the orange trendline around $A27.71, again with stops below the trendline.
We target $A30 as initial level.

Source: Saxo Trader
Santos Ltd (STO:xasx) on the other hand is on the verge of a breakout above the levels that have capped its moves this year. A failure to trade higher above the orange horizontal line would constitute a triple top formation however the recent price actions over STO.xasx as well as the aggressive rebound seen in crude oil indicates that the momentum is shifting for a higher move. We see opportunities to buy on stop at $A5.00 with stop loss set at $A4.60. We are targeting the gap fill at $A5.82 as first profit target.
US500.i and EURUSD

The July FOMC minutes failed to reinforce the recent hawkish comments from Fed President William Dudley and we saw the US500 rally off its lows, erasing all the losses from the European session. It is still trading below the previous support line of the rising wedge but this morning’s price actions signal potential reversal to the upside in the near term. The key resistance level would be the recent swing high 2,194 and we may see further choppy price actions.
 Source: Saxo Trader

The US dollar weakened again as the Fed minutes were interpreted as being dovish. Uncertainties seem to remain for the September rate hike and this is the major downside risk for the gold (XAUUSD) longs. The short-term uptrend (from July low) appears to be intact and the price actions remain within the triangle pattern. A daily close above the upper line of the triangle is likely to confirm the bullish bias but a false break is also possible considering the recent choppy price actions.

Source: Saxo Trader. Create your own charts with SaxoTrader; click here to learn more 

See trade idea by Ole Hansen: Gold looks ripe for a correction.

Today's information 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. Watch the recording of this Week’s Macro Monday Call.


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