Article / 30 September 2016 at 1:14 GMT

Today's Trade: Banks drags S&P/ASX200 sharply lower at the open

Trading Desk / Saxo Capital Markets
  • All four big banks have headed sharply lower today
  • The banks have dragged the S&P/ASX200 into the red
  • The Australian dollar lost ground after hitting resistance at 0.77
  • Oil extended its rally; it hit a one-month high on Opec’s agreement to cut output

By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX200 has fallen heavily in early trading; the benchmark index was down 0.93% to 5,420.20 at 1055 AEST (0055 GMT).
  • US stocks fell as banks retreated amid growing concern that Deutsche Bank AG’s woes will spread to the global financial sector. Health-care shares sank on speculation tighter regulations will crimp profits. Financial shares erased gains and tumbled 1.5% after a Bloomberg News report that signaled growing concern among some Deutsche Bank AG clients roiled markets. A number of funds that clear derivatives trades with Deutsche withdrew some excess cash and positions held at the lender, according to an internal bank document seen by Bloomberg. Johnson & Johnson and Pfizer Inc. fell more than 1.7%, pacing declines among drug companies.
 Top miners including BHP Billiton are the stocks to watch, with copper and iron ore prices making gains. Photo: iStock

  • The S&P 500 Index slid 0.9% to 2,151.13, after falling as low as 2,145, the level that marked the bottom of a selloff on Monday. The Dow Jones Industrial Average declined 195.79 points, or 1.1%, to 18,143.45, and the Nasdaq Composite Index lost 0.9%.
  • About 7.7 billion shares traded hands on US exchanges, 17% more than the three-month average. The S&P 500 trades at 18.4 times forecast earnings, the highest since 2002. The main U.S. equity benchmark slipped below its average price during the past 50 days on Thursday, while erasing its climb for the month. Stocks fluctuated earlier amid a gain in energy shares sparked by the first output-reduction decision by Opec in eight years.
  • The CBOE Volatility Index (VIX) traded near 14.18, about 14.29 percent higher.
  • All of the 11 main industries in the S&P 500 retreated Thursday. Health-care shares paced declines with a 1.8% rout, led by drugmakers on concern that a Hillary Clinton presidency would tighten regulations on the industry and hurt profits. Financials and utilities tumbled more than 1.4%. Banks in the benchmark sank 1.6%.
  • Deutsche Bank fell to all-time lows on Monday amid concerns that mounting legal bills may force the lender to raise capital. That dragged lenders in the S&P 500 to the steepest slide in almost three months. The CBOE Volatility Index on Thursday jumped nearly 27% before paring the surge to 13% by the close of trading. The measure of market turmoil known as the VIX is now on track for a second straight monthly gain.
  • Investors were also reminded today that borrowing costs may be rising before year-end, with a handful of Federal Reserve officials publicly endorsing a rate hike in the near-term. Fed Bank of Atlanta President Dennis Lockhart on Thursday said the central bank is nearing its goals of maximum employment and steady inflation near 2 percent, a day after Chair Janet Yellen testified that jobs growth will likely soon warrant tighter policy.
  • The latest eruption of selling spurred by anxiety over banks reignited a bout of turbulence from earlier this month. Markets had calmed briefly, after the Fed’s decision last week to leave rates unchanged and signals of a slower pace of future increases soothed investors. The S&P 500 is on the verge of a second-straight monthly loss and its worst since January.
  • Wells Fargo & Co. fell 2.1% and was headed toward the worst month since 2010, as Chief Executive John Stumpf endured a second day of withering assaults from lawmakers furious over the bank’s fake-account scandal. The bank was also said to be facing sanctions over improperly repossessing cars owned by members of the military. Among other banks, Citigroup Inc. dropped 2.3% to a seven-week low. Within the health-care group, biotechnology shares skidded to a three-month low, with EpiPen maker Mylan NV losing 4.4%, while Celgene Corp. and Allergan Plc declined at least 2.8%. Drug giant Merck & Co. fell 2.2%, the second-worst in the Dow behind Goldman Sachs Group Inc.’s 2.8% retreat.
  • Energy producers were little changed along with phone companies. Crude oil extended yesterday’s rally, rising to a one-month high after Opec’s agreement to reduce production.
  • Murphy Oil Corp. and Transocean Ltd. added more than 4.9%. Still, refiners Valero Energy Corp. and Tesoro Corp. lost at least 6.1% to help offset those gains.
  • Over in Europe, stock indices closed flat Thursday, in spite of a strong performance in basic resources and energy stocks as excitement over yesterday's news of a possible OPEC production deal sagged.
  • The pan-European Stoxx 600 index closed flat while the U.K.'s basic resources-heavy FTSE 100 ended up 1.02%, the French CAC index closed 0.26% higher and the German DAX was 0.31% lower.
  • Source: Bloomberg,
Local markets
  • Bank of New York Australia ADR Index -0.9%, BHP Billiton ADR +0.9% to A$22.53 equivalent, 0.6% premium to last Sydney close, Rio Tinto ADR -0.1% to A$44.14 equivalent, 15% discount to last Sydney close.
  • A slightly stronger US dollar saw gold prices struggle to gain any traction. This is despite heightened safe haven buying in global markets as anxiety grows over Deutsche Bank’s finances. Holdings in ETFs backed by gold rose 0.51 tonnes to 2,032.2 tonnes on Wednesday. Gold stocks were flat in Toronto on Thursday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil rose to a one-month high after Opec agreed to reduce production for the first time in eight years, surprising traders who had expected members to maintain output. Futures climbed 1.7% after surging 5.3% on Wednesday. West Texas Intermediate for November delivery rose 78 cents to settle at $47.83. It’s the highest close since August 23. Total volume traded was 36% above the 100-day average. Prices have averaged about $44.88/barrel this quarter. Brent for November settlement, which expires Friday, climbed 55 cents, or 1.1%, to $49.24/b. The global benchmark crude closed at a $1.41 premium to WTI.
  • Energy producers worldwide surged following the Opec deal. The S&P Oil & Gas Exploration and Production Select Industry index was up 1.1% after surging 6.3% on Wednesday, the most since April. Royal Dutch Shell Plc climbed 6.6 percent Thursday, the most since December 2008, while BP Plc rose 4.3%. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore in China climbs to three-week high as ‘risk-on’ returns. Most-active contract gains as much as 3.3% to 426.5 yuan/t on Dalian Commodity Exchange, highest intraday level since September 6. Spot iron ore edged marginally higher to 56.68. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper prices traded higher on Thursday, helped by positive sentiment on oil and China, the world's largest consumer of the industrial metal. Copper for December delivery was recently up 0.5% at $2.1985 a pound. The next important driver for copper may be Chinese manufacturing data due Friday, which would shed some light on the strength of demand from the most important consumer of industrial metals. Lead prices climbed to the highest in more than a year as industrial metals advanced on speculation that Opec’s decision to cut output will drive up oil prices.
  • Industrial metals rode on the coat tails of higher energy prices. This comes on the back of stronger Chinese economic data which is supporting demand in the short term. Nickel was the odd one out, ending the day lower as investors took profits after the strong gains achieved over the past week. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Caltex (CTX): In talks to buy Woolworths (WOW) gas stations, Australian reports.
  • Beach Energy (BPT): Shell said to sell 2.4% stake, AFR reports.
  • BHP (BHP): Samarco lenders may be offered equity stakes, Valor reports.
  • National Storage (NSR): Reports A$100m bi-lateral facility pact.
  • Qantas (QAN): Gets contract for Australia Post international mail, Australian reports; sells A$250m of 7-year bonds.
  • South32 (S32): Sees coal rally threatened if China increases work day.
  • Turnbull Steps Up Attack on Renewables After Australian Blackout.
  • Lockheed Martin Wins Bid for Australian Submarine Combat System.
  • China Auto Boom Is Warning to World Miners Facing Scrap Age.
Stock to watch: BHP Billiton

Mining giant BHP made a 10 month high as it gapped up above the upper line of the wedge that has formed since November last year. Furthermore the long term downtrend (from August 14) has been broken as well, so we believe BHP is likely to extend its gains to the topside targeting $A25 and $A26.90.

BHP's share price trend
Energy sector supports S&P/ASX200

Energy and materials supported S&P/ASX200 (AUS200) to the upside but it erased these gains in the SYCOM session as US markets sold off as the financial sectors led the decline. The previous resistance level 5,435 seems a decent support level for now but if the selling continues the next key support level would be 5,400 where we see a buying opportunity.

Price actions in US500 look more interesting as it is trading near the lower uptrend of the triangle that has been formed this month. Unless this uptrend is broken, we would look to go long with stop below the overnight low 2,144.  

S&P500 trend

S&P/ASX200 (AUS200) trend
AUDUSD hits resistance

The 0.77 handle once again proved to be a key resistance level as AUDUSD made a huge reversal to sell down towards the support level 0.76.

This decline also appears to be driven by the spike in the volatilities (VIX) and the yesterday’s daily price actions signal the strength of the 0.77 handle. All eyes would be on the Chinese Caixin manufacturing PMI figuresdue out  at 1145 AEST (0145 GMT).
AUDUSD trend
– Edited by Robert Ryan

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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets xxx


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