Article / 29 May 2015 at 1:33 GMT

Today's Trade: Banks, energy shrug off Wall St blues

Trading Desk / Saxo Capital Markets
Australia
  • The ASX has disregarded the fact that US stocks dropped across the board
  • Energy leads the pack in early trading with Woodside up 1.3% and Origin, 2.4%
  • Oil rose overnight after US crude stockpiles dropped a fourth week

By Saxo Capital Markets Australia

Overnight and early trading

Shares on the ASX/S&P 200 are well higher in early trade, led by the big banks, with resources also providing solid support, especially in the energy space. But all sectors are higher.

The ASX 200 was up 54 points, or 0.9% higher at 5766.8 at 1030 EST. Westpac was the best of the big four lenders, up 1.8%, while CBA is 1.5%, ANZ 1.1 per cent and NAB up 1%.

Energy is the best performing sector early, with Woodside up 1.3% and Origin 2.4%. BHP was running 0.6%, while South32 is 1.4% lower. Rio rose 0.9%.

Ramsay Healthcare was 1.4% lower, while Evolution Mining is back trading after completing a capital raising and was 9.8% down.

xxx
 Westpac is the best of the big for banks this morning, up 1.8%. Photo: iStock

The ASX seems to have disregarded that fact that US stocks dropped across the board last night with all major exchanges finishing in the red. With low volumes around the US market this month, choppy sessions can be expected as we head into June (summer months in the US), as there are less drivers in the market. The pullback overnight is one of a few over the last couple of weeks.

The Dow lost 36.87, or 0.2%, to 18,126.12. The S&P 500 slipped 2.69, or 0.1%, to 2,120.79. While the Nasdaq lost 8.62, or 0.2%, to 5,097.98, a day after the Nasdaq closed at a record high. Tonight in the US, investors will get a second reading on the Q1 GDP, the first showing the economy slowed dramatically, it is expected to be revised to a contraction of 1%.
 
Stocks in the US have been making record highs on a regular basis only to slip the day after, modest trading volumes in the US have been the main catalyst for this trend. Only days out from summer in the US, volumes are expected to stay thin.

Looking at the VIX, often referred to as the “investor fear gauge”, which measures market risk and volatility provides more insight. The VIX is currently sitting near record lows at 14.50. Generally speaking any number above 30 implies a lot of volatility, whereas a number under 20 implies a less stressful time in the market. The VIX will be an important figure as trades gear up for thin volumes this summer.

In Europe, exchanges finished the day all over the place. The G7 finance ministers met, as the never-ending Greece sage continues. Greece is expected to reach an agreement with lenders by Sunday. The movement towards a deal has been slow, weighing down on European stocks across the board. Without a deal, Athens risks default and bankruptcy which will send shock waves through Eurozone.

London’s benchmark finished .011% higher at 7,040.92 points. However Greece again weighed on the Eurozone with the DAX dropping 0.79% to 11,677.57, in Paris the CAC 40 fell 0.86% to 5,137.83 points. In the commodity markets, gold futures finished up 0.1% at $1188.30 an ounce. US crude finished up 17 cents, or 0.3%. Brent rose 52 cents at $62.58.

Local Markets

  • The S&P/ASX 200 Index futures contract unchanged at 5,729; futures relative to estimated fair value suggest an early gain of 0.2%
  • Bank of New York Australia ADR Index -1.1%, falls for fourth day; BHP Billiton ADR -1.4%; Rio Tinto ADR -0.7%
  • Gold futures saw a mild rise for first time in five sessions in New York on a steadier US dollar, US gold futures for June delivery settled up $2.50 at $1188.10 an ounce. The USD will be an important factor in gold's near-term direction. Gold stocks in Toronto all made solid gains and we expect our goldies to follow suit. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR.
  • Oil rose after US crude stockpiles dropped a fourth week and gasoline inventories slipped to the lowest level this year. Crude supplies dropped 2.8 million barrels last week as refineries boosted operations. Gasoline stockpiles declined a third week as demand climbed. US crude settled up 17 cents, or 0.3% at $57.68 a barrel, after hitting a one-month low of $56.51 while Brent settled at 62.58, up 52 cents, or nearly 1% after a six-week low at $61.24. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore fell 77 cents, or 1.2% to $62.33 a ton, snapping its five-day gain. Bill Marmion, Western Australia’s mines and petroleum minister stated that iron ore prices will probably remain under pressure this year as expansions of low-cost supply by the largest producers offset cuts from smaller miners. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals: Copper finally snapped the longest slump in five weeks (copper touched its lowest level on Wednesday since April 29 at $6,075.50 a tonne) as signs of further gains in housing boosted the outlook for demand in the US. Copper for delivery in three months added 0.2% to settle at $6,095 a metric ton on the LME. Aluminium rallied 2.2% to finish at $1,776 a tonne after hitting the lowest level in more than a year, increasing for the first time in 11 sessions in London. Zinc closed up 1.9% at $2,228 a tonne and lead climbed 2.1% to end at $1,990. Nickel edged down 0.1% to end at $12,820 a tonne after hitting one-month lows in the past week. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC, AA:xnys


Other shares


  • AGL Energy (AGL): Norway agrees to ban $890 billion sovereign wealth fund from investing in utilities, miners that have 30% of business/revenue in coal
  • Atlas Iron (AGO): Reports 25% increase in mineral resource at Corunna
  • AusNet (AST): EGM on restructuring plan
  • Ardent Leisure (AAD): Investor day; webcast 1300 (EST)
  • Evolution (EVN): Shares are currently halted; expected to resume today after announcement of placement outcome
  • Myer (MYR): Cuts 80 jobs at Melbourne head office
  • Rio Tinto (RIO): Mongolia plans to sell $1b international bonds

Data points

Friday
  • G7 meetings
  • Japan: Household Spending y/y, Tokyo Core CPI y/y, National Core CPI y/y, Unemployment Rate, Prelim Industrial Production m/m
  • Australia: Private Sector Credit m/m (11:30am)
  • Europe: German Retail Sales m/m, French Consumer Spending m/m, Spanish Flash CPI y/y, M3 Money Supply y/y, Private Loans y/y, Italian Prelim CPI m/m
  • US Prelim GDP q/q, Prelim GDP Price Index q/q, Chicago PMI, Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations

Current ASX Trades

  • Alumina (Ticker: AWC.xasx): Entered short position May 27 at AUD1.70. Stop loss is set at AUD1.80 with profit target at: AUD1.42
  • Aurizon Holdings (Ticker: AZJ.xasx): Entered long position May 23 at AUD 5.29. Stop loss is set at AUD5.17 with first profit target at AUD5.58 and final profit target at AUD5.91
  • AMP Limited: Entered long position on February 6 at AUD6.10. First profit target was reached on the February 18 at AUD6.49 (6.4%) and second profit target is at AUD7.12 (16.7%). Third and final profit target is at AUD8.00 (31%) which remains in place. Stop loss trailed to entry price of AUD6.10

Broker Upgrades

- Alumina (AWC): Raised to overweight against equal weight at Morgan Stanley
- Veda (VED): Raised to buy vs hold at Morningstar

Broker Downgrades
 
- Breville (BRG): Cut to neutral vs overweight at JPMorgan
- Origin (ORG): Outlook revised to negative at Fitch on low Oil
- Ramsay Health (RHC): Cut to underweight vs equalweight at Morgan Stanley

ASXSP200.I

The Shanghai Composite index posted its tenth worst session (-6.5%) in 15 years while also recording its second worst session of 2015 after Chinese brokerages tightened margin lending rules. However price actions of the E-mini S&P 500 futures suggest that overall equity sentiment still remains positive and yesterday’s Chinese market sell-off is seen as a profit taking or unwinding of the longs from the extreme rally in the last two months or so. The ASX/S&P200 showed a lot of resilience in the overnight session and we expect it to be in a positive territory. The support level is at 5,700 and the resistance level is at 5,749.

ASX/S&P 200 monthly chart

SP200 DO
Source: Saxo Bank

AUDUSD

On the back of yesterday’s weak capital expenditure data (-4.4% against -2.3%), Australian 10-year yields fell from 2.78% to 2.75% and the AUDUSD sold off more than 140 pips to make an intraday low of 0.7618 which was the lowest since mid April.

This Capex result were the worst since 2014 February, and the RBA's reaction would be closely monitored in the next meeting. Also former US Federal Reserve chairman Ben Bernanke at the World Business Forum in Sydney said that if a high AUDUSD and high unemployment exists, then Australia would have to respond either by increasing domestic demand or by weakening its own currency.

However we expect some rebound as AUDUSD has been oversold (almost 500 pips in two weeks) and there is some strong support level between 0.7576 and 0.7600. The interim resistance level is at 0.7700 and 0.7734.

Buy AUDUSD

Entry: Limit 0.7648

Target:
0.7693

Stop loss: 0.7614

AUDUSD monthly chart

AUDUSD DO
Source: Saxo Bank - Create your own charts with SaxoTrader. Click here to learn more 

-- Edited by Adam Courtenay

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

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