Equities are off, the dollar's ascent has been stopped in its stride and sentiment has turned sour after the EU retaliated to the the Trump tariffs with a raft of levies of its own.
Article / 19 August 2016 at 0:56 GMT

Today's Trade: Banks hit, but ASX floats on oil

Trading Desk / Saxo Capital Markets
  • The S&P/ASX 200 index added 5.9 points, or 0.11% to 5,513.7
  • Steady selling in the banks after Moody’s downgraded its ratings outlook
  • US stocks rose as weekly jobless claims fell 4,000 to 262,000

Overnight and early trading

The ASX/S&P 200 has opened mostly unchanged with some losses in the financials sector which have been offset gains in all other sectors. The ASX was down 0.04% at 5505.5 at 1027 AEDT (0027 GMT)

The early losses were coming from the big four banks - all down around about 1%, except for CBA which was down 0.4% after Moody's put the credit ratings on negative outlook. AMP was down another 2% following yesterday's disappointing earnings outlook.

US stocks rose Thursday as oil prices rallied. Crude oil has risen more than 20% since dipping below $40/barrel early this month, boosted by falling stockpiles and hopes that the world’s largest exporters will cap output.

It is the latest in a series of big swings for the oil market. Prices still are down by more than half from when they traded above $100/b in 2014, but they also are up more than 80% from just six months ago, when they tumbled below $30/b.

The S&P 500 added 4.80 points, or 0.2%, to 2187.02. The Dow Jones Industrial Average rose 23.76 points, or 0.1%, to 18597.70 and the Nasdaq Composite gained 11.49 points, or 0.2%, to 5240.15. US stocks have notched all-time highs in recent weeks, while European stocks have staged a steep recovery from their post-Brexit lows.

On the data front, weekly jobless claims fell 4,000 to 262,000, while the August Philadelphia Fed business index came in line with expectations. Leading indicators rose 0.4% last month, slightly more than expected.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded lower, near 11.4.

European stocks climbed for the first time in five days, rebounding from a two-week low, on confidence that accommodative central bank policies will help support the economy.

Miners led the increase in the Stoxx Europe 600 Index as commodities advanced amid a weaker dollar. The Stoxx 600 added 0.7%, the most in a week, as all of its industry groups advanced.

Almost every western European market rose, while the yield on 10-year German bonds, already negative, slipped for a second day. Germany’s Dax, which came close to erasing its annual drop on Monday, rose 0.6%, with steelmaker Thyssenkrupp AG helping lead the gains.

The UK’s FTSE 100 Index added 0.1%, paring an advance of as much as 0.5%, as the pound strengthened after a report showed that retail sales unexpectedly surged in July.

Sources: Bloomberg,

 A Moody's downgrade has hit Aussie banks, but oil prices kept the ASX positive. Photo: iStock

Key earnings

AUS: Automotive Holdings Group, NetComm Wireless, Mount Gibson Iron, Villa World, Aveo Group, ARB Corp, Seven West Media, SEEK, Ardent Leisure Group, Mortgage Choice, SeaLink Travel Group, Reject Shop, Ashley Services Group, Opthea, Blackwall, Cogstate, Living Cell Technologies, 360 Capital Office Fund, 360 Capital Industrial Fund, Wellcom Group, Austock Group, HiTech Group Australia, Pharmaxis, Supply Network, Minotaur Exploration, Otherlevels Holdings, IMF Bentham, Matrix Composites & Engineering, Tassal Group, Civmec, Insurance Australia Group, Medibank Pvt, Amaysim Australia, Cover-More Group, MaxiTRANS Industries, LendLease Group, Evolution Mining, Medibank Pvt, Amaysim Australia, LendLease Group, Aphrodite Gold, Elysium Resources, Woodside Petroleum, Ausenco, Reef Casino Trust, Tempo Australia, Multistack International, iCar Asia, Santos, Simavita, Champion Iron .
US: Deere, Estee Lauder, Foot Locker, Madison Square Garden, The Buckle

Local markets and commodities

  • The S&P/ASX 200 Index futures +0.3%; futures relative to estimated fair value suggest an early gain of 0.4%.
  • Bank of New York Australia ADR Index +0.7%, BHP Billiton ADR +1.9% to A$21.15 equivalent, 1.4% premium to last Sydney close, Rio Tinto ADR +1.3% to A$42.46 equivalent, 14% discount to last Sydney close.
  • Gold for December delivery settled higher up 0.7% at $1357.80/oz on the Comex division of the New York Mercantile Exchange. Gold has traded between $1,340/oz and $1,360/oz an ounce in the past six sessions. Brief spikes above $1,360/oz on August 10, 12 and 14 weren’t sustained, prompting quick reversals that analysts attributed to profit-taking by investors. Goldies were pretty much flat in Toronto overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil climbed into bull market Thursday, completing the turnaround from a bear market dive in just three weeks as falling stockpiles and talk of an Opec output cap keep fueling gains. Light, sweet crude for September delivery settled up $1.43, or 3.1%, to $48.22/barrel on the New York Mercantile Exchange.
  • It is up for six-straight sessions, up 16% in that span, the longest and biggest winning-streak by percentage since April. Brent, the global benchmark, rose $1.04, or 2.1%, to $50.89/b on ICE Futures Europe. It is also up 16% over a six-session winning streak.
  • Crude is now up 22% since it settled for just one day below $40/b on August 2, the latest in a series of violent swings that have now characterised the oil market for more than two years. Prices are still down by more than half from when they traded above $100/b in 2014, but they are also up more than 80% from just six months ago, when they crashed to a decade low below $30/b. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore is at $US60.71/tonne against $60.87 yesterday – not much of a change. In a recent interview, Michael Zhu, former global sales director at Vale, stated that iron ore will probably face a tough year in 2017 as supply keeps on expanding while China’s steelmakers struggle to sustain output at current levels. “I’m not optimistic that the iron ore price will keep going up,” said Zhu, predicting that prices will probably trade between $50/t and $60/t for the rest of 2016. Next year will be challenging “because Chinese steel production, even if they try to keep at current levels, iron ore supply will be increasing,” he said. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL/
  • Benchmark copper on the London Metal Exchange ended up 0.7% at $4,810/t. Three-month aluminium closed down 0.6% at $1,683. Earlier it touched $1,709, its highest since July last year, after the World Bureau of Metal Statistics said the primary aluminium market in the first half of the year saw a deficit of 479,000 tonnes, traders said.
  • Aluminium prices are also up because Chinese smelters are selling liquid or molten metal to consumers. This means less metal is being turned into ingots for delivery against exchange contracts. Zinc was untraded at the close, but bid up 1% to $2,295. Lead gained 0.8% at the close to $1,894, tin added 0.2% to $18,390 and nickel rose 1.3% to $10,355.
  • In other news: Abacus Property (ABP): Scheduled to release FY results; NOTE: FFO/shr est. A$0.223 (4 analysts); ANZ Bank (ANZ), Commonwealth Bank (CBA), National Australia Bank (NAB): Australian banks’ outlooks revised to negative by Moody’s; Automotive Holdings (AHG): Scheduled to release FY results; NOTE: Adj. net income est. A$96.8m (9 analysts); Bellamy’s Australia (BAL): Scheduled to released FY results; NOTE: Adj. net income est. A$34.6m (6 analysts); Cleanaway (CWY): Scheduled to release FY results; NOTE: Adj. net income est. A$54.6m (9 analysts)
  • Cover-More (CVO): Scheduled to release FY results; NOTE: Adj. net income est. A$25.7m (5 analysts); Ansell (ANN), CSG (CSV) & Fairfax Media (FXJ): Trades ex-div; Duet Group (DUE): Scheduled to release FY results; NOTE: Adj. net income est. A$205.9m (10 analysts);Fonterra (FSF): Milk slump ‘kick in the guts’ for Kiwi farmers just starting out; Insurance Australia (IAG): Scheduled to release FY results; NOTE: Adj. net income est. A$886.3m (6 analysts); Integrated Research (IRI): FY total sales up 20%;Lend Lease (LLC): Scheduled to release FY results; NOTE: Adj. net income est. A$696.4m (9 analysts);  Mantra (MTR): Scheduled to release FY results; NOTE: Adj. net income est. A$56.4m (9 analysts)
  • Mayne Pharma (MYX): Buys rights to dermatology foam products from Glaxo; Medibank Private (MPL): Scheduled to release FY results; NOTE: Adj. net income est. A$411.2m (13 analysts); Mineral Resources (MIN): In talks to sell Mt Marion stake: AFR; Origin Energy (ORG): Markets A$2.9b-equiv. loan to syndication; QBE Insurance (QBE): Ratings unaffected by results: S&P; Rio Tinto (RIO): Reins back cash outlays amid decline in metals prices: Bloomberg Intelligence; Seven Group (SVW): Caterpillar July machine sales fall 19% vs June 12% decline; NOTE: Is an authorised Caterpillar dealer in West Australia, NSW and North-East China; Tassal (TGR): Scheduled to release FY results; NOTE: Adj. net income est. A$39.4m (5 analysts).

Broker gradings

- Treasury Wine (TWE): Raised to neutral vs underperform at Credit Suisse
- Troy Resources (TRY): Rated new buy at Canaccord Genuity
- Stockland (SGP): Cut to hold vs buy at Shaw & Partners
- SAI Global (SAI): Raised to hold vs sell at Canaccord
- Iress (IRE): Raised to outperform vs neutral at Credit Suisse
- Fletcher Building (FBU): Cut to neutral vs buy at UBS
- AMP (AMP): Cut to sell from buy at Bell Potter
- AVJennings (AVJ): Cut to hold from buy at Bell Potter

Stock to watch

We are keeping a close eye on St Barbara Ltd (SBM.xasx) as it currently consolidated at its multi year highs.

We also note that there is a head and shoulder development currently underway which is a reversal signal. Short positions would be opened upon a break of the neckline:

St Barbara monthly chart
Source: Saxo Bank
Northern Star Resources (NST.xasx) on the other hand has already broken out of its neckline so we see opportunities to sell at market with stop at $4.95.

We target $4.05 as first profit target and final target comes in at 3.37 – its 100% head and shoulder extension.

Northern Star monthly chart
Source: Saxo Bank

US500.i and XAUUSD 

We are seeing continuous resilience in US500 and the daily price actions look to push higher towards the all time high 2,194 which should be a key resistance level.

Despite the current strength, we are not convinced that this rally would last long as the upside momentum seems to be fading.

US500 can break above 2,194 to test the psychological level 2,200 but we would treat this as a false break and rather sell at these levels.

US 500 monthly chart

Source: Saxo Bank
The US dollar index (DX) sold off to break the lower support line of the ascending channel last night, so gold (XAUUSD) was bid up and EURUSD also strengthened.

Although this week’s price actions have been choppy, the trading range is narrowing and we are anticipating a breakout to the upside in the near term. The resistance levels would be 1,358–1,360/oz and the support level should be the lower line of the triangle.
XAUUSD monthly chart

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

Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

-- Edited by Adam Courtenay

Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call at 1030 AEST.


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