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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 01 May 2017 at 0:56 GMT

Today's Trade: Banks inch ASX higher but miners lag

Trading Desk / Saxo Capital Markets
Australia
  • Aussie share market opens slightly higher, around 21 points in early trade
  • There has been a mixed performance among banking and mining sectors
  • The market only had negative leads from overseas markets on Friday
  • Chinese factory activity indicator may have incurred weakness for resources

By Saxo Capital Markets
 
Overnight and early trading

The ASX/S&P 200 had moved up briskly in morning trade, bolstered mainly by the banks - which are expected to report stronger earnings - but marred a little by slips in the resources and energy sector.

Origin's 1% drop, Santos's 0.7% loss and Oil Search's 0.6% fall are all weighing against the morning's gains. Conversely, the banks (other than NAB) have all moved marginally higher in early trade.

Overseas, US stocks ended the month higher, boosted by strong corporate earnings. The S&P 500 now sits about half a percentage point from all-time highs.

With nearly 60% of the companies in the S&P 500 having reported, first-quarter earnings are on track to rise 12.5% from the year prior, according to FactSet.

That’s above the first quarter earnings growth of 9.1% that analysts estimated as of March 31.

On Friday, shares of Chevron and Exxon Mobil climbed after the companies posted encouraging results.

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 Gold has been a beneficiary of the North Korean-US imbroglio and the gold-silver
ratio is about to breach a crucial resistance level. Photo; Shutterstock


Exxon’s shares rose 39 cents, or 0.5%, to $81.65 after the oil and gas giant said its profit more than doubled in the first quarter, while Chevron’s stock gained $1.23, or 1.2%, to $106.70 after the company swung to a profit in the first three months of the year.

Amazon.com ’s stock rose 6.61, or 0.7%, to 924.99, a new record, after the company posted a bigger-than-expected increase in profit late Thursday.

Earlier in the week, Biogen shares gained 3.6% Tuesday after the biotech company’s earnings topped analyst estimates and McDonald’s stock climbed 5.6% after the burger giant reported better-than-expected sales in the first quarter.

The S&P 500 ended the week up 1.5%, putting its April gains at 0.9%. The index slipped 4.57 points, or 0.2%, to 2384.20 Friday. The Dow Jones Industrial Average edged down 40.82 points, or 0.2%, to 20940.51 Friday. The VIX currently sits just below 11 at 10.82.

Friday’s declines followed data showing the US economy stumbled in the first quarter.
GDP rose 0.7% at a seasonally adjusted annual rate, the Commerce Department said, falling short of the 1% growth expected by economists surveyed by The Wall Street Journal.

However, it exceeded the Federal Reserve Bank of Atlanta’s widely tracked GDPNow model, which on Thursday forecast 0.2% growth for the first quarter.

There were other positive signals in the data. US wages and benefits rose at the fastest pace since 2007 during the first quarter, signaling a tightening labor market.

The Federal Reserve’s preferred inflation gauge also rose at a rate of 2.4% in the first quarter, its biggest jump since spring 2011.

The yield on the 10-year Treasury note fell to 2.282%, compared with 2.298% Thursday. In April, yields declined 0.114 percentage point.

Earlier, the euro and government bond yields jumped on surprisingly strong eurozone inflation figures. The Stoxx Europe 600 index slipped 0.2%.

Despite the cooling in European stocks toward the end of the week, the Stoxx Europe 600 rose 1.6% in April, its third consecutive month of gains. In the week ended April 26, European equity funds recorded their strongest inflows in more than a year, according to EPFR Global data.
Sources: Bloomberg, TradingFloor.com

International earnings

Monday: Diamond Offshore, Tenneco, CMS Energy, General Growth Properties, Advanced Micro, Cabot, Chemours, Agrium, Tenet Healthcare, Texas Roadhouse, Noble Energy, CNA Financial

Tuesday: Apple, Aetna, Archer-Daniels Midland, Merck, Pfizer, CVS Health, BP, MasterCard, Altria, ConocoPhillips, WebMD, Weight Watchers, FireEye , Devon Energy, Etsy, Gilead Sciences, Newfield Exploration, Anadarko Petroleum, Cummins, Coach, Mosaic, Allstate, Becton Dickinson, Eaton, Lumber Liquidators

Wednesday: Facebook, Time Warner, Volkswagen, AIG, Kraft Heinz, MetLife, Tesla Motors, Avis Budget, Tableau Software, Pioneer Natural Resources, Yamana Gold, Estee Lauder, Southern Co, Garmin, Sprint, Wellcare Health, Molson Coors Brewing, Humana, Cheesecake Factory, Fitbit, MetLife, Groupon

Thursday: A-B InBev, Occidental Petroleum, Royal Dutch Shell, Adidas, Kellogg, Viacom, Beazer Homes, AMC Networks, Siemens, Dunkin Brands, Chesapeake Energy, Marathon Oil, Allscripts Healthcare, El Pollo Loco, Shake Shack, PerkinElmer, Zynga, Zillow, Wageworks, DeVry Education, CBS, Activision Blizzard, Herbalife

Friday: TransCanada, Cognizant Tech, Moody's, Cigna, CenterPoint

Local markets and commodities

  • The S&P/ASX 200 Index futures contract fell 0.1%; futures relative to estimated fair value suggest an early gain of 0.1%.
  • Bank of New York Australia ADR Index +0.5%, BHP Billiton ADR +1.7% to A$23.79 equivalent, 0.3% premium to last Sydney close, Rio Tinto ADR +0.7% to A$53.21 equivalent, 12% discount to last Sydney close.
  • Gold futures rose for a second straight day as slower US economic growth and escalating tensions between America and North Korea supported demand for the metal as a haven. Spot gold was up 0.29% to $1,267.39 while US gold futures for June delivery were up $2.40 to $1,268.30. Spot gold was down 1.4% from last Friday's level, its biggest weekly loss since early March. Money managers have increased their bullish gold bets by 4,018 net-long positions to 165,281, weekly CFTC data on futures and options show. Gold stocks in Toronto soared on Friday, adding nearly 3%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil rose in New York, trimming a monthly decline, as Opec and Russia cite their adherence to output-cut targets in the face of surging US production. Russia says it’s on the verge of fully implementing its pledged 300,000 barrel-a-day supply cut. Opec output in April probably fell by 20,000 barrels a day to 31.72 million, according to JBC Energy.
  • Crude’s rally in the first half of April lost steam on concerns that growing US output threatens to lessen the impact of Opec’s efforts. West Texas Intermediate for June delivery increased 36 cents to settle at $49.33/barrel on the New York Mercantile Exchange. Total volume traded was about 1% above the 100-day average. Brent for June settlement, which expires Friday, climbed 29 cents to close at $51.73/b on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.40 to WTI. The more-active July contract rose 23 cents to end the session at $52.05. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Spot iron ore prices surged higher on signs of restocking by steel mills. Steel and iron ore futures in China rose strongly, as China’s largest steel producers reported strong profits. Spot iron ore rose $2.38 to close at $68.80. Baoshan Iron & Steel reported a 143% increase in net income, while Hesteel Co saw income rise six-fold. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Three-month copper on the London Metal Exchange closed down 0.4% at $5,692/tonne. In the previous session copper touched the highest since April 18 at $5,738/t, recovering from a more than three-month low hit earlier this month. LME nickel finished up 1.2% at $9,335/t after touching a fresh 10-month low of $9,185/t. LME aluminium closed down 2% at $1,924/t, the biggest one-day fall since November, lead bucked the weaker trend and ended up 0.9% at $2,205/t, and tin shed 0.4% to $19,825/t. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Aussie stimulus signal gives RBA stronger case to stand pat; KKR considering bid for Dixon Hospitality, Australian says; BHP Billiton (BHP): Strike takes Chile copper output back to 2004 levels; Mayne Pharma (MYX): Scheduled to host investor day; Regis Healthcare (REG): Seeks declaration from Federal Court; Technology One (TNE): Affirms FY guidance as LGS project lacks progress; Wesfarmers (WES), Mt Gibson (MGX): Mt Gibson may consider bid for Curragh coal mine: Australian

Broker gradings

- Charter Hall (CHC): Said to raise A$275m via placement: IFR
- Doray Minerals (DRM): Raised to hold at Baillieu Holst, PT A$0.28; Cut to speculative buy at Canaccord, PT A$0.60
- Platinum Asset (PTM): Cut to sell at Bell Potter, PT A$4.20
- PWR Holdings (PWH): New buy at Bell Potter, PT A$2.50
- Ten Network (TEN): Cut to equal-weight at Morgan Stanley, PT A$0.40
- Select Harvests (SHV): Cut to hold at Bell Potter, PT A$5.77
- Stockland (SGP): Cut to neutral at UBS, PT A$4.76

Stocks to watch

Northern Star Resources (NST) has fallen more than 15% in the last two weeks but reacted strongly off $A4.16 where 200 Day Moving Average crosses uptrend from December 16 low of $A2.97. Furthermore this level corresponds to 38.2% between December 16 low and the 2017 high, thus we are anticipating potential recovery this week.

Northern Star Resources monthly chart
 
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Similar to NST, Newcrest mining (NCM) has also been sold off heavily during April and appears to have found a decent support at 20.83 which coincides with 50% retracements between the December 16 low of $A16.35 and the 2017 high of $A25.32.

We are looking to add a bullish bias as long as $A20.83 holds.

Newcrest Mining monthly chart

2
Source: All charts, Saxo Bank
 
USD Index, EURUSD, EURAUD, S&P 500 Futures and XAUXAG

The US dollar index suffered a major break last week, damaging a key support trendline that held losses all throughout 2016 and most recently in March of this year.

The dollar index also closed below the 200 Day Moving Average for the week which is a negative and remains the test to reclaim this week otherwise the sentiment will continue to be bearish for the US dollar.
 
USD index monthly chart

3
 
One can argue that despite the break of the 10 month trend line, we have a descending wedge formation in play (chart below) so until the lower wedge trend line is broken, it is still early to draw conclusions that it is all over for the US dollar.

This week, a settlement above the 200DMA is the first test followed by the ability for the dollar index to trade back above the positive trend line.

Upside momentum is expected to pause with selling pressure to exist upon a retest of that 2016 trend line as this will now act as resistance points.

So a break back above the trend line would be a short term bullish development with 99.56 or the gap fill the final test for the week ahead. We mark weekly support along the lower wedge trendline.

USD Index trend lines

4
 

EURUSD also experienced a gap up scenario last week breaking above the 2014 to 2016 and the the 2017 trend line.
 
EURUSD quarterly chart

5
 
The daily chart shows that the EUR currently hovers above the 200 DMA which would act as first defence, but a breach of this 200DMA should then allow that 2014 trendline to offer support.

The 1.08 handle which coincides with the January/February swing high and also the 23.6% or the very first retracement level is the tactical buy level for this week.

EURUSD trend lines
 
6
 
Last week saw the EURAUD pair also gap to break above the 2015 downtrend line and continued to trade firm until it traded in an outside day reversal on Friday which marks a change in trend.

We thus look for losses ahead: one can also trade the reversal should they desire however we look at opportunities to turn positive and mark the gap fill at 1.4259 as strong buying
opportunities for the pair.

Interesting to note that the gap fill coincides with a 38.2% fib retracement between the 2017 low to a recent high so we have a perfect alignment of support at 1.4259 also given the recent 2017 noise at these levels.

EURAUD monthly chart

7
 
 
We are currently witnessing a B-class divergence in the S&P futures: Currently the S&P futures trades at a double top formation however the RSI is starting to diverge.

This is a signal that momentum - in the most recent attempt at testing previous highs - is fading and given the seasonality of stocks in May and June, we could be at the very start of witnessing a potential change in trend as buying momentum loses steam.

S&P 500 futures monthly chart

8
  
The gold-silver ratio (XAUXAG) has been rallying hard recently and momentum looks strong as it looks like it has breached a crucial resistance level 73.21 last week.

This level is 50% retracement (2015 high 83.80 and 2016 low 62.61) thus the break out seems to be quite meaningful to signal further upside.

XAUXAG monthly chart

























Source: All charts, Saxo Bank - create 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



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