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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 / 28 July 2017 at 0:44 GMT

Today's Trade: Banks lead ASX200 lower

Trading Desk / Saxo Capital Markets
Australia
  • The ASX200 was lower at the start led by selling in the big banks and CSL
  • Oil closed above $49/barrel for the first time since May on growing optimism
  • The USD rebounded as US durable-goods orders climbed more than expected

By Saxo Capital Markets (Australia)

The ASX200 was 0.9% lower at the start with the big banks, Macquarie and CSL leading the fall.

Overnight 

  • Stocks in Asia looked set for a mixed end to the week as the dollar recovered losses and investors digested a raft of earnings from Amazon.com to Baidu.
  • The American equity session was dominated by a bout of volatility that sent the Nasdaq 100 Index lower and pushed up the CBOE Volatility Index, though that eased late in the day. The dollar rebounded as data showed US durable-goods orders climbed more than expected, while Treasuries fell.
  • Technology stocks slid abruptly Thursday, pulling the Nasdaq Composite and S&P 500 away from record territory.
  • The declines began around midday and accelerated, sending technology stocks sharply lower before they pared losses through the end of the session. The moves marked a reversal from the morning, when technology stocks led gains in broader indices.
  • In a week packed with earnings reports, some traders said the moves could have been due to investors unwinding bets on what has been one of the best-performing sectors in the stock market this year.
  • The Nasdaq Composite, which is heavily influenced by tech giants including Facebook , Google and Microsoft, as well as biotechnology firms, fell 40.56 points, or 0.6%, to 6382.19 on Thursday.
  • The S&P 500 fell 2.41 points, or 0.1%, to 2475.42, pulling back after closing at a record high Wednesday. Its tech sector shed 0.8% Thursday.
  • The Dow Jones Industrial Average rose 85.54 points, or 0.4%, to a new closing record of 21,796.55. Boeing accounted for much of the blue-chip index’s gain, as the aerospace giant continued to rally after reporting forecast-beating earnings Wednesday. Its shares rose 7.55, or 3.2%, to $241.00 Thursday, adding roughly 52 points to the Dow industrials.
  • Corporate earnings reports released over the past few weeks have largely pointed to continued strength among US firms. With second-quarter results in from nearly half of S&P 500 companies, the broader index is poised to report earnings growth of about 9% from the year-earlier period, according to FactSet.
  • That would build on gains from the first quarter, when US companies reported their fastest earnings growth in nearly six years.
  • Declines in tech stocks including Advanced Micro Devices , Nvidia and Adobe Systems offset a rally in shares of Facebook, which said Wednesday afternoon that profit rose 71% in the second quarter. Facebook shares added $4.83, or 2.9%, to $170.44.
  • Telecommunications services shares jumped 5.2% in the S&P 500 and were the best-performing sector in the broad index on Thursday. Verizon jumped 3.41, or 7.7%, to 47.81, after reporting second-quarter revenue that beat analysts’ expectations.
  • Elsewhere, the Stoxx Europe 600 was down 0.1% after swinging on the latest batch of corporate earnings.

Source: Bloomberg, TradingFloor.com, WSJ.com

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 Macquarie Group and the big-four banks were all lower at the start of trade. Photo: Shutterstock

Local markets and commodities

  • Bank of New York Australia ADR Index -0.4%, ANZADR -0.80%, NABADR -0.69%, BHP Billiton ADR +0.1% to A$25.60 equivalent, 0.2% discount to last Sydney close, Rio Tinto ADR -0.3% to A$57.57 equivalent, ~11% discount to last Sydney close
  • Gold continues to fight to maintain trade above the long-term 2011 downtrend, which continues to call major reversals. Gold for December delivery rallied 0.9% to settle at $1,266.50/oz on Comex in New York, after rising as much as 1.3%. This is a six-week high.
  • In international gold earnings, four of the world’s top gold companies were in full “beats” mode in the second quarter, wringing more value out of their mines amid tepid gold prices. A day after Newmont Mining reported higher-than- expected adjusted profits by extracting more gold at lower costs, Canada-based Barrick Gold, Goldcorp and Agnico Eagle Mines followed suit Wednesday. 
  • Goldminers slashed spending after a five-year rout beginning in 2011, focusing instead on cutting debt and making their operations more efficient. As prices recovered from 2015 lows, they’ve been working to expand production internally, or find new assets, while keeping a tight rein on costs. 
  • Although gold futures rose last year, prices were relatively flat in the second quarter compared with a year earlier. Goldies in Toronto slipped less than 0.5% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil closed above $49/barrel for the first time since May on growing optimism Opec's supply cuts are trimming a supply glut. Oil inched closer to $50/barrel after lingering below the key level since late May in New York amid concerns that cuts by Opec and its allies including Russia will be offset by rising production from other countries.
  • Saudi Arabia promised deep cuts to crude exports in August and the latest earnings results show some of the world’s biggest oil companies are leaving the worst downturn in a generation behind. 
  • West Texas Intermediate crude for September delivery rose 29 cents to settle at $49.04/barrel on the New York Mercantile Exchange. Total volume traded was about 27% above the 100-day average. The US benchmark rose closer toward its 200-day moving average of about $49.42/barrel. 
  • Brent for September settlement climbed 52 cents to end the session at $51.49/barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $2.45 to WTI Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore slipped 0.3% to $70.20/tonne with a bullish forecast from Goldmans doing little to boost sentiment. Goldman Sachs raised its iron-ore forecasts after better-than-expected demand in China raised prices, but warned that it remains bearish on next year amid prospects for plentiful mine supplies and a worldwide glut. 
  • The three-month forecast was raised to $70/tonne from $55, and the year-end target increased by $5 to $60, according to a report from analysts including Yubin Fu and Max Layton received on Thursday. Next year, prices are still expected to drop, it said. 
  • Meanwhile executives at Brazil's Vale said the company's iron-ore output could reach 400 million tonnes in 2019 or 2020, and expressed confidence the Samarco mine could be granted the permits needed to resume operations after a 2015 disaster. In a conference call following second-quarter results, the company also said it would seek to reduce net debt to below a band of $15 billion to $17 billion. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper prices rose for the sixth consecutive session Thursday, with the Federal Reserve’s policy statement adding to early-week price momentum on improved forecasts for Chinese growth. Futures for September delivery settled up 0.2% at $2.8775/pound on Comex, closing at the highest level since May 2015. 
  • In international earnings, Glencore cut its 2017 output targets after changes in what it extracts at some of its mines, rainfall and maintenance hit production in the first half of the year. Copper output for the six months fell 9% and nickel was down 10%, while zinc production jumped 13% and coal rose 4%. 
  • Glencore said it was lowering its full-year production guidance for copper, lead, ferrochrome, nickel and coal. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In early release, Sandfire Resources confirmed that it produced 17,092 tons of copper in the June quarter and 67,088 tons in FY17. Gold output was 9,721 ounces in the June quarter, 38,623oz in FY17. SFR confirmed that it sees gold output at 35,000-38,000oz in FY18, targets C1 cost of $1.00-1.05/lb for FY18, FY17 C1 cost $0.93/lb
  • National Australia Bank (NAB): NAB is said to revamp CIB business that will cost about 50 jobs
  • Origin Energy (ORG): Proposed IPO unit Lattice said to seek A$500m debt package from lenders: AFR
  • Resolute Mining (RSG): Mali Union to embark on a five-day strike at Resolute Gold Mine
  • Ten Network (TEN): Oaktree enlists Credit Suisse as it prepares indicative bid for TV network: AFR
  • Westpac (WBC): Scheduled to host business update call

Broker upgrades and downgrades

  • Collins Foods (CKF): Raised to buy at APP Securities, PT A$6.45
  • Fortescue (FMG): Raised to buy at APP Securities, PT A$7.03; Cut to hold at Argonaut Securities, PT A$5.23
  • Virtus Health (VRT): Cut to hold at Morningstar

Australian calendar

Friday
  • Westpac Banking Corp: Business update call
  • Iron Mountain Inc: Q2 2017 earnings

International earnings

  • Friday: Credit Suisse Group AG, Nomura Holdings Inc., Exxon Mobil Corp., Chevron Corp., UBS Group AG, Barclays Plc and BNP Paribas SA

VIX and IYT

The CBOE volatility index (VX) failed to crack the 11 handle two days ago and it spiked to climb above 12 yesterday when S&P500 (ES) sold off more than 20 points last night. The intraday high was close to 12.28, which corresponds to a 50% retracement between the July high of 13.55 and July low of 11. We will continue to monitor VX as overnight price actions suggest VX may have begun bottoming out.

VX monthly
1
Source: SaxoTrader
 
iShares DJ transportation index (IYT) plunged more than 3% but selling stopped at the uptrend (from the June 16 low of 125.94). The 200 DMA also exists just below this uptrend and this line is expected to act as an interim support.

IYT monthly
 Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more 

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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