Article / 08 August 2016 at 1:06 GMT

Today's Trade: Banks push ASX back in the black

Trading Desk / Saxo Capital Markets

  • The ASX 200 is up 35 points or 0.6 % at 5533 at 1027 AEDT (0027 GMT)
  • The big four banks are all higher by between 1.2% to 1.6%
  • This is a busy week for earnings with plenty of ASX 200 companies in line

By Saxo Capital Markets

Overnight and early trading

Stocks rallied Friday, pushing the tech-heavy Nasdaq Composite Index and the broader S&P 500 to records, as renewed confidence in the US economy and continued help from central banks around the world have sent investors back into riskier assets.

Shares rose after the Labor Department reported strong US job growth in July, with financial shares in the S&P 500 erasing losses for the year.

The gains left all of the S&P 500’s main sectors in the black for the first time this year, extending an improbable rally for a market that tumbled the first six weeks of 2016.

The Nasdaq Composite climbed 54.87 points, or 1.1%, to 5221.12, topping its previous record close of 5218.86 set July 20, 2015. The S&P 500 gained 18.62 points, or 0.9%, to 2182.87, surpassing its high of 2175.03 on July 22.

The Dow Jones Industrial Average rose 191.48 points, or 1%, to 18543.53, 52 points from its all-time high hit in July.

The gains for the technology-oriented Nasdaq signal that stock investors are regaining their appetite for risk. The S&P 500 and the Dow Industrials climbed out of their initial 2016 hole by March and have been led by dividend-paying stocks like utilities and telecom companies.

Stocks are getting a lift from central banks, whose aggressive efforts to stimulate their economies have pushed yields on government bonds near zero or into negative territory.

This, in turn, has driven investors looking for bigger returns out of those safe harbors.

The Nasdaq didn’t turn positive until July and has lagged behind the S&P 500 and Dow industrials in 2016 after outperforming them in each of the past four years.

 The big Aussie banks were enjoying a reprieve this morning as results come in. Photo: iStock

A stream of better-than-expected earnings by big technology companies has boosted the index by nearly 8% since the end of June. Among the big gainers in recent weeks has been, which struggled early this year.

Meanwhile, tech companies, including Facebook and Google parent Alphabet, have improved the earnings picture in the second quarter, according to data provider FactSet.

With 86% of the companies in the S&P 500 reporting, earnings for the quarter are on pace to decline 3.5%. Analysts polled by FactSet had projected an earnings decline of 5.3% from a year earlier on June 30.

Biotech stocks, another big contributor to the Nasdaq Composite, are also on a tear. The Nasdaq Biotechnology Index, which fell 24% in the first six months of the year, has climbed 16% since June 30.

Since the end of June, financial shares are also outpacing the broader market. It is a marked change from earlier in the year, when fears of a potential US recession, falling commodity prices and low interest rates hurt the sector.

Stocks also have had to shake off a bear market in oil, several consecutive quarters of declining profits for America’s biggest companies and sluggish global growth.

The Stoxx Europe 600 Index climbed 1.1% to 341.38 at the close of trading, trimming its weekly loss to 0.2%.

The UK's FTSE 100 Index climbed 0.8%, after yesterday jumping the most since June. The FTSE 250 mid-cap gauge finally recovered its Brexit losses today.

Stocks in so-called peripheral markets posted the biggest advances, with Italy's FTSE MIB Index jumping 2.4%, Ireland's ISEQ Index adding 1.8% and Spain's IBEX 35 Index gaining 1.8%.

Allianz slipped 1.4% after the insurer said second-quarter profit fell by almost half, missing analysts' estimates, amid higher claims arising from natural disasters and charges for the sale of its South Korea unit.

Royal Bank of Scotland Group slid 7.2% after the British lender posted another loss and said it will probably take even longer than expected to reach profitability targets.
Information sources: Bloomberg,


AUS: Bendigo Bank
Internartional: Allergan Plc and Tyson Foods Inc

AUS: Transurban, ANZ Banking Group, IOOF Holdings, REA Group, News Corp, Carsales, Cochlear
International: Valeant Pharmaceuticals International Inc. and Walt Disney Co

AUS: AGL, CBA, Computershare, Sky City Entertainment, Oz Minerals, Fairfax Media
International: Shake Shack Inc., Prudential Plc and Sun Life Financial Inc

AUS: Virgin Australia, Magellan Financial, Goodman Group, Telstra
International: Alibaba Group Holding Ltd., Deutsche Telekom AG and Macy’s Inc

Toshiba, A.P. Moeller-Maersk and Sands China.

Local markets and commodities

  • The S&P/ASX 200 Index futures +0.6%; futures relative to estimated fair value suggest an early gain of 0.9%.
  • Bank of New York Australia ADR Index +1.3%, BHP Billiton ADR +2.6% to A$20.40 equivalent, 1.8% premium to last Sydney close, Rio Tinto ADR +0.9% to A$43.03 equivalent, ~13% discount to last Sydney close.
  • Gold prices extended losses on Friday after a better-than-expected nonfarm payrolls  report dented safe-haven demand and increased concerns that the Federal Reserve could raise interest rates in the coming months. Gold for December delivery settled down 1.7% at $1,344.40/oz on the Comex division of the New York Mercantile Exchange, its biggest one-day loss since May 24.
  • The US economy added 255,000 jobs in July, beating economists’ expectations of 179,000 and signalling that the labor market is on strong footing. Gold sector in Toronto lost 2.65% on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil prices fell Friday, as the dollar strengthened off the back of a strong July jobs report. Prices briefly broke into positive territory after the US Labor Department said Friday morning that nonfarm payrolls rose by a seasonally adjusted 255,000 last month - far higher than economists’ expectations. But as the US dollar strengthened, oil pared its initial gains.
  • A stronger US currency makes dollar-traded oil more expensive for foreign buyers, which tends to send prices lower. Light, sweet crude for September delivery settled down 13 cents, or 0.31%, at $41.80/barrel on the New York Mercantile Exchange, ending the week with slight gains.
  • Brent, the global benchmark, fell two cents, or less than 0.1%, to $44.27/b on ICE Futures Europe. It finished up 1.7% for the week. Meanwhile several Opec members want to revive the idea of setting new limits on oil production this fall as Iran regains much of the energy-industry might it lost during the years of Western sanctions, according to people familiar with the matter.
  • The nations - which include Venezuela, Ecuador and Kuwait - want to take another stab at cooperation between the 14-nation oil cartel and Opec non-members like Russia. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • The benchmark iron ore index ended last week above $60/tonne in China on Friday August 5, following in the lead of the futures market, which made a recovery during the day. Iron ore for September delivery on Dalian Commodity Exchange rose to its highest level in 17 months ahead of weekly port stockpile data. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Copper fell as Goldman Sachs said a "supply storm" is coming and predicted prices will fall to $US4000/t over 12 months. Prices dropped 0.9% to $4789, bringing the loss for the week to 2.8%. Copper has lagged behind gains in other raw materials this year, especially zinc and nickel, which benefited from forecasts for global shortages.
  • For copper, there's been solid growth in global mine supply in the first half and that trend is expected to pick up in the coming quarters, according to Goldman. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Bendigo & Adelaide Bank (BEN): Scheduled to release FY results; NOTE: FY cash profit est. A$434.4m (12 analysts); CYBG (CYB): Said to explore bid for RBS assets: Sky News; Fortescue (FMG): MMK may sell remaining stake by end 3Q; Macquarie Group (MQG): Affirmed at A- by Fitch; NAB (NAB): To redeem two hybrid capital instruments issued in 2006; Primary Health (PRY): James Bateman to leave from role of General Manager, Pathology; Qantas (QAN): Doesn’t want last eight Airbus A380s on order; Rio Tinto (RIO): Sells Mount Pleasant coal assets for $220.7m, royalty; SAI Global (SAI): Preparing sale documents for assurance services unit which may fetch ~A$400m: AFR; Seven Group (SVW), Seven West Media (SWM): Seven Group not actively looking to increase Seven West stake; Woolworths (WOW): Attracting additional offers for Masters assets; decision expected before results release Aug. 25: Australian

Broker gradings

- Ansell (ANN): Raised to buy vs neutral at UBS
- Ramsay Health (RHC): Cut to neutral vs outperform at Credit Suisse
- Sonic Healthcare (SHL): Cut to underperform vs neutral at Credit Suisse

AUDUSD and AUS200.i

The major equity indices were boosted by the positive sentiments as the US employment figures came out strong for the two consecutive months, so safe haven assets such as bond prices and gold sold off. The AUS200 is expected to remain bid up today above the support level 5,500.
 AUS 200 monthly chart

Source: Saxo Bank

AUDUSD failed to test the July high 0.7676 as US dollar strengthened on the back of the better than expected Non farm payroll numbers (255,000 against 180,000) and the copper extended the losses.

We still maintain our view to go long if we see a clear breakout above 0.77 handle but currently it looks more like a triple top. The divergence between AUDUSD and the copper (HG) remains wide, therefore we believe AUDUSD would weaken in the coming days as last Friday’s price actions indicate signs of reversal.

AUDUSD 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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