Article / 29 April 2016 at 1:44 GMT

Today's Trade: Banks push S&P/ASX 200 into positive territory

Trading Desk / Saxo Capital Markets
Australia
  • The banks and energy companies gave the S&P/ASX 200
  • Losses by big miners weighed on the benchmark index
  • Iron ore broke a four-day losing streak, with a 3.0% gain
  • Oil hit highs not seen since early November, helped by the weaker US dollar
  • The USDJPY fell on the back of the disappointing BoJ announcement
By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX 200 managed to edge into positive territory with support from the banks, and the energy sector. The S&P/ASX 200 was up 0.18% to 5,234.90 at 1134 AEST (0134 GMT).
  • US markets closed down with decent losses with the Dow Jones Industrial Average suffering its biggest drop since February in a broad selloff.
  • The Dow industrials ended down 1.2% while the S&P 500 fell 0.9%, led by declines in the technology sector. The tech-heavy Nasdaq Composite gave back earlier gains to drop 1.2%. All 30 Dow components and nine of the 10 S&P 500 sectors fell.


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US crude output could rise as idled rigs are made operational again, while Saudi Arabia, Russia and Iran have all ramped up production to gain market share.


  • US stocks started the session with calm, shaking off a decision by the Bank of Japan to hold fire at its policy meeting and US growth data that was weaker than expected.
  • US stocks started stumbling late in the session led lower by sharp declines in Apple, Cisco Systems and International Business Machines.
  • Also pressuring the market sentiment and on the share price of Apple were comments by prominent US investor Carl Icahn, who stated on CNBC that holdings in Apple were sold in February of this year.
  • Facebook performed strong, rising 7.2% as it reported late Wednesday that it nearly tripled its quarterly profit, however its strength wasn’t enough to lift the tech sector
  • Oil stocks dislocated from the actual moves in the price of crude: Energy shares fell Thursday even as oil prices continued to rebound. Exxon Mobil and Chevron fell 0.5% and 1.4%, respectively, ahead of their quarterly earnings reports Friday. US crude-oil prices rose 1.5% to $46.03 a barrel, rising for a third consecutive session.
  • The CBOE Volatility Index (VIX) jumped more than 10% to hit a high of 15.61, its highest level since April 12.
  • Europe fared better with the Dax rallying 0.21% while the FTSE added 0.04%. The CAC shed 0.04%.
  • Grabbing headlines was Germany's Deutsche Bank, which posted a 58% drop in net profit in the first quarter, to €236 million ($267 million) compared to the same period last year. The stock managed to rally 3.95% because of the surprise net profit. The market was expecting a net loss.
  • Spanish bank BBVA slumped close to 7% after it reported a 54% year-on-year decline in first-quarter net profit which fell to €709 million ($802.8 million). Rival Caixabank slipped 3% after it said net profit fell 27% in the first quarter to 273 million euros.
  • Other key earnings in Europe included France's Airbus which reported a 50% fall in first-quarter net profit as it warned it's "facing a serious challenge for production and customer deliveries" for one of its military aircraft. Still, Airbus maintained its 2016 guidance but the warning sent shares to close down over 4.5%.
Earnings due out this week

  • Friday: ExxonMobil, Chevron, AstraZeneca, Eaton, VF Corp, Cabot Oil, Calpine, Moody's, American Tower, Tyco, Phillips 66
Local markets

  • Bank of New York Australia ADR Index -0.8%. BHP Billiton ADR +0.6%. Rio Tinto ADR +1.5%.
  • Spot gold rose 1.6% to $1,267 following the BoJ’s decision not to ease further. A surge in the Yen drove investor demand for the precious metal with ETF holdings continuing to grow. On the other side of the coin, China’s consumption of gold was down 3.9% y/y to 318.3t in Q1. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil has risen, with WTI and Brent up 1.9% and 2.1% to $45.86 and $47.86 respectively. Oil has closed at highs not seen since early November in part due to the weaker US dollar overnight. Drifting closer to $50/barrel, US production which has begun to edge lower could lift again as more rigs are brought back to life. Saudi Arabia, Russia and Iran have all ramped up production to try and win market share. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore has broken its four day losing streak, with the red metal up 3.0% to $62.90 on improved sentiment. Buyers came out of the woodwork as more steel mills look to restart, with Songting Iron and Steel being the latest to light up after five months of being idle. Cliff Naturals share price has surged as much as 35% overnight in the US on anticipation that it can reach a favourable outcome with the Arcelor Mittal contract and Essar Steel dispute. Meanwhile Vale had its first profits in three quarters due to cost cutting, a rebound in prices and a stronger local currency. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals continue to perform well on a weaker USD. Aluminium rose another 1.1% while zinc was up 1.4%. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • Australia 1Q PPI due 1130 AEST (0130 GMT).
  • AWE (AWE): Scheduled to release March quarter output.
  • Broadspectrum (BRS): Recommends accepting Ferrovial bid, changing tack
  • Genworth Australia (GMA): Scheduled to provide 1Q update; NOTE: In February, guided to 2016 net earned premium down 5%, GWP down 20%, loss ratio 25%-35%, div. payout 50%-80%.
  • Medibank Private (MPL): Designing system to compare surgeon fees: AFR.
  • Origin Energy (ORG): Scheduled to release March quarter output; NOTE: Co. discussing potential sale of APLNG infrastructure; In Feb. saw FY2016 underlying EBITDA (ex-LNG underlying.
  • Perseus (PRU): Revises output estimate to 75,000 to 90,000 ounces gold in six months to June; Sees FY16 output 152, 000 to 167,000 ounces
  • Rio Tinto (RIO): To buy back $1.359b of 2017 bonds
  • St. Barbara (SBM): Upgraded to B3 by Moody’s

Stock-to-Watch: Austal LTD (ASB)

Shipbuilder Austal was heavily oversold in December 15 before finding its lows in January this year. Since then the market has been slowly accumulating the stock once again as they had between 2012-2015. Austal builds both naval and commercial vessels.

ASB on a daily chart has found an upward floor of support. It has tested its 76.40% extension twice now but after holding above its 50% extension looks ready to lift higher. Levels to watch will be its 100% extension with a longer term target being its 261.80% extension which would cover its technical gap which would not be out of the question.

Defence after all is a defensive stock within itself. On a monthly chart we identify that this current level has been a big level historically. A break above this level would act again as a floor offering upside potential. Failing to hold its short term upward trend would not be a positive sign.


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Broker upgrades, downgrades

  • Beach Energy (BPT): Raised to buy at BofAML.
  • Cochlear (COH): Raised to buy vs underperform at BofAML.
  • Independence Group (IGO AU): Cut to hold from buy at GMP.
  • Japara Healthcare (JHC): Cut to equalweight vs overweight at Morgan Stanley.
  • Pacific Brands (PBG): Cut to sell vs hold at Morningstar.
  • Pacific Brands (PBG): Raised to neutral vs sell at UBS.
  • Pacific Brands (PBG): Cut to neutral vs overweight at JPMorgan.
  • REA Group (REA): Cut to neutral vs positive at Evans & Partners.
Performance

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Forex moves: USDJPY loses ground

The USDJPY fell more than 400 pips on the back of the disappointing announcement from the BOJ as they failed to deliver the much anticipated further easing policy. USDJPY is now trading only a few pips above the previous support level ¥107.60.

Although the current downside momentum looks to be aggressive, we expect some retracements to the upside today as Japan is on public holiday today. The break out below ¥107.60 appears to be inevitable in the near term and the next key support level would be ¥105.30 which acted as both resistance level and support level back in 2014.

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S&P/ASX200 rebounds from selloff

Yesterday, the S&P/ASX200 (AUS200.I) looked to recover the losses from the previous day, but when the Bank of Japan decided to leave interest on excess reserves unchanged at -0.1%, the Nikkei 225 declined more than 1,000 points, while the S&P500 declined 20 points.

It was interesting to see that AUS200 rebounded from the initial selloffs unlike the other major indices. The overnight price actions were wild as the earlier rally were totally wiped out. The blue chip tech stocks sold in to the close when Carl Icahn said he sold Apple stock (AAPL). The sentiment seems to be deteriorating as the VIX is starting to tick up and the today’s focus would be on the key level 5,200 and the weekly close below this level would signal further weakness in the coming weeks

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Chart: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more. 
 
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945 AEST: #SaxoAPAC





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