Today's Trade: ASX gets welcome jolt as banks surge
- The S&P/ASX 200 has opened higher, helped by a rebound in the big four banks
- Warren Buffett considers investing in Australian banks following his IAG move
- The rising AUDUSD is likely to encounter resistance following the FOMC meeting
By Saxo Capital Markets (Australia)
Overnight and early trading
The Australian sharemarket has opened higher, driven by a rebound in the banks, as the recovery in banking stocks gains pace. Shares in the big four banks are 1.4% to 1.8% higher. The S&P/ASX200 was up 0.88% at 11:03am, to 5,584.80. But resources stocks are mixed, following overnight falls in commodity prices.
US stocks rallied last night, bouncing from a two-day losing streak, as investors awaited news on Greece’s bailout and the effect of the Federal Reserve’s policy meeting. The Dow Jones Industrial Average gained 113.31 points, or 0.64%, to 17904.48. The S&P 500 index rose 11.86 points, or 0.57%, to 2096.29, and the Nasdaq Composite Index added 25.58 points, or 0.51%, to 5055.55. All of the S&P 500’s sectors finished higher, led by a 1.05% gain in consumer-staples stocks.
Economic data released overnight was again mixed. US housing starts, which measures groundbreakings, fell 11.1% in May. While new US housing permits surged 12% to an annual rate of 1.04 million, the highest level since 2007. As the Q1 earnings season draws to close, the ongoing Greek saga has been at the forefront. However many investors now say their main focus is on a rate hike. The VIX fell overnight to 14.81, while the AUDUSD is trading slightly up to start the session sitting at 0.7751.
- The S&P/ASX 200 Index futures contract rose 0.8% to 5,519; futures relative to estimated fair value suggest an early gain of 0.7%.
- Bank of New York Australia ADR Index +1.4%; BHP Billiton ADR +0.5%; Rio Tinto ADR -1.4%
- Spot gold was down 0.4% to $1,182/oz after reaching lows of $1,176/oz near midnight AEST before recovering. Gold is failing to reach its 200DMA, which now rests at $1,206/oz and has not been touched since May 19. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR
- Crude oil was down overnight with Brent off 0.9% to $63.73/b as Libya warned it may double its output to 800kp/d. WTI lost just 0.2% to $60.06/b as the US market waits for tomorrow's EIA report with anticipation that further draw-downs in oil reserves. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore has shed 2.1% to trade at $62.91 as weakness in the Chinese steel market flows through to iron ore prices. It has been reported that steel consumption fell 4.7% in May causing a rise in inventories. Stock piles of the major mills rose 8.8% in May to 17mt as the industry leads in to seasonally weaker period. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Base metals were down across the board as the stronger US dollar did little to help buying support. Notably we have nickel down 1.9% to $12,690 and copper falling 1.3% to $5,750. Aluminium looks to break $1,700/t after losing 0.6% to trade at $1,704. Stimulus measures in China have not been enough to boost demand and data is showing a heavy build-up of short position. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
- China steel orders drop in June as sentiment weakens: Macquarie
- China iron ore output down 10% in first 5 months of yr: NAB
- Adairs (ADH): Expected to debut on ASX at 12pm Sydney time; raised $218.1 million in IPO
- Banks (ANZ, CBA, NAB, WBC): Berkshire Hathaway’s Warren Buffett considering equity stake in Australian banks
- IAG (IAG): Berkshire yesterday took 3.7% stake for $500m
- BT Investment (BTT): Shrs halted; NOTE: Westpac to sell down up to 82m shares
- Westpac (WBC): Venture capital arm Reinventure in talks to invest in Beat the Q: AFR
- Fisher & Paykel Healthcare (FPH)
- Alumina (AWC): Resumes coverage with overweight at Macquarie
- Insurance Australia (IAG): Raised to neutral vs underweight at Commonwealth Bank
- REA Group (REA): Raised to add vs hold at Morgans
- Alumina (AWC): Cut to neutral at Credit Suisse
- Insurance Australia (IAG): Cut to hold vs buy at Morningstar
- Insurance Australia (IAG): Cut to underweight vs neutral at JPMorgan
AUDUSD resistance levels have been 0.7750 and 0.7792. Thursday morning’s FOMC meeting (1800 GMT) is expected to be a key catalyst in determining whether AUDUSD resilience will continue. The RBA monetary policy meeting minutes released yesterday were quite dovish.
Unless FOMC comes out with less hawkish comments, which would be surprising, we believe the AUDUSD is expected to find strong resistance at 78 cents. Iron ore fell more than 2% overnight along with copper (-1.3%) and Australian 10 year bonds are forming an ascending triangle to break above the resistance level of 97.
AUDUSD likely to hit resistance at 78 cents
Yesterday’s decline seems to be mainly caused by a heavy selloff from the Shanghai composite index (-3.5%). Unless we see a clear break out above 5,580, the S&P/ASX 200 is expected to trade below this level. Therefore the ideal setup we prefer is to sell at market near 5,580, with another buy stop order above 5,580.
S&P/ASX 200 recovers
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– Edited by Robert Ryan