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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 / 17 June 2015 at 1:08 GMT

Today's Trade: ASX gets welcome jolt as banks surge

Trading Desk / Saxo Capital Markets
Australia
  • 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.


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Join the queue ... domestic investors see Australia's big four banks as blue chip investments, and Berkshire Hathaway’s Warren Buffett finds them attractive as well. Photo: iStock
 

The Fed is starting its two day meeting on monetary policy, investors will be eagerly awaiting its outcome. While a rise in interest rates is not expected to result from the meeting, investors will analyse every word of FOMC chair Janet Yellen’s statement looking for any clarity on the future and health of the US economy.

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.

In Europe, stocks finished mostly higher overnight after recovering from a slow start. However, unsurprisingly, Greek stocks dropped close to 5%. France’s CAC and the German DAX both closed up 0.5%, while the FTSE 100 fell 0.42%, the Stoxx 50 gained 0.47%. While the Stoxx Europe 600 bounced from an early dip to finish the day 0.6% higher.

Greece is due to repay EUR1.54 billion to the IMF on June 30, and a default is becoming to look more and more likely. There is no agreement that Greece’s bailout will expire on June 30, however there is uncertainty as many European officials are looking at the possibility of a Greek default and departure from the Eurozone. The euro is lower against the greenback as the start of the session, sitting at 1.1244.

Local markets

  • 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

Ex-dividend

  • Fisher & Paykel Healthcare (FPH)

Broker upgrades

  • 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

Broker downgrades

  • 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 to meet resistance

As the probability of Greek default rises to more than 80%, currency moves continue to be difficult to anticipate. While the EURUSD is still ranging between 1.12 and 1.13, the AUDUSD looks to be forming an uptrend line, since it has found a strong support level at 0.7600 earlier this month.

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
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S&P/ASX 200 recovers

On the back of the solid rebound from S&P500, the S&P/ASX 200 recovered yesterday afternoon’s losses during the overnight sessions. However it could not trade above the major resistance level at 5,580.

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.

Sell ASXSP200.I

Entry: Market (currently trading at 5,576)

Target: 5,537

Stop loss: 5,592

Buy ASXSP200.I

Entry: Stop 5,592

Target: 5,635

Stop loss: 5,572

S&P/ASX 200 recovers
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Sources: AFR, SMH, CNBC, BBG, WSJ

– Edited by Robert Ryan

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets

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