- US indices closed lower after North Korean comments on a sixth nuclear test
- Earlier, gold fell to its lowest in almost two months
- The local market is focused on the fallout from last night's budget
- Australia's banks are digesting the announcement of a new bank levy
By Saxo Capital Markets (Australia)
Overnight and early trading
The big banks weighed on local markets early, a day after confirmation of a new tax on the sector. The ASX200 opened 0.2% weaker at 5828.2 points. CBA fell 1.6%, Westpac was down 2%, NAB fell 1.9%, ANZ gave up 1.1% and Macquarie lost 1.7%.
CBA fell 1.6% in opening trade and interesting price action is expected through the day. Photo: Shutterstock
Falling energy shares and comments from North Korea pressured the S&P 500, which snapped a three-session winning streak on Tuesday. Major stock indices have risen over the past few weeks as stronger-than-expected corporate earnings have helped offset a steep decline in commodity prices. With the bulk of the S&P 500 having reported earnings, companies have largely beat analysts’ expectations for the first quarter.
The Dow Jones industrial average and the S&P 500
closed lower on Tuesday after the North Korean ambassador to the UK told Sky News the country will proceed with its sixth nuclear test.
The Dow Jones Industrial Average fell 36.50 points, or 0.2%, to 20975.78 on Tuesday. The S&P 500 fell 2.46 points, or 0.1%, to 2396.92 and the Nasdaq Composite gained 17.93 points, or 0.3%, to 6120.59, posting its 30th record close of the year.
Major indices have had few large swings in recent weeks. Some analysts attribute the relative calm in markets to data pointing to health in the US economy, which they say should keep stocks climbing.
The CBOE Volatility Index, a measure of expected turbulence in the S&P 500 over the next 30 days, closed on Monday at its lowest level since 1993 and edged up slightly on Tuesday. The VIX has fallen more than 10% in the past month and dropped 25% on April 24, the day after the first round of the French presidential election. The contest concluded on Sunday with Emmanuel Macron easily defeating far-right candidate Marine Le Pen.
US crude for June delivery fell 1.2% to $45.88 a barrel on Tuesday, its second lowest settlement of the year. Energy stocks in the S&P 500 — the worst-performing sector in the broad index in 2017 — fell 0.9%, deepening their losses for the year.
Consumer-discretionary shares in the S&P 500 rose 0.5% and were among the biggest gainers in the broad index. Marriott International shares jumped $6.13, or 6.4%, to $102.50, Class A shares of Under Armour added 86 cents, or 4.2%, to 21.39 and Hanesbrands rose 86 cents, or 4%, to 22.49.
As stocks rose, government bonds slipped, with the yield on the 10-year US Treasury note
rising to 2.405% from 2.376% on Monday. Yields rise as bond prices fall.
Elsewhere, the Stoxx Europe 600 added 0.4%, settling at its highest level since August 2015.
Source: Bloomberg, TradingFloor.com
Wednesday: Toyota Motors, Mylan Labs, WE, Norwegian Cruise Lines, Pershing Square, Snap, Whole Foods, Sunrun, Time Inc, SodaStream, Royal Ahold, Vulcan Materials, Ambac, 21st Century Fox, Sotheby's
Thursday: Nordstrom, Teva Pharma, Macy's, Kohl's, Nissan, Telefonica, CyberArk Software, Schneider National, BT Group, ING, Invitation Homes
Friday: Allianz, ArcelorMittal, JCPenney, Acushnet
- Bank of New York Australia ADR Index down 2.4%, BHP Billiton ADR up 1.1% to A$23.43 equivalent, 1.2% premium to last Sydney close, Rio Tinto ADR little changed at A$52.43 equivalent, ~11% discount to last Sydney close
- Gold fell to the lowest in almost two months as investors turn their attention to the outlook for rising US interest rates amid easing political uncertainty in Europe. Revived appetite for riskier assets has pushed global stocks to record highs, while the market's so-called fear gauge, the VIX volatility index, fell to its lowest since 1993. Spot gold fell 0.77% to $1,216.35 an ounce. The metal dipped below its 100-day moving average, a key technical support level currently at $1,224. U.S. gold futures for June delivery dropped $11.00 to settle at $1,216.10 an ounce. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Crude futures pared losses in New York after a US industry report was said to show an inventory decline. The American Petroleum Institute said that American crude supplies shrank by 5.79 million barrels last week, people familiar with the data said on Tuesday. The Energy Information Administration is forecast to report on Wednesday that stockpiles fell by 2m barrels, according to a Bloomberg survey. Futures dropped earlier as Libyan output rose to the highest in more than two years, getting in the way of Opec’s efforts to drain a global glut. West Texas Intermediate for June delivery fell 55 cents to close at $45.88 a barrel on the New York Mercantile Exchange. Total volume traded was about 14% above the 100-day average. Futures traded at $46.25 after the release of the API data. Brent for July settlement slipped 61 cents, or 1.2%, to $48.73 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.46 premium to July WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- Iron ore also managed to recover marginally, although sentiment in the market remains very poor. Concerns remain that a combination of a crackdown on leverage, together with high stocks and seasonally weak demand, will drive further weakness in prices in the near term. Spot iron ore rose 60 cents to close at $60.75. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Three-month copper on the London Metal Exchange ended 0.5% higher at $US5512 a tonne, after touching its lowest since January in the previous session. The premium for cash zinc versus the three-month price traded at its highest since February 20, indicating tightening nearby supply. Zinc added 0.9% to $US2612 a tonne. Nickel rose 0.8% to $US9215 a tonne, aluminium fell 0.5% to $US1870.50, tin ended 0.1% lower at $US19,675, while lead rose 0.3% to $US2175. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Australian Agricultural Co. (AAC): FY results expected; NOTE: 2-analyst net income GAAP est. A$57.8m
- BHP Billiton (BHP), Rio Tinto (RIO): Iron ore sags again as forced-sale speculation gathers momentum
- CSR (CSR): FY results expected; NOTE: Adj. net income est. A$186.9m (10 analysts, range A$163m-A$199m)
- Fairfax Media (FXJ): Holders seen seeking new A$3.1b bid from TPG: AFR
- Fortescue (FMG): Prices $1.5b debt, up from planned $1b
- Lend Lease (LLC), Downer EDI (DOW), Sydney Airport (SYD), Cimic (CIM): Australia budget flags A$75b funding for road, railway and runway construction over 10 years
- Origin Energy (ORG), Oil Search (OSH), Santos (STO), Woodside (WPL): Energy titans get schooled in sharing as billions seen blown
Broker upgrades and downgrades
- Ardent Leisure (AAD): Cut to underperform at APP Securities, PT A$2.07
- Commonwealth Bank (CBA), Macquarie Group (MQG), National Australia Bank (NAB), Westpac (WBC) ANZ Bank (ANZ): Australian banks slugged with A$6.2b govt levy; CBA raised to add at Morgans Financial, PT A$87.50; CBA cut to underperform at Macquarie; PT A$81; NAB cut to underperform at Macquarie; WBC cut to neutral at Macquarie; PT Lowered to A$33
- South32 (S32): Upgraded to outperform at Exane
- Treasury Wine (TWE): Cut to underperform at Macquarie, PT A$10.98
- Harvey Norman (HVN): Raised to neutral at Goldman
- Incitec Pivot (IPL): Cut to underperform at APP Securities, PT A$3.52; Cut to underperform at Credit Suisse, PT A$3.37
Stocks to watch
Interesting price actions are expected from CBA today as last night’s budget revealed a bank levy on the big banks. After failing to push above $88 last week, CBA has fallen almost 7%. The selling pressure seems strong and the interim support level should be $81, which has acted as the support level for 2017. The major support level is $79, where the 200-day moving average crosses the 50% retracement between the 2016 support level of $70 and 2017 high of 87.74.
US dollar index
The US dollar index (DX) has been strengthening, with two consecutive days of gains, and last night it filled the gap at 99.56 which was created two weeks ago. The previous uptrend (from May 16 low) still seems to be acting as a resistance line, thus we would maintain a downside bias unless DX breaches this line.
Source: Saxo Bank - Create your own charts with SaxoTrader; click here
Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
Edited by Susan McDonald
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