Today's Trade: Banks weigh on S&P/ASX200
- The S&P/ASX200 lost ground at the open
- Iron ore held its ground for a second day
- Energy stocks gave it a lift, but the big banks weighed on the benchmark index
- The Dow Jones fell overnight as retail stocks slumped
- Crude made gains on an EIA report of a fall in inventories
By Saxo Capital Markets Australia
- The S&P/ASX200 lost ground at the open. Energy stocks gave it a lift, but the big banks weighed on the index. The S&P/ASX200 was down 0.44% to 5,348.80 at 1049 AEST (0049 GMT).
- Stocks slipped overnight with the Dow Jones after recording its worst decline since February 11 as retail stocks slumped after weak earnings from retail giant Macy’s fueled concerns about consumer spending.
- The Dow Jones Industrial Average declined 217.23 points, or 1.2%, to 17711.12. The S&P 500 lost 19.93, or 1%, to 2064.46, and the Nasdaq Composite fell 49.19, or 1%, to 4760.69.
- Shares in retailer Macy’s lost $5.61, or 15%, to $31.38, the biggest one-day percentage drop since 2008. The retailer cut its forecast for the year amid slumping sales. “We are not counting on the consumer to spend more,” said Chief Executive Terry Lundgren.
- The SPDR S&P Retail exchange-traded fund fell 4.4%. Michael Kors Holdings shares slid 5.89, or 12%, to 44.01 and Nordstrom shares declined $3.43, or 7%, to $45.43
- The S&P 500’s consumer-discretionary sector, which includes retailers and media companies, fell 2%.
- Walt Disney shares fell 4.31, or 4%, to 102.29, making it the worst performer in the Dow and shaving 30 points off the index. The media and entertainment company’s revenue and earnings for its fiscal second quarter, as reported on Tuesday, fell short of Wall Street's expectations.
- Staples shares tumbled 1.90, or 18%, to 8.46 after a federal judge Tuesday blocked the planned merger of Staples and rival Office Depot because of antitrust concerns. Office Depot shares sank 2.46, or 40%, to 3.63
- US crude oil futures settled up $1.57, or 3.52%, at $46.23/barrel. Oil turned higher and extended gains after the EIA's weekly inventory report showed a decline of 3.4 million barrels, versus expectations of a slight build.
- The CBOE Volatility Index (VIX) rose to trade near 14.5d
- Over in Europe the Stoxx Europe 600 fell 0.4%. The Dax dropped 0.7%, the CAC shed 0.5% and the FTSE added 0.09%.
- Mining stocks outperformed on the back of a sharp rise in metal prices. Anglo American ended 5.4% up and Glencore jumped 2.2%, after Canaccord Genuity raised its price target on both stocks.
- US dollar weakness helped push gold and silver prices higher, boosting precious metal firms Randgold Resources and Fresnillo who were up 3.48% & 1.99% respectively
- The Italian banking sector was once again a key market mover, after disappointing earnings on Tuesday.
- Shares in Banco Popolare closed 9.1% lower on Wednesday and trade was briefly halted after the bank posted a surprise first-quarter net loss on Tuesday night. On Wednesday, Barclays cut its price target for the stock.
- Banca Popolare di Milano slipped over 6% lower on Wednesday after it reported on Tuesday a 29% fall in first-quarter net profit.
- Bank of New York Australia ADR Index -0.4%. BHP Billiton ADR +0.7%. Rio Tinto ADR -0.6%.
- Spot gold rose 0.9% to $1,277 on a weaker USD and continued buying from EFTs. ETF physical gold holdings rose 0.2% to 1,806.7/t, the highest levels held in two years. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Crude oil has had a strong push north with WTI and Brent up 3.6% and 4.5% to $46.05/barrel and $47.39/b respectively. Overnight the EIA reported a drop in US inventories of 3.4mln barrels, which makes sense given Canada has not been able to supply its neighbour with its own supply. This gives a total net inventory of 540 mln barrels. US output has fallen again; it's now at just 8.8 mln barrels a day. Damaged infrastructure in Nigeria from militant attacks is also on the mind of traders as they buy up the black gold. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore has held its ground for a second day, up 0.6% to $55.57. Daily trading volumes and volatility have returned to normal after two months of speculators causing extreme moves. It appears the efforts the Chinese government made to quash this trading behaviour has been taking affect. Steel rebar prices have also inched higher. Brazilian exports have fallen 4.4% m/m to 28.9m/t which has added to the support of prices. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Base metals were generally up on a weaker USD and positive outlook from Glencore expectations of the supply gluts clearing. Codelco, the top copper miner is siting expectations of prices rising later next year as the industry goes through its consolidation phase and unprofitable mines are closed. Copper is trading just below the first level we have been calling this past week, just under $4,700/t. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
- AMP (AMP): Annual meeting scheduled; NOTE: 2016 adjusted net income est. $A1.09bn (14 analysts, range $A967mln-$A1.18bn).
- ANZ Bank (ANZ): Institutional head not done after cutting top ranks by 20% - AFR.
- AusNet (AST): FY results scheduled; NOTE: Adj. net income estimated at $A325.8m (11 analysts, in this range: A$290mln-A$384mln).
- BHP Billiton (BHP): Samarco disaster cost seen ~$9.4b: Investec.
- Cimic (CIM): Hochtief profit rises 19% boosted by Americas, Asia orders.
- Crown (CWN): Macau plans to raise entry threshold for casino promoters; Colonial First State exits stake on governance, board independence concerns: AFR.
- Kingsgate (KCN): No formal notice over Thai processing licence.
- Myer (MYR): Scheduled to release Q3 sales; NOTE: Co. in March forecast FY profit ex-items $A66mln-$A72mln.
- Westfield (WFD): Annual meeting scheduled; NOTE: In February it forecast 2016 FFO/share $A0.342-$A0.345; distribution target $A0.251.
Myer price trend
- Thursday:Kohl's, Nordstrom, Shake Shack, Nvidia, Party City, Ralph Lauren
- Friday: Honda Motor, JC Penney, Brookfield Asset Management
Broker upgrades, downgrades
- CSR (CSR): Cut to underweight vs equal weight at Morgan Stanley
- Paladin (PDN): Cut to underperform on significant refinancing uncertainties: BMO
- QBE Insurance (QBE): Outlook to positive vs stable at S&P
The US dollar index ended recent rebounds but it was interesting to see that copper and crude oil continue to diverge. The overnight decline in US dollar pushed the EURUSD back up so the uptrend still remains intact, although we maintain our bearish view in the next coming weeks.
The AUS200 surged higher to break the upper trend line of the ascending channel to make an intraday high 5,429, which also happened to be the 61.8% Fibonacci retracement level between all time high 6,851 and the GFC low of 3,121. However the daily close was still within the channel and it wiped majority of the earlier gains in the SYCOM session as US stock indices declined.
The support level should be 5288 while the resistance level would be the yesterday’s high 5,429. The Hang Seng index and the Shanghai composite index have been showing weakness this week, therefore it is worth monitoring the price actions of these two indices in the Asia session.
S&P/ASX200 (AUS200.I) surges
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– Edited by Robert Ryan
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.