Today's Trade: BHP leads market out of the mire
- AUDUSD moves up on the back of weak US jobs report, now at US75.7c
- ASX sees energy and banks moving up in early trading as well as BHP
- Volatility hits lowest levels in months, based on uncertainty over Fed moves
Overnight and early trading
The ASX 200 rose 46 points, or 0.9% to 5419. BHP was the big winner this morning, up around 2.2%.
The AUD was higher on the back of a disappointing US jobs report. At 0710 the local unit was trading at US75.70c, up from US75.39c on Friday.
US stocks rose Friday, even as declines by drug makers cut into the broader market’s advance.
Both implied and realised volatility have plumbed their lowest levels in months, which many traders have blamed on uncertainty about the next moves by the Federal Reserve.
trading but the USD was marginally weakened. Photo: iStock
In morning trading, major stock indexes rose following a slightly softer-than-expected August jobs report. Declines in healthcare stocks caused indices to pare gains in the afternoon.
Financial stocks have rallied in recent weeks on hopes for higher rates, which can boost bank profitability. Friday’s jobs data wasn’t decisive enough to spark substantial buying or selling of these interest-rate-sensitive trades, traders said.
Monday: Poseidon Nickel Ltd, Focus Minerals Ltd
Local markets and commodities
- The S&P/ASX 200 Index futures +0.7%; futures relative to estimated fair value suggest an early gain of 0.4%.
- Bank of New York Australia ADR Index +0.4%, BHP Billiton ADR +1.3% to A$20.22 equivalent, 1.9% premium to last Sydney close, Rio Tinto ADR +1.1% to A$41.12 equivalent, ~13% discount to last Sydney close.
- Gold futures gained, reducing a weekly decline, after US employment data missed estimates, boosting the metal’s appeal as a haven. Gold futures for December delivery gained 0.7% to settle at $1,326.70/oz on Comex in New York, erasing a weekly loss. Before the release of the jobs report, the metal was little changed as it headed for a second straight weekly decline. On Thursday, it touched the lowest since June 24, the day prices surged on demand for a haven following the the UK’s vote to exit the European Union.
- Silver for December delivery rose 2.2% to $19.366/oz on the Comex. Gold is up 25% this year as uncertainty in US growth pushed the Federal Reserve to consider holding off raising interest rates this year, and as the Brexit left traders considering an economic slowdown in Europe. Higher rates reduce the appeal of gold, which doesn’t pay interest or offer returns like assets such as bonds or equities. Goldies in Toronto rallied close to 3% on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil prices snapped a four-day losing streak Friday following a report of more muted than expected hiring in August but were still down from the beginning of the week amid persistent worries about oversupply. US crude for October delivery closed up $1.28, or 2.97% at $44.44/barrel on the New York Mercantile Exchange.
- Brent, the global benchmark, rose $1.38, or 3.04%, to $46.83/b. Still, crude ended the week off 6.72% - its largest single week decline since July - amid worries about the lingering glut of crude and scepticism that major producers will actually follow through on talk of limiting output when members of Opec meet in Algeria later this month.
- Losses accelerated Wednesday when the US Energy Information Administration said its crude stockpiles grew by 2.3 million barrels in the latest week, a larger-than-expected increase in supplies at a time of year when stockpiles usually would be dropping. Despite Friday’s rise, some market observers say they expect concerns about oversupply will continue to weigh on prices, especially as summer driving seasons winds to a close and refiners cut back for seasonal maintenance.
- Friday’s oil rally continued despite a strengthening USD. While the dollar sold off initially following the nonfarm payroll job figures, it reversed losses in recent trading. Typically a strong dollar is a drag on oil prices because it makes crude more expensive for traders who conduct business in other currencies. Also on Friday oil-field-services firm Baker Hughes showed that the number of rigs drilling for oil climbed by one in the past week to 407. The number of rigs is typically viewed as a proxy for oil field activity.
- For weeks market participants have been weighing statements from major oil exporters, trying to determine whether an agreement to limit production is likely. The market got a boost Friday after Russian President Vladimir Putin called on oil producers to agree to limit output when OPEC members meet later this month. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore added $0.53 to $59.39/tonne continuing its momentum following last week’s positive manufacturing data. A draft of The Group of 20 leaders’ summit communique referenced a global steel glut, says one report. It is “crucial” for China to accept global monitoring of overcapacity in the steel sector, European Commission President Jean-Claude Juncker pointedly told a press conference on Sunday.
- Over the summer, G-20 trade and financial officials during separate meetings agreed overproduction of steel is a “global problem,” and the draft of the leadership communiqué uses the same language. As China’s economy has slowed, its overcapacity problem has increasingly washed up on foreign shores. China has responded by pledging to cut 100 million to 150 million tons of steel capacity over several years. But China is responsible for 50% of global production and this will only remove about a third of its excess production, according to industry association estimates.
- Surging Chinese loans precipitated massive steel buying that sent steel inventories down 45% from September 2015 to June, and more than doubled steel prices. Since hitting that low, inventories have roared back by more than 100% to Q1 levels, which is starting to weigh on prices. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Nickel capped the biggest two-day gain in more than a month as stockpiles of the metal dropped to the lowest in almost two years. Global inventories of the metal used in stainless steel declined for a third straight day to 368,430 metric tons, the lowest since October 2014.
- Nickel prices have risen 14% this year as the threat of supply disruptions in the Philippines, the world’s biggest producer of the mined metal, boosted concerns of a shortfall. Nickel also gained alongside other metals traded on the London Metal Exchange after the dollar slipped immediately following a smaller-than-expected rise in US payroll data for August.
- A weaker dollar makes commodities less expensive in other currencies. Nickel for delivery in three months rose 1.5% to settle at $10,060/t on the London Metal Exchange, the biggest two-day gain since July 28. The Philippine government is due to present the findings of its audit on September 8 after assessing whether mines comply with environmental and welfare rules. Operations that fail the examination will be suspended, stoking fears of supply disruptions.
- Copper slipped 0.1% in London VS futures for December delivery on Comex up 0.1% to $2.078/pound. Inventories in warehouses tracked by the LME gained for a ninth day, expanding 17% this week. Those tracked by the Shanghai Futures Exchange have shrunk to the lowest in almost a year
- Zinc rose 1.1% to $2,364 a ton after touching the highest since May 2015. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- In other news: BHP-Vale mine bondholders said to hire lawyers for debt talks; Boart Longyear (BLY): Set for 2nd recapitalization: Australian; Trades ex-div: Contact Energy (CEN), ISelect (ISU), ISentia (ISD), MG Unit Trust (MGC), Nine Entertainment (NEC), Perpetual (PPT), Spark Infrastructure (SKI), Super Retail (SUL); Fortescue (FMG): Loses bid to block Brockman seeking access to rail infrastructure: AFR; McGrath (MEA): Argo takes 5% stake in co.: AFR; Origin Energy (ORG): Proposes forward start facility in A$4.2b of loans; Rio Tinto (RIO): Yancoal may be looking at co.’s coal assets: Australian.
- Huon Aquaculture (HUO): Raised to outperform vs neutral at Credit Suisse
Stock to watch
Fortescue Metals Group (FMG) seems to have formed a double top at 5.12 and since then it is making retracement towards the next support level 4.70 which was the previous double top.
RSI is indicating the upside momentum is declining and the price is still way above the 200 Day Moving Average . A break out below 4.70 may signal further pull back down to potential gap fill at 4.12.
Fortescue Metals Group monthly chart
The US500.i rose 0.5% last week however, yet to clear to new year highs. There is a bull flag formation over the S&P and a failure this week to trade through the upper channel line would be a near term negative.
Current short positions may consider stops upon a break of the upper channel trendline.
US 500 monthly chart
The actual low for the week happens to coincide at the half way level between the 2015 highs through to this year's low as well as on this trendline which connects the higher swing lows through this year.
Given the underperformance, we have some catching up to do this week upon receiving positive momentum from overseas leads.
The first level of resistance comes in at 5412 or the 23.6% recent top to bottom retracement and on extreme gains above here we mark weekly gains to be capped between 5500 to 5510.
AUS200 monthly chart
Its possible for the Nikkei to struggle in maintaining its gains in the short term given that it is at present trading at some noisy areas as indicated on the chart.
Upon a continued move higher, once we clear this traffic, we mark first resistance at 17,385 up to the test of the positive trendline which originally held the Nikkei’s lows from February through to May and has since acted as heavy resistance in June and July.
Nickkei 225 monthly chart
So we look for a potential bounce to occur here which comes in 10 to 20 pips below the 74 handle.
AUDUSD quarterly chart
Today's Trade sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters