Today's Trade: BHP misses iron-ore guidance
- Local markets expected to open weaker
- BHP reported it had fallen short of its iron-ore production targets
- Despite gains from copper, AUDUSD sold off to break 0.7490
By Saxo Capital Markets (Australia)
Overnight and early trading
BHP reported this morning and announced it missed its iron-ore production targets but has beaten its full-year guidance for petroleum, copper and coking coal. The miss in iron ore was widely predicted by the market. BHP's share of its iron-ore exports was 227 million tonnes, below the revised guidance of 229 million tonnes.
The S&P 500 declined 0.1% to 2,163.78, after posting record highs in five of the previous six days. The Dow Jones Industrial Average rose 25.96 points, or 0.1%, to 18,559.01. The index capped a sixth-straight record and extended a rally to an eighth day, the longest in more than three years, led by gains in Johnson & Johnson, UnitedHealth Group and McDonald’s. The Nasdaq Composite Index lost 0.4%.
Meanwhile, the earnings season has delivered more positive surprises than negative ones so far. Analysts estimate net income at S&P 500 companies will drop 5.8% in the second quarter, which would make it a fifth straight decline, the longest streak since 2009. Microsoft climbed 3.5% after reporting profit and sales that topped analysts’ estimates, buoyed by an aggressive push into internet-based software and services for businesses.
In Tuesday’s trading, eight of the S&P 500’s 10 main industries fell, led by raw-materials and energy companies which lost more than 0.5%. Industrial and financial shares rose 0.1%. About 5.6 billion shares traded hands on US exchanges, 22% below the three-month average. Energy producers slipped as crude slid to a two-month low, falling below $45 a barrel. ConocoPhillips lost 1.9%. Diamond Offshore Drilling dropped 3.8%, the most in the group, while Murphy Oil and Hess sank at least 2.6%.
Raw-materials shares fell for the first time in nine days, halting the group’s longest winning streak in 2.5 years after it tacked on nearly 8% during the rally. CF Industries Holdings dropped 4.1%, while Freeport-McMoRan sank 5.3% and Alcoa declined 2.7%.
Healthcare retreated for a third session, the longest in a month, as Humana led losses, falling 3.9% toward its lowest since February 2015. A report said the US is poised to block Humana’s merger with Aetna, as well as Anthem's takeover of Cigna. Anthem, Aetna and Cigna sank more than 2.1%.
Netflix’s biggest plunge since October 2014, and Philip Morris International’s drop dragged on consumer stocks. Retailers slipped after briefly touching a record high yesterday. Signet Jewelers lost 2%, and Nordstrom fell 1.6% to erase a 1.2% gain yesterday.
McDonald’s countered some of the declines, rising 2.2% the most this year. The company’s unit in Japan started giving away figurines based on Pokemon characters with sales of Happy Meals on Friday. Among other shares moving on corporate news, Comerica added 2.4%. The Dallas-based bank facing investor pressure to sell itself will cut about 9% of its workforce over the next year to reduce costs.
F5 Networks rallied 4.1% after the New York Post reported private equity firm Thoma Bravo was interested in buying the company, citing a person familiar with the matter.
European stocks down fell from a three-week high: The Stoxx Europe 600 slid 0.4% in volume that was 33% below the 30-day average. Commodity producers fell the most among 19 industry groups, as Rio Tinto dropped 3.5% after its second-quarter iron ore production rose less than expected.
Source: Bloomberg, TradingFloor.com
- Wednesday: American Express, Morgan Stanley, Halliburton, Abbott Labs, Illinois Tool Works, Northern Trust, St. Jude Medical, eBay, Las Vegas Sands, Qualcomm, Intel, Newmont Mining, Motorola Solutions, Mattel
- Thursday: AT&T, Visa, Capital One, Chipotle, General Motors, Travelers, Union Pacific, Bank of NY Mellon, Biogen, Blackstone, DR Horton, Hershey, Johnson Controls, Sherwin Williams, Royal Caribbean, PulteGroup, Domino's Pizza, Nucor, Quest Diagnostics , Pandora
- Friday: General Electric, Honeywell, American Airlines, VF Corp, Whirlpool, Synchrony Financial, SunTrust, Stanley Black and Decker, Newell Brands, Moody's
Local markets and commodities
- S&P/ASX 200 Index futures little changed; futures relative to estimated fair value suggest an early gain of 0.3%
- Bank of New York Australia ADR Index -2.7%, BHP Billiton ADR -5.1% to A$19.13 equivalent, 3.5% discount to last Sydney close, Rio Tinto ADR -5.5% to A$41.55 equivalent, 15% discount to last Sydney close
- Gold rose from its lowest close this month as a drop in equities spurred demand for a haven. The metal gained along with US Treasuries, another haven asset, as European stocks fell from a three-week high.
- Gold added 0.3% to $1,332.45/ounce after dropping 0.6% on Monday to settle at $1,328.85, the lowest since June 30. Silver prices declined 0.3%. In early morning reporting, Northern Star Resources stated that its FY2016 gold sales was near top of guidance of 535,000-570,000/oz, averaging $A1,684/oz. Meanwhile St Barbara gold production in FY16 rose to record 386,564/oz as output at Gwalia and Simberi exceeded guidance. Goldies overnight in Toronto lost 0.58%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Oil traded under $45/barrel as US industry data showed crude stockpiles remain ample even after a projected decline. WTI crude for August delivery, which expires Wednesday, fell as much as 6 cents to $44.59/barrel on the New York Mercantile Exchange and traded at $44.64 in early Asia.
- Prices fell 59 cents to close at $44.65/barrel on Tuesday. The more-active September contract dropped 49 cents to $45.45 on Tuesday. Brent for September settlement slipped 30 cents, or 0.6%, to close at $46.66/barrel on the London-based ICE Futures Europe exchange on Tuesday. The contract settled at a $1.21 premium to WTI for September delivery.
- Inventories fell by 2.3 million barrels last week, while gasoline supplies rose by 805,000 barrels, the American Petroleum Institute was said to report. US crude supplies probably slipped 2 million barrels last week, according to a Bloomberg survey before government data Wednesday. Still, inventories remain at the highest seasonal level in at least five years. The energy sector was the second-weakest sector in the S&P500, down 0.52% overnight. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore in China dropped for a third day as increasing supplies from miners including Rio Tinto Group and rising inventories at domestic ports threatened to overwhelm demand. Futures on the Dalian Commodity Exchange lost as much as 2.4% to 420.5 yuan ($63) a tonne and closed at 423.5 yuan. The low was just half a yuan from hitting the daily limit for the second day in a row.
- Prices have slid almost 10% from the highest level in more than two months on July 13. The raw material is falling after port stockpiles in China expanded for five weeks and amid speculation that demand from mills may slow in the second half. Adding to the bearish picture, Rio Tinto Group, the second-largest supplier, raised second-quarter production by 7% from a year earlier.
- Steel rebar used in construction slid to its lowest this month, losing as much as 4.2% to 2,264 yuan a ton on the Shanghai Futures Exchange, before closing at 2,297 yuan. Prices are down about 10% from last week’s high. BHP this morning reported, which showed that it had fallen short of its iron-ore production targets but has beaten its full-year guidance for petroleum, copper and coking coal.
- After one of the toughest years in the company's history, the slight miss in iron ore was widely predicted by the market. BHP's share of its iron-ore exports was 227 million tonnes, below the revised guidance of 229 million tonnes. That target was initially as high as 237 million, but the Samarco dam spill in Brazil and weakness in WA saw output slide. BHP was originally supposed to produce 270 million tonnes from Western Australia in the 2016 financial year (including tonnes owned by joint venture partners) but downgraded that target to 260 million tonnes after weather and rail maintenance interrupted operations in the March quarter. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Zinc climbed to the highest in more than a year on concern that supply will trail demand for the metal used in everything from auto parts to brass plumbing fixtures. Zinc for delivery in three months gained 1.1% to settle at $2,243/ton on the LME.
- On the Comex in New York, copper futures for September delivery advanced 1.2% to $2.263/pound. Nickel ended up 0.2% at $10,570, having earlier hit $10,660, near last week's 10-month peak.
- The Philippines' top producer Nickel Asia reported an 11.8% drop in ore shipments in the first half on Monday, after the monsoon and large swells delayed exports. Aluminium and tin slipped on the LME.
- Overnight, base metals producers retreated to lead Canadian stocks lower: Raw-materials producers dropped 0.8% as a group, as First Quantum and Teck both retreated close to 4.1%. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- BHP (BHP): Scheduled to release Q4 production report
- Cimic (CIM): Reaffirms 2016 NPAT forecast
- LendLease (LLC AU): Mulling sell down of Barangaroo South stake, AFR reports
- Sydney Airport (SYD AU): Scheduled to release traffic data
Broker upgrades and downgrades
- AP Eagers (APE): Upgraded to outperform from neutral at Credit Suisse
AUDUSD and Dollar Index
It’s not perfect but bullish pennant in US dollar index (DX) seems to be valid now as it pushed higher above the recent resistance level 96.80. We expect the 200 DMA would be the support level and the next target to the upside should be 97.30 and potentially it can climb up to 99 if the momentum carries in the next coming weeks.
Despite yet another gains from the copper, AUDUSD sold off to break 0.7490 which is 50% retracement between April high 0.7834 and May low 0.7145. The US dollar is strengthening against the major currencies and we are seeing weakness in the commodity pairs, but we would rather be a buyer at the current level 0.75 as long as the overnight low 0.7475 holds.
US dollar index
WTI crude and US500.i
Crude oil (CL) is approaching a key support level 44.32 which is the 50% retracement of May 15 high 62.58 and Feb low 26.05. A break-out below this level 44.32 is expected to trigger further selloff but at the same time, it is forming a falling wedge, therefore if crude break above the top line of the wedge, then reversal of the recent weakness is possible.
While the trading volume of e-mini S&P500 futures continues to be thin, the prices remain resilient. The bullish pennant pattern still looks to be intact and there is no signs of reversal yet as the VIX plunged below 12 which is lowest level since early Aug 15.