Article / 23 May 2017 at 0:33 GMT

Today's Trade: Big banks lift ASX200

Trading Desk / Saxo Capital Markets
Australia
  • The ASX200 was up 0.18% at the start on support for the major lenders
  • Gold extended its biggest weekly gain in five weeks
  • Iron ore was modestly higher despite news that China stockpiles at ports rose 1.3% 
  • A rally in technology and industrial shares lifted US stocks overnight
  • AUDUSD extended its gains to break the downtrend

By Saxo Capital Markets (Australia)

The ASX200 was up 0.18% at the start with the big banks leading the charge. The big-four were up between 0.2% and 0.5% while Macquarie Group was higher by 0.6%. However, the regional banks were lower following their downgrade by Standard and Poor's.

Overnight

  • Asian stocks indicated a small move higher when trading begins, following a gain in US equities and after crude oil climbed above $51/barrel. Equity-index futures in Japan, Hong Kong and Australia all climbed in most recent trading after the S&P 500 Index rose for a third day. 
  • The kiwi held gains after a strong advance ahead of New Zealand’s budget on Thursday that some expect will help stimulate the economy.
  • A rally in technology and industrial shares lifted US stocks Monday, boosting major indices to a third consecutive session of gains.
  • Growth in corporate earnings and signs of economic strength have helped mitigate investors’ concerns about the Trump administration’s woes in recent sessions, some analysts said. That helped many view last week’s drop as a buying opportunity.
  • Of the 95% of S&P 500 companies that have reported results so far for the first quarter, 75% have beat earnings-per-share estimates, according to FactSet.
  • The Dow Jones Industrial Average rose 89.99 points, or 0.4%, to 20894.83. The S&P 500 added 12.29 points, or 0.5%, to 2394.02, within 10 points of its record close on May 15. The Nasdaq Composite gained 49.91 points, or 0.8%, to 6133.62. The VIX continues its pullback as it closed 9.22% overnight to 10.93.
  • Technology stocks in the S&P 500 climbed 1%. The sector suffered its worst day since Brexit during last week’s selloff, which was spurred by fears the administration would fail to deliver corporate-friendly policies. On Monday, shares of Dow component Cisco Systems rose 38 cents, or 1.2%, to $31.59.
  • Agreements between Saudi Arabia and the US on business deals and potential investments valued at $300 billion boosted a range of companies. Shares of Boeing added 2.91, or 1.6%, to 183.67, while Lockheed Martin climbed 4.24, or 1.6%, to 277.03 after the two countries signed arms agreements that could be worth more than $100 billion. Blackstone Group surged 2.01, or 6.7%, to 31.88 after Saudi Arabia agreed to commit $20 billion to the private-equity giant’s new infrastructure fund.
  • Shares of Ford Motor rose 23 cents, or 2.1%, to 11.10 after Jim Hackett was named Ford’s new chief executive.
  • US crude rose 0.8% to $50.73/barrel, its highest settle in a month ahead of Thursday’s meeting of Opec, where many expect an extension to ongoing production cuts.
  • The yield on the benchmark 10-year US Treasury note rose to 2.254% from 2.243% on Friday. Yields rise as prices fall.
  • Gold for May delivery gained 0.6% to close at $1260.70/ounce.
  • The Stoxx Europe 600 fell less than 0.1%. Japan’s Nikkei Stock Average climbed 0.4%. Hong Kong’s Hang Seng Index rose 0.9% to its highest close since 2015, while South Korea’s Kospi gained 0.7%, ending at a new record.

Source: Bloomberg, TradingFloor.com

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 Four of Australia’s biggest lenders, including CBA, have given estimates of how much
the new bank levy is likely to cost them. Photo: Shutterstock

Local markets and commodities

  • The S&P/ASX 200 Index futures contract rose 0.2%; futures relative to estimated fair value suggest an early gain of 0.3%
  • Bank of New York Australia ADR Index +0.5%, BHP Billiton ADR +0.5% to A$24.67 equivalent, little changed from last Sydney close, Rio Tinto ADR +1.8% to A$56.35 equivalent, ~14% discount to last Sydney close
  • Four of Australia’s biggest lenders gave estimates of how much Australia’s new bank levy will cost them, as they stepped up criticism of the policy and vowed again to pass on the extra charges. 
  • Westpac Banking said the levy will cost it an annual $A260 million ($194 million) after tax, while the Commonwealth Bank of Australia estimated $A220 million and National Australia Bank $A245 million, according to separate filings to the stock exchange. Australia & New Zealand Banking Group put the cost at $A240 million, though Macquarie Bank – the other affected lender – has yet to post an estimate. 
  • The government said it expects the levy will raise $A6.2 billion over the next four years. It will apply to banks with liabilities of more than $A100 billion and won’t impact either regional lenders or foreign banks operating in Australia. “This new tax is bad public policy – an inefficient tax – that targets just five companies who are already among the largest taxpayers in Australia,” Westpac said in a letter to shareholders. 
  • Treasurer Scott Morrison has urged the banks to absorb the additional cost, but the lenders said they are looking at ways to pass it on. 
  • Westpac said its preliminary estimate is the 0.06% levy will apply to $A615 billion of its liabilities, costing $A370 million a year, or $A260 million after tax deductions. The charge will flow through to customers, shareholders, suppliers and staff, Westpac said. “No company can simply ‘absorb’ a new tax, so consideration is being given to how we will manage this significant impost.” Westpac reported an unaudited cash profit of $A7.82 billion for the year ended September 30.
  • Gold extended its biggest weekly gain in five weeks as the dollar fell against the euro, while US political turmoil fuelled demand for bullion as a safe haven and reduced expectations of rapid US interest rate rises. 
  • Spot gold rose 0.51% to $1,261.48, while US gold futures for June delivery were up $7.80 to settle at $1,261.40/ounce. The metal advanced by 2.2% last week as the furore over President Donald Trump's alleged links to Russia and his firing of former FBI chief James Comey raised concerns about his ability to push through promised fiscal stimulus.
  • Investors' net long positions in COMEX gold, meanwhile, have fallen to a two-month low, US Commodity Futures Trading Commission (CFTC) data showed on Friday. There was a bank holiday in Canada yesterday so stocks didn’t trade. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil rose to a one-month high as Saudi Arabia said all countries taking part in output cuts agree on extending the deal through the first quarter of 2018. Prolonging the cuts will help producers reach their goal of trimming stockpiles in developed economies to the five-year average, Saudi Arabia’s Energy Minister Khalid Al-Falih said Sunday. 
  • Iraq backed the nine-month extension, removing one of the last remaining obstacles to an agreement at the Opec meeting in Vienna on May 25. Oil has climbed as Saudi Arabia and non-Opec member Russia rally support for a nine-month extension to the deal to curb output by Opec and its allies. 
  • Al-Falih secured the backing of Iraq for longer curbs after talks in Baghdad with his counterpart Jabbar Al-Luaibi. Iraq had previously favoured prolonging the supply cuts by just six months. Separately, non-Opec nations Oman and Mexico also confirmed their support for a nine-month extension. 
  • West Texas Intermediate for June delivery, which expired Monday, rose 40 cents to settle at $50.73/barrel on the New York Mercantile Exchange. It’s the highest close since April 18. Total volume traded was about 10% below the 100-day average. The more-active July contract advanced 46 cents to $51.13. 
  • Brent for July settlement rose 26 cents, or 0.5%, to $53.87/barrel on the London-based ICE Futures Europe exchange. It’s also the highest close since April 18. The global benchmark crude ended the session at a $2.74 premium to June WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore was modestly higher despite news that China stockpiles at ports rose 1.3% to a record 136 million tonnes according to Bloomberg. It is reported that this stock compares with the five-year average of 97 million tons. The record heap of iron ore on China’s doorstep just got even bigger, with the increase in holdings so far this year eclipsing the build-up seen over all of 2016 as mills produce unprecedented amounts of steel. 
  • Iron ore imports by China increased 8.6% to 353 million tons in the first four months from a year ago, according to customs data. The port holdings are above the five-year average of about 97 million tons, and are now large enough to cover about seven weeks’ of imports. Spot iron ore added 50 cents to close at $63.19. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Zinc and nickel prices touched their highest in more than two weeks on Monday after China launched a regional crackdown on the steel industry, including production of the two metals. Benchmark zinc on the London Metal Exchange closed 0.7% higher at $2633/tonne, its highest since May 2. 
  • Nickel hit its highest since May 3, up 0.4% to $9395. Copper edged down 0.4% to $5703/tonne, having hit the highest since early May at $5694.50 on Friday. Aluminium eased 0.3% to $1938, lead slipped 0.1% to $2092 and tin added 0.4% to $20,480. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • ALS (ALQ): FY results expected; NOTE: Adj. net income est. $A105.1mln (12 analysts, range $A96.6mln-$A113mln)
  • Asciano (AIO): Pacific National names Dean Dalla Valle as CEO
  • Bendigo & Adelaide Bank (BEN), Perpetual (PPT): Aussie housing risks no deterrent as mortgage bond sales climb
  • Challenger (CGF): Scheduled to host investor day; NOTE: Co. in February forecast Life unit normalised cash operating earnings $A620mln-$A640mln
  • Macquarie (MQG): Hires BlackRock’s Hobson at $237bn asset manager
  • Spark Infrastructure (SKI): Annual meeting scheduled; NOTE: Co. in Feb. forecast 2017 payout A$0.1525, 2018 of A$0.16
  • Rio Tinto (RIO): Offers to buy back $2.5bn of bonds to cut debt; Moody’s views plan as credit positive
  • Technology One (TNE): 1H results expected
  • Woodside (WPL): Scheduled to host investor day; NOTE: Co. in April forecast 2017 output 84-90mmboe

Broker upgrades and downgrades

  • Harvey Norman (HVN): Raised to neutral at Macquarie, PT A$4.50
  • Telstra (TLS): Cut to hold at Morningstar
  • Sirtex Medical (SRX): Raised to buy vs hold at Wilsons
 
AUDUSD and XAUUSD

AUDUSD extended the gains to break the downtrend (from the March high of 0.7749) as the US dollar continued to weaken and copper (HG) rallied to hit 260. The gains were limited up to 0.7490 (38.2% retracement of 0.7749 and 0.7329) but there is a scope for further advance towards the next resistance level 0.7539.
 
AUDUSD monthly
1
 Source: SaxoTrader

Gold (XAUUSD) has now recovered all the losses from last Thursday as it has rallied for three consecutive days. The key resistance level remains at 1,264.50, which is expected to be tested in the near term as the uptrend is intact and upside momentum looks to be maintained.
 
XAUUSD monthly
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more 

Today's data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Gayle Bryant

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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