Article / 19 July 2017 at 1:16 GMT

Today's Trade: Big four banks give ASX a boost

Trading Desk / Saxo Capital Markets
  • Big four surge 3-4% as APRA’s new capital rules are priced in
  • APRA has lifted the minimum CET1 ratio for the major banks to 10.5%.
  • Materials main drag on the market despite solid gains in commodity prices 
  • Bank surge lifts ASX over 5700 points in early trade

By Saxo Capital Markets

Overnight and early trading

The ASX/S&P 200 showed some much overdue impetus this morning as banks surged on the back of new capital rules that were deemed not too difficult to achieve.

ANZ is leading the pack with a 3.1% rise in the first 25 minutes of trading, with the other three close behind. The surge in their share prices has pushed the ASX back above 5700 points, up 0.8%.

The resources sector is weak - BHP was down 1.5% following the rally of recent weeks, South32 has lost 2.1% and Rio had dropped 1.1%.

Asian stocks faced a mixed start to trading following a surge in global bonds as investors weigh the potential for tepid economic growth.

Treasuries climbed with bunds and gilts as weak inflation data combined with concern around the US administration’s ability to enact reforms, leaving investors questioning the strength of the global economy.

The USD held at the lowest level in almost a year, while an uninspiring session for US equities left futures signaling a muted start for Asian stocks. The EUR extended its advance ahead of Thursday’s European Central Bank meeting.

The Dow Jones Industrial Average retreated overnight as the US dollar and government-bond yields came under fresh pressure.

The day’s moves came after Senate Republicans’ latest plan to vote on a measure dismantling
the Affordable Care Act was derailed.

The struggle to pass a healthcare bill amplified doubts about the Trump administration’s ability to implement policies such as tax cuts and fiscal stimulus, some investors and analysts said.

Hopes for such policies had initially pushed stocks, the dollar and government-bond yields higher after Election Day.

Aussie banks are unworried by the new capital rules imposed on them. Photo: Shutterstock

The Dow industrials fell 54.99 points, or 0.3%, to 21,574.73, weighed down by declines in shares of banks.

The S&P 500 edged up 1.47 points, or less than 0.1%, to a fresh closing high of 2460.61 and the Nasdaq Composite added 29.87 points, or 0.5%, to 6344.31. It was the Nasdaq’s first record since June 8.

The US Dollar Index, fell 0.5% to a fresh post-election low, while the yield on the 10-year US Treasury note fell to 2.263% from 2.309% on Monday.

Yields fall as bond prices rise. Although stocks around the world mostly fell Tuesday, some investors said they believe the effect of fiscal policy changes on the broader stock market will ultimately be muted.

A flurry of corporate earnings results swung individual stocks on Tuesday.

Dow component Goldman Sachs shed $5.95, or 2.6%, to $223.31 after the firm reported a 40% decrease in its fixed-income trading business.

Declines in the stock, the worst performer in the Dow industrials for the day, wiped about 41 points from the index.

Shares of Bank of America fell 12 cents, or 0.5%, to $23.90 after the company reported profit that beat analysts’ expectations but said trading revenue fell 9% from the year-earlier period.

Shares of Netflix jumped $21.90, or 14%, to $183.60 after the company reported adding more subscribers than analysts had expected in the second quarter.

Elsewhere, the Stoxx Europe 600 dropped 1.1%, snapping a four-day winning streak.

US earnings

Wednesday: Altaba Inc, IBM, Morgan Stanley, US Bancorp
Thursday: American Express Co, Alcoa Corp, Blackstone Group, Bank of New York Mellon, Philip Morris International Inc, Abbott Laboratories, Union Pacific Corp, Visa Inc
Friday: Steel Dynamics Inc, Snap-on Inc, Polaris Industries Inc, Crown Castle International Corp, Sherwin-Williams Co/The, Citigroup Inc, United Rentals Inc, Blackstone Group LP/The, Monro Muffler Brake Inc, Genuine Parts Co, Nucor Corp

Source: Bloomberg,,

Local markets and commodities

  • The S&P/ASX 200 Index futures contract falls 0.1%; futures relative to estimated fair value suggest an early decline of 0.1%
  • Bank of New York Australia ADR Index -0.2%, BHP Billiton ADR -0.5% to A$24.91 equivalent, 0.8% discount to last Sydney close, Rio Tinto ADR +0.1% to A$57.45 equivalent, ~12% discount to last Sydney close.
  • The prudential regulator has lifted the target for major Australian banks' equity capital ratio to "at least 10.5%", up from current levels of common equity tier 1 capital (CET1) of around 9.5%, in order to meet the "unquestionably strong" benchmark set down by the financial system inquiry. This will require the banks to raise billions of dollars of additional equity, although this may be able to be achieved by building more equity organically via retained earnings rather than conducting equity capital market raisings.
  • A positive takeaway here is that whilst APRA's time frame (around 2.5 years) is a return to its usual two- to three-year period for implementing major capital reforms, this contrasts with the 11-month timeframe set in 2015 for minimum average mortgage risk weights) hence we expect a relief rally in our banks today.
  • Gold prices hit a two-week high on Tuesday as the dollar fell on fading prospects of an imminent increase in US interest rates and expectations of stronger demand from the physical market. Spot gold was up 0.83% at $1,244.10/oz, and hit its highest level since July 3. US gold futures rose $8.20 to settle at $1,241.90/oz.
  • The USD sank to a 10-month low against a basket of currencies, making dollar-denominated metals cheaper for holders of other currencies, which could boost demand. Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, slipped to 827.07 tonnes on Monday, down from 828.84 tonnes on Friday. The Gold stocks in Toronto rallied 0.3% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil pared gains after an industry report was said to show US crude stockpiles unexpectedly rose last week. Inventories increased by 1.63 million barrels in data from the industry-funded American Petroleum Institute released Tuesday, people familiar with the report said. That would be the largest build since June if confirmed by Energy Information Administration data today.
  • West Texas Intermediate for August delivery traded at $46.25/barrel on the New York Mercantile Exchange, after settling at $46.40/b. Total volume traded was about 3% above the 100-day average. Brent for September settlement advanced 42 cents to end the session at $48.84/b on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.25 to WTI. Oil has hovered below $50 amid concerns that Opec and its allies won’t be able shrink a longstanding glut, as producers such as the US and Libya ramp up output.
  • Citigroup cut its oil price forecasts for this year and next as Libya and Nigeria restore previously halted supplies and U.S. production climbs. Earlier in the session, oil rose as much as 2% following a report from UK-based consultant Petroleum Policy Intelligence saying Saudi Arabia is considering cutting exports further by as much as 1 million barrels a day to offset the rise in output from Libya and Nigeria. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore prices surged after signs of strength in Chinese housing market. Hew home prices in China’s smaller cities rose strongly in June, according to National Bureau Statistics data. Overall, 60 of 70 cities measure recorded gains. Prices were also supported by reports that Rio Tinto would struggle to meet its original target of production in 2017. It lowered its guidance to 330million tonnes, from 340 mt due to bad weather and maintenance issues on its rail haulage lines in Western Australia. Spot iron ore rose 3% or $2.03 to close at $68.84/t. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Three-month LME copper finished up 0.2% at $6007/t, after climbing 1.2% in the previous session, when prices hit four and a half month highs. LME aluminium ended 0.6% firmer at $1931/t as investors worried about an environmental crackdown in China to close polluting smelters. Nickel climbed 1.9% to close at a four-month high of $9780/t, lead was bid down 1% to $2274/t and tin added 0.4% to $20,000/t. Zinc prices fell amidst profit-taking and producer selling, but copper and other base metals gained on worries about supply shortages. Benchmark LME zinc closed down 0.8% at $2794/t after gaining 1% the previous session. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In other news: Aurizon (AZJ): Scheduled to release June qtrly above rail volumes data; NOTE: Co. in April forecast coal haulage 190mt-200mt; BHP Billiton (BHP): 4Q production report expected; NOTE: 4Q attributable iron ore output est. 60.5mt (3 analysts); Evolution Mining (EVN): May consider sale of Edna May gold mine: AFR; Fonterra (FSF): Whole milk powder avg. price rises to $3,114/t; NextDC (NXT): Buys 14.1% stake in Asia-Pacific Data Centre Group; Orocobre (ORE): 4Q production reported expected; NOTE: Co. in June forecast Olaroz FY17 output 11.7kt-11.8kt lithium carbonate; Pact Group Holdings (PGH): To hold presentation on July 19 in Sydney.

Broker gradings 

- Computershare (CPU): Cut to neutral at UBS, PT A$15.25
- Dexus (DXS): New neutral at Goldman, PT A$9.30
- Crown Resorts (CWN): James Packer set to rejoin board, Australian says; Raised to overweight at JPMorgan, PT A$14
- St Barbara (SBM): Cut to neutral at Credit Suisse, PT A$2.60
- Rio Tinto (RIO): Raised to buy at APP Securities, PT A$70.46; Quest for more diamonds takes hunt to Canadian forest

Australian earnings

Wednesday: BHP: June 2017 Operational Review; CIM: 17 Earnings Release
Thursday: ALQ, AST: AGM; OZL: June 2017 Quarterly Report
SYD: June 2017 Sales and Revenue Release - Traffic Results
WPL & STO: Q2 2017 Sales and Revenue Release


The USD  is collapsing and major safe haven assets are rising this week. USDJPY was weak but it seems to have found interim support level at 111.65 where the 200 Day Moving Average crosses 50% retracement of the June low of 108.80 and the July high of 114.50.

We are expecting the selling pressure to exist towards the next support level 111.

USDJPY monthly chart


US Financials ETF (IYF) 

iShares US Financials ETF (IYF) seems to be retaining resilience despite disappointing reactions from the decent earnings of the banks recently.

Uptrend (from May 17 low 101.53) remains valid while double top 109.30 is yet to be broken. Potential break out cannot be ruled out as ascending triangle is forming and the price actions are converging towards 109.30.

IYF monthly chart
Source: Both charts, Saxo Bank

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

-- Edited by Adam Courtenay

Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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