Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 13 May 2016 at 1:33 GMT

Today's Trade: Big miners weigh on S&P/ASX200

Trading Desk / Saxo Capital Markets
  • Crude hit a six-month high, after seesawing between gains and losses
  • Spot gold fell 1.1% after a two-day gain
  • The AUDUSD is expected to break the  0.73 handle and it could test 0.7250
  • The US dollar rose for the third time in four days against the yen.
  • Apple shares hit their lowest since June 2014
  • We are cancelling our buy stop trade on Apple following the overnight move

By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX200 was down 0.36% to 5,340.20 at 1051 AEST (0123 GMT). 
  • US stocks ended virtually unchanged after a whipsaw session, after oil staged a rebound to offset losses by Apple Inc., as investors awaited additional economic data for clues on the health of the world’s largest economy.
  • Apple sank to the lowest since June 2014 after Nikkei reported that shipments of iPhone chips for the remainder of the year will likely shrink versus a year ago. 

 The miners and global uncertainty is weighing on the S&P/ASX200 today. Photo: iStock

  • After seesawing between gains and losses, crude rose to a six-month high, as traders weighed concern of a reduction in global supply with Canadian producers planning to resume oil-sands output. Brazilian equities rallied, while the real weakened, after President Dilma Rousseff was suspended from office.
  • Bullish momentum in equities from a February low faltered this month, as signs of weakness in the global economy heightened concerns over whether central bank officials will be able to effectively boost growth. Since a high on April 20, the S&P 500 has traded in a tight range amid tepid earnings. After disappointing results from Walt Disney Co. and Macy’s Inc. renewed worries about the American consumer yesterday, investors are looking to government data on Friday that is forecast to show retail sales rebounded in April.
  • “When there’s something that points to softer retail sales, be it from Macy’s or Apple, you have investor concerns building around the state of the U.S. economy,” Joe Quinlan, chief market strategists at U.S. Trust, Bank of America Private Wealth Management, said by phone. “Then you also have to layer in the weaker-than-expected employment numbers. It’s always one or two threads that intersect to cause the market to rethink itself.”
  • The S&P 500 fell by less than 1 point at 4 p.m. in New York. Microsoft Corp. added 0.9%, rising for a third day, while Monsanto jumped 8.4% after people familiar with the matter said Bayer AG is exploring a potential bid for the U.S. competitor. Kohl’s Corp. sank 9.2% after its earnings and sales results missed predictions.
  • A US government report today also showed initial jobless claims rose 20,000 to 294,000 in the week ending May 7. The median forecast of economists called for a decline to 270,000.
  • The Stoxx Europe 600 Index dropped 0.5%. Credit Agricole SA was among the biggest losers, slid 4.9% after posting a 71% drop in first-quarter profit.
  • Brazil’s Ibovespa rallied 0.9%, while the real led losses among major currencies today, after the nation’s Senate voted to suspend Rousseff from office to face an impeachment trial, ushering in a new government to take command of Latin America’s largest economy.
  • The benchmark gauge has risen 21% this year on bets that a new government will be better able to pull the country out of its worst recession in a century. Societe Generale SA’s Regis Chatellier said most of the momentum leading up to the ouster has already been factored into the country’s assets.
  • Crude rose to $46.70/barrel in New York, the highest since November 3. Producers in Canada plan to resume output at some oil-sands sites after wildfires took production offline, while Nigeria said militant attacks have cut output by as much as 600,000 barrels a day. US inventories dropped by 3.4 million barrels last week, government data showed Wednesday.
  • Copper for three-month delivery on the London Metal Exchange reversed to retreat 2%. Codelco, the world’s biggest producer, sees prices rising toward the end of next year as investment cuts hasten a re-balancing of global supply and demand. The LMEX Metals Index, which tracks the six main metals traded on the LME, gained 0.9% on Wednesday, rebounding from a one-month low.
  • Gold in the spot market fell 1.1% after a two-day gain. A World Gold Council report showed Thursday that global demand in the first quarter was the second-highest on record.
  • Treasury 30-year bonds fell before a $15 billion sale of the securities Thursday, the last of three US auctions this week. Long-term US yields rose more than those on short-term securities ahead of the offering, which follows $47bn of Treasury issuance and at least $41bn of new corporate debt this week. The yield on the 30-year Treasury rose two basis points to 2.6%.
  • UK 10-year government bonds fell after a 10-day run of gains that was their longest winning streak since at least 1989. UK securities have returned 5.6% in 2016, almost twice as much as their euro-area peers, according to Bloomberg World Bond Indexes.
  • Italian bonds also declined as the market absorbed 7.5 billion euros ($8.6 billion) of securities the government sold via auction on Thursday. The 10-year yield climbed three basis points to 1.5%.
  • The US dollar rose for the third time in four days against the yen. Bank of Japan Governor Haruhiko Kuroda said policy can be loosened further if needed.
  • The Norwegian krone was among the biggest gainers after Norway’s central bank left its benchmark rate at a record low as the government spends more of its vast oil wealth to keep the economy from slipping into a recession.
  • The pound advanced against the euro as Bank of England polic makers led by Governor Mark Carney voted unanimously to leave interest rates unchanged. Bank of America Merrill Lynch had said one or two of the nine-member panel could vote for a cut.
  • The yuan weakened 0.3% in Shanghai, narrowing its premium to the offshore exchange rate after the spread widened on Wednesday to 0.6%, the most since February. The divergence prompted speculation this week that the People’s Bank of China would intervene.
  • Source: Bloomberg
Local markets
  • Bank of New York Australia ADR Index -1.4%. BHP Billiton ADR -2.3%. Rio Tinto ADR -2.4%.
  • Spot gold came under pressure as it gave up 0.2% to $1,226. A report from the World Gold Council showed that investor demand remains strong. Q1 2016 demand was at this second highest levels on record as the drive for ETFs on gold were accumulated. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil moved higher for the second day following a fall in U.S. production on Wednesday night. WTI and Brent gained 0.6% and 0.9% in the face of a stronger USD to trade at $46.43/barrel and $47.92/b respectively. Earlier in the day crude had rallied after the EIA upgraded its expectations for oil demand growth from just 1.16m/b day to 1.2m/b day in 2016. Meanwhile output from Nigeria, Libya and Venezuela is down almost half a million barrels from this time a year ago. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore traded on thin volumes as it moved 0.9% lower to $55.05. Western Australia has upgraded it iron ore outlook by 12% after stronger steel demand in China. Budget papers released showed the WA state government sees the state’s largest export to rise to $47.70/t, up from $42.50. It was acknowledged there are pressures in the medium term. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals were all down. Lead fell the most in four years, down 3.5%. Copper broke its April lows and closed off 1.4% at $207.20 contract. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • ANZ Bank (ANZ): Sells $1.5b 10-year debt.
  • AusNet (AST): FY2016 results in line with expectations: Moody’s.
  • Australian Agricultural Co. (AAC): FY results expected; NOTE: 2-analyst adj. net income est. $A24.95mln.
  • Oil Search (OSH): Annual meeting scheduled; NOTE: Company last month forecast 2016 output 27.5-29.5mmboe; In February it targeted capital spending of $315mln to $400mln.
  • Woolworths (WOW): Holder Perpetual see turnaround, not takeover, potential: AFR.

Stock-to-Watch: Australia Worldwide Exploration

Oil and gas company Australia Worldwide Exploration (AWE) suffered like all energy producers in 2015 and in to the depths of February 2016. Since then the company has staged a comeback as it breaks the downward trend and to find an upward floor of support.

AWE has broken through its 200 day moving average, 50% extension from February, and two month ceiling. It now looks poised to set highs for 2016 and if closes above $0.78 Friday afternoon, will have $0.88 then $0.98 in its sights.
Australia Worldwide Exploration share price trend
Earnings this week
  • Friday: Honda Motor, JC Penney, Brookfield Asset Management

Broker upgrades, downgrades
  • AMP (AMP): Cut to hold vs buy at Shaw & Partners.
  • AMP (AMP): Cut to neutral vs buy at UBS.
  • Aristocrat Leisure (ALL): Raised to buy vs neutral at UBS.
  • Aristocrat Leisure (ALL): Raised to outperform vs neutral at Credit Suisse.
  • Myer (MYR): Raised to buy vs neutral at UBS.
  • Myer (MYR): Raised to outperform vs neutral at Credit Suisse.
  • Myer (MYR): Raised to overweight vs underweight at JPMorgan

Open positions
Open orders: Apple stop trade cancelled

We are cancelling our buy stop trade on Apple following the overnight move which saw a violation of a significant level of support. The price action overnight signals that the stock may continue its decline in the coming days / weeks.

The following are now levels to watch for Apple to the downside: $84.70 area (March 2009 uptrend) and $82.19 (December 2013 high). For the original set up, please see:

AUDUSD weakness

The AUDUSD remained weak as copper (HG) sold off to break below the April low at 206.70. This week’s price actions indicate that the strong downward pressure seemed to exist under the solid resistance level 0.7380 where AUDUSD failed to close above.

Copper clearly formed a clear double top over the last two months while the uptrend was broken and then became a resistance level. The AUDUSD is expected to break the recent support level 0.73 handle and the next support level at 0.7250 could be tested in the near term.
AUDUSD trend
Copper price trend

Bearish head and shoulders for S&P500

On the daily chart, the S&P500 (US500.i) is forming a bearish head and shoulders pattern with the neck line at 2,050 which has acted as a strong support level in the last couple of weeks. This week’s high at 2085.40 was right on the short term downtrend, so we are also seeing a bullish pennant formation.

Although a potential break out above the current triangle is possible, we believe the US500 is due for a major selloff towards the next support level 2,005 in the next one to two months as the upside momentum has been fading since early march according to the rate of change indicator.

S&P500 trend
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

For more on forex, click here.

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945 AEST: #SaxoStratsAPAC


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