Article / 13 May 2015 at 1:57 GMT

Today's Trade: Budget small-business bonanza gives retailers a boost

Trading Desk / Saxo Capital Markets
Australia
  • Last night's budget has given retailers a boost in early trading 
  • The S&P/ASX 200 was up 22 points to 5697 at 11.30am AEDT
  • The AUDUSD also rallied, with the current support level at 0.7900

By Saxo Capital Markets (Australia)

Overnight and early trading

Last night's budget was great news for small business and retailers are feeling the effects in early morning trading, leading the gains on hopes the budget's largesse will spark a spending spree. JB-HiFi and Harvey Norman are two that are benefitting. At 11.30am AEDT, the ASX/S&P 200 was up 22 points to 5697.

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Retailers are hoping to be a key beneficiary of last night's federal budget. Photo: iStock 

Meanwhile, US stocks pared steep losses last night to close slightly lower following a sharp sell-off in European equities and government bonds.

Germany’s DAX lost 1.7%, France’s CAC 40 fell 1.1% and the UK’s FTSE dropped 1.37%. Gains in the EUR added to the negative tone for European stocks as a stronger currency could weigh on profits for European multinationals. The EUR rose 0.7% to $1.1217 after Greece repaid €750 million to the International Monetary Fund on time.

The declines spilled over into the US markets in early trading, sending the yield on the 10-year note to a six-month high. After a week-long sell-off in US Treasuries, on Tuesday the 10-year yield slipped to 2.256% from 2.267% on Monday.

The Dow Jones Industrial Average had fallen by as much as 180 points in early trading, but stocks subsequently pared their losses. Even with the swing in equities, traders described equity trading volumes as modest.

The Dow fell 36.94 points, or 0.2%, to end at 18068.23. The S&P 500 declined 6.21 points, or 0.3%, to 2099.12 and the Nasdaq Composite declined 17.38 points, or 0.35%, to 4976.19.
In commodity markets, gold futures rose 0.8% to $1192.60 an ounce. Crude-oil futures gained 2.5% to $60.75 a barrel.

Local markets

  • The S&P/ASX 200 Index futures contract fell 0.35% to 5,655 with futures relative to estimated fair value suggesting an early decline of 0.3%.
  • Bank of New York Australia ADR Index rose 0.6% with BHP Billiton ADR up 1.5% where Rio Tinto ADR was off 0.2 %.
  • Spot gold had a good but choppy session, up 0.9% to $1,194. A weaker USD along with weaker European stocks gave support to the precious metal. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR
  • Crude oil has had a cracking night of trading with Brent and WTI up 3.5% and 3.3% to $67.09 and $61.15 respectively. Strong buying was attributable to a double kick from two of the world’s leading bodies. The EIA have implied that US shale oil production declined 1% in May with expectations of June being even greater. OPEC then raised consumption estimates for the remainder of this year in its monthly report. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY. Santos is our pick to perform better day than most, as it has more leverage on its books and had taken a greater fall. The 200 DMA for Santos is at AUD 10.39.
  • Iron ore shed 0.2% to $62.88 on an interesting day of trading. State-owned iron and steel company Shanghai Baosteel Group along with South Korea’s multinational Posco have delayed a 30mtpa iron ore project in the Pilbara. At this stage plans to take up the project have been reset for 18 months. The final decision will be made in late 2016. What does this mean? 1. Market participants are not expecting iron ore prices to rise in the near future and; 2. This will delay supply to the market, keeping prices lower for longer. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL. BHP has closed just right on its 200DMA as investors prepare for the spin-off.
  • Base metals have all risen in the lead-up to China’s industrial production data for April, out today with an assumed expectation of improved figures. Copper rose 0.6% to $6,421. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Australian Agricultural Co: Australian beef gains ground in Japan as trade deal buoys sales
  • Asciano: Asciano Finance sells AUD 350m of 10-yr bonds
  • BHP: to focus investment on copper, oil, potash; CEO warns lower iron ore prices here to stay
  • Rio Tinto: Doesn’t see further capital investment in iron volumes
  • Ex-Dividend: BT Investment, Westpac

Data points

Wednesday
  • JPN: Current Account, Bank Lending y/y
  • AUS: Wage Price Index q/q (11:30am)
  • CNY: Industrial Production y/y, Fixed Asset Investment ytd/y, Retail Sales y/y (3:30pm)
  • French / German / Italian Prelim GDP q/q
  • French / German Final CPI m/m
  • GBP Average Earnings Index 3m/y, Claimant Count Change, Unemployment Rate
  • Flash GDP q/q, Industrial Production m/m
  • BOE Gov Carney Speaks, BOE Inflation Report
  • EUR ECB Monetary Policy Meeting Accounts
  • US: Core Retail Sales m/m, Retail Sales m/m, Import Prices m/m, Business Inventories m/m, Crude Oil Inventories

Thursday
  • EUR: French and German markets closed
  • US: PPI m/m, Unemployment Claims

Friday
  • US: Empire State Manufacturing Index, Capacity Utilization Rate, Industrial Production m/m, Prelim UoM Consumer Sentiment

Current ASX trades

  • AMP Limited (Ticker: AMP:xasx): Entered long position February 6 at $6.10. First profit target was reached on February 18 at $6.49 (+6.4%) and second profit target at $7.12 (+16.7%) and third and final profit target $8.00 (+31%) remains in place. Stop loss trailed to entry price of $6.10.

Broker Upgrades

  • CSR: Raised to buy vs underperform at BBY
  • GUD Holdings: Raised to buy from underperform at BBY with PT A$8.52
  • Orica: Cut to hold vs buy at Morningstar
  • Qantas: Raised to overweight vs neutral at JPMorgan with PT A$4.08

Broker Downgrades
   
  • Genworth Australia (GMA): Cut to hold vs buy at Morningstar
  • Mineral Resources (MIN): Cut to sell vs hold at Morningstar
  • Qantas (QAN): Cut to sell vs hold at Morningstar

ASXSP200.I:

After such a strong day session yesterday, ASXSP200 showed mixed price actions when the SYCOM (overnight) SPI futures session began as it gave away half of the afternoon’s gains initially although it pushed back up above 5,658 as the budget was released. 

The weak leads from both Europe and US indices should be offset by yesterday’s relatively generous budget that is likely to bring some positive sentiment back in the market. 5,658 is the key pivot level while the resistance level is at 5,700 and support is at 5,579.

SP200 DO
 Source: Saxo Bank

AUDUSD

AUDUSD rallied overnight on the back of the budget that seemed to indicate that economic projections are quite optimistic. However it fell 2 pips short of touching 0.8000 and further upside momentum looks to exist for now, especially if we see a clear breakout above the first resistance level 0.8000. 

The current support level is at 0.7900. Now that both monetary and fiscal policies are released, AUDUSD’s near-term direction relies on technical price actions and US economic data such as retails sales figures tonight at 10:30pm. Also Chinese industrial production (3:30pm) is expected to be a key figure as it has been declining in the past few months, and a disappointing number is likely to put downward pressure on AUDUSD.

AUDUSD DO
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more.

– Edited by Gayle Bryant

Australian Market Wrap is compiled by the Sydney trading desk at Saxo Capital Markets

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