- Local markets prepare for a cautious open
- A number of earnings reports will be released today
- NAB's third-quarter profit fell 3% to $1.6 billion
- Gold prices closed lower Friday, reversing earlier gains
- AUDUSD is expected to remain under further selling pressure
By Saxo Capital Markets (Australia)
Overnight and early trading
Local markets are set for a cautious open as traders prepare for a day of earnings reports. NAB has already reported and those still to come include Ansell, Newcrest, JB-Hi, Mirvac and Atlas Iron.
NAB posted a 3% drop in third-quarter earnings as it flagged rising bad debts. Photo: iStock
- The S&P 500 and the Dow Jones Industrial Average slipped but ended the week just above where they started.
- The Nasdaq Composite Index closed Friday at its fourth high of the year, a day after all three major US stock indexes notched records on the same day for the first time since 1999. The S&P 500 has hit nine records in 2016 and the blue-chip index has eight, a turnaround from the start of the year when global markets tumbled over fears of a global recession.
- Stocks have reached milestones in part because of continued support from central banks. Investors are skeptical that the Federal Reserve will raise interest rates soon, while central banks in Europe and Japan have loosened monetary policy. This has left stocks from emerging markets to the S&P 500 on an upward trend and global developed-market bond yields plumbing record lows.
- Some traders believe stocks still have room to climb. US retail sales were flat last month, the Commerce Department said Friday, reinforcing investors’ expectations that the Fed is unlikely to raise rates when it meets next month.
- Federal-funds futures, which are used to place bets on central bank policy, showed Friday that investors and traders see a 12% likelihood of a rate increase at the Fed’s September meeting, according to CME Group, compared with 18% after last week’s strong July jobs report. On Friday, the probability of an increase by December was 47%.
- The Dow industrials slipped 37.05 points, or 0.2%, to 18576.47, for a weekly gain of 0.2%. The S&P 500 fell 1.74 points, or 0.1%, to 2184.05, up less than 0.1% for the week. The Nasdaq Composite rose 4.50 points, or 0.1%, to 5232.89, rising 0.2% for the week.
- Expectations that the Fed will be slow to raise interest rates boosted US government bonds and weakened the dollar, which dropped against the Japanese yen and euro. The yield on the 10-year Treasury note fell to 1.515% from 1.575% Thursday. Yields fall as prices rise.
- While Friday’s retail-sales figures were underwhelming, other data including job growth and earnings suggest the outlook for consumers is healthy, said Jeremy Zirin, chief equity strategist for UBS Wealth Management Americas.
- Shares of department stores rose again Friday after results surpassed expectations. J.C. Penney narrowed its quarterly loss and reported a sales increase. Shares rose 61 cents, or 6.1%, to $10.55.
- Nordstrom gained 3.82, or 8%, to 51.38, after the retailer raised profit projections for the rest of the year and beat expectations late Thursday.
- Consumer shares and energy companies were some of the biggest gainers of the week.
- US crude oil extended its gains Friday, rising 2.3%, to $44.49/barrel, one day after Saudi Arabia’s energy minister said the country would work with other oil producers to stabilise prices. While the official’s comment was interpreted by some to mean Saudi Arabia would support a production cap, many traders and analysts remained skeptical the country would limit its output.
- Earlier in the week, the Organisation of the Petroleum Exporting Countries said its members would hold informal talks next month, raising hopes for a coordinated cap. Separately, the International Energy Agency said global inventories of crude could shrink in the second half of the year.
- US crude rose 6.4% for the week, its largest weekly gain since April 8.
- Elsewhere, the Stoxx Europe 600 fell 0.2% Friday but notched a weekly gain of 1.4%. London's FTSE 100 was broadly flat, up 0.02%, while France's CAC 40 fell 0.08% and Germany's Dax slipped 0.27%.
- Miners were some of Europe's worst performers on Friday, as metal prices showed signs of weakness. Anglo American, Antofagasta and Rio Tinto were all sitting near the bottom of Europe's benchmarks during the session, closing down over 3% each.
Source: Bloomberg, TradingFloor.com
- AUS: Ansell Ltd, JB Hi-Fi Ltd, Mirvac Group, RungePincockMinarco Ltd, Mincor Resources NL, Impact Minerals Ltd, Advanced Share Registry Ltd, Energy One Ltd, Fe Ltd, Atlas Iron Ltd, Tamawood Ltd, Aurizon Holdings Ltd, Newcrest Mining Ltd, Cooper Energy Ltd, Imdex Ltd, Orora Ltd, Hazer Group Ltd, MainstreamBPO Ltd, Alliance Aviation Services Ltd, Plukka Ltd, Excalibur Mining Corp Ltd, WPP AUNZ Ltd, iCandy Interactive Ltd, Graphex Mining Ltd, GPT Group, RTG Mining Inc, Mawson West Ltd, Nomad Building Solutions Ltd, Black Mountain Resources Ltd, National Australia Bank Ltd
- US: Sysco, AngloGold Ashanti, Red Rock Resorts
- AUS: BHP Billiton, Shopping Centres Australasia Property Group, SG Fleet Group Ltd, MNF Group Ltd, Bradken Ltd, Mirvac Group, Shopping Centres Australasia Property Group, Argent Minerals Ltd, Elixir Petroleum Ltd, Excelsior Gold Ltd, InvoCare Ltd,
- US: Home Depot, Dick's Sporting Goods, TJX, Urban Outfitters, Momo, Popeyes Louisiana Kitchen, Advance Auto Parts, Cree
- AUS: CSL Ltd, Primary Health Care Ltd, Dexus Property Group, Crown Resorts Ltd, Charter Hall Retail REIT, Mesoblast Ltd, FlexiGroup Ltd/Australia, CSG Ltd, Hunter Hall International Ltd, Cue Energy Resources Ltd, Datetix Group Ltd, Euroz Ltd, Sonic Healthcare Ltd, Challenger Ltd/Australia, Arrium Ltd, Stockland, Vicinity Centres, Schaffer Corp Ltd, BlackWall Property Trust, Dexus Property Group, Sonic Healthcare Ltd, Aveo Group, QBE Insurance Group Ltd
- US: Target, Staples, Lowes, Cisco, L Brands, NetApp, Eaton Vance, American Eagle Outfitters, Performance Food, CACI
- AUS: Whitehaven Coal Ltd, Energy Action Ltd, Asciano Ltd, MMA Offshore Ltd, ASG Group Ltd, 1300 Smiles Ltd, RXP Services Ltd, Paragon Care Ltd, IDT Australia Ltd, Mastermyne Group Ltd, Ainsworth Game Technology Ltd, ITL Ltd, JCurve Solutions Ltd, AJ Lucas Group Ltd, MGC Pharmaceuticals Ltd, Treasury Wine Estates Ltd, Konekt Ltd, SAI Global Ltd, Brambles Ltd, ASX Ltd, Investa Office Fund, Tatts Group Ltd, Bapcor Ltd, Lifestyle Communities Ltd, Collection House Ltd, Konekt Ltd, Investa Office Fund, Origin Energy Ltd, Beacon Lighting Group Ltd, Lifestyle Communities Ltd, Brambles Ltd, Charter Hall Retail REIT, Core Exploration Ltd, Brand New Vintage Ltd, Sydney Airport, AMP Ltd, IRESS Ltd
- US: Wal-Mart, Applied Materials, Gap, Ross Stores, Hormel Foods, Mentor Graphics, Nestle
- AUS: Automotive Holdings Group Ltd, NetComm Wireless Ltd, Mount Gibson Iron Ltd, Villa World Ltd, Aveo Group, ARB Corp Ltd, Seven West Media Ltd, SEEK Ltd, Ardent Leisure Group, Mortgage Choice Ltd, SeaLink Travel Group Ltd, Reject Shop Ltd, Ashley Services Group Ltd, Opthea Ltd, Blackwall Ltd, Cogstate Ltd, Living Cell Technologies Ltd, 360 Capital Office Fund, 360 Capital Industrial Fund, Wellcom Group Ltd, Austock Group Ltd, HiTech Group Australia Ltd, Pharmaxis Ltd, Supply Network Ltd, Minotaur Exploration Ltd, Otherlevels Holdings Ltd, IMF Bentham Ltd, Matrix Composites & Engineering Ltd, Tassal Group Ltd, Civmec Ltd, Insurance Australia Group Ltd, Medibank Pvt Ltd, Amaysim Australia Ltd, Cover-More Group Ltd, MaxiTRANS Industries Ltd, LendLease Group, Evolution Mining Ltd, Medibank Pvt Ltd, Amaysim Australia Ltd, LendLease Group, Aphrodite Gold Ltd, Elysium Resources Ltd, Woodside Petroleum Ltd, Ausenco Ltd, Reef Casino Trust, Tempo Australia Ltd, Multistack International Ltd, iCar Asia Ltd, Santos Ltd, Simavita Ltd, Champion Iron Ltd
- US: Deere, Estee Lauder, Foot Locker, Madison Square Garden, The Buckle
Local markets and commodities
- The S&P/ASX 200 Index futures -0.2%; futures relative to estimated fair value suggest an early fall of 0.1%
- Bank of New York Australia ADR Index -2.2%, most since July 19, BHP Billiton ADR -1.8% to A$20.22 equivalent, 2.2% discount to last Sydney close, Rio Tinto ADR -4.3%, most since July 19, to A$40.59 equivalent, 18% discount to last Sydney close
- In a trading update this morning, National Australia Bank has reported lower cash profits, pressure on its net interest margin, higher funding costs and a higher charge for bad debts in the mining and agriculture sectors. NAB said unaudited cash earnings for the quarter to the end of June were around $1.6 billion, down 3% on the quarterly average in the first half and also down 3% on the previous third quarter.
- NAB said funding costs were higher during the quarter, which "contributed to our decision to not pass on all of the most recent RBA interest rate cut to home loan borrowers". NAB said asset quality remains strong but the charge for bad and doubtful debts for the quarter rose 21% to $228 million, which the bank said reflected an increase for mining and agriculture loans and an "unusually low" charge in the first quarter.
- Gold prices closed lower Friday, reversing earlier gains from a lacklustre retail sales number. Gold for December delivery settled down 0.5% at $1,343.20 a troy ounce on Comex division after trading as high as $1,362.50 in the session.
- Gold futures have now posted the first back-to-back weekly losses for a most-active contract in more than two months after prices failed to break above the three-week high reached on August 2. Holdings in gold-backed exchange-traded funds added 0.94 tonne to 2,039.9 tonnes on Thursday, data compiled by Bloomberg show. Goldies in Toronto lost 0.29%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Oil climbed to its biggest weekly advance since April as Saudi Arabia signalled it’s prepared to discuss stabilising markets at informal Opec discussions next month after prices tumbled into a bear market. WTI for September delivery rose $1 to settle at $44.49/barrel on the New York Mercantile Exchange. Prices climbed 6.4% this week. Total volume traded was 5% above the 100-day average.
- Brent for October settlement increased 93 cents, or 2%, to close at $46.97/barrel on the London-based ICE Futures Europe exchange. Prices are up 6.1% this week. The global benchmark crude traded at a $1.79 premium to WTI for October delivery. Oil has fluctuated after falling more than 20% into a bear market and closing below $40 a barrel last week.
- Money managers increased wagers on declining West Texas Intermediate crude prices to a record during the week ended August 2, government data show. World refiners will process record volumes of crude this quarter, shrinking stockpiles, the IEA said in its monthly report.
- Nigeria’s oil minister said the country’s output is "dismal" this year after sustained attacks by militants have damaged infrastructure including its biggest export terminal. While the market is on the path to rebalancing, reducing the inventory overhang of crude and products will take time, Al- Falih said in the statement.
- Saudi Arabia raised production to a record last month, according to data the country submitted to Opec. US oil explorers added 15 rigs this week, the longest streak of drilling expansion since April 2014. Opec will hold informal talks at the International Energy Forum in Algiers, Mohammed Al Sada, Qatar’s energy minister and holder of Opec's rotating presidency, said in a statement on Monday. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore prices rose 1.7%, according to a price index compiled by Metals Bulletin. In an emailed statement Steelhome released its weekly listing of iron-ore stockpiles across ports in China which showed that total stockpiles were at 105.5mln tons, down 0.3% week on week. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Nickel led a slump in industrial metals, dragging down mining stocks, after several economic reports on China revived demand concerns in the world’s top user of raw materials. China’s economic stabilisation faltered in July as factory output, retail sales and investment all slowed. The country’s broadest measure of new credit and another key gauge of lending increased at the slowest pace in two years.
- In the US, retail sales stalled in July, while wholesale prices unexpectedly fell. Nickel for delivery in three months dropped 4% to settle at $10,305/ ton in London. The metal slipped 5.1% in the past two days, the most since May.
- Copper fell to its weakest in a month: copper on the London Metal Exchange closed down 1.8% at $4761/tonne after touching $4760.35, the lowest since July 12. Zinc, the top LME performer so far this year with gains of nearly 40%, ended down 1.6% at $2238/tonne, the weakest since July 29. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- AMP (AMP): May unveil reinsurance deal with FY results: AFR
- BHP Billiton (BHP): Samarco owners seeking waivers on bank repayments
- Contact Energy (CEN): Posts FY loss after power plant closure
- GPT Group (GPT): Scheduled to release 1H results
- JB Hi-Fi (JBH): Scheduled to release FY results; NOTE: Adj. net income est. $A146.6mln (14 analysts)
Broker upgrades and downgrades
- Telstra (TLS): Cut to neutral vs buy at New Street Research
- James Hardie (JHX): Raised to outperform vs neutral at Credit Suisse
US500.i and AUDUSD
While AUS200 showed choppy price actions in a relatively tight range last week, US500
remain bid up near the record high level 2,188. The rising wedge still looks valid although it is not perfect as US500 settled below the lower support line of the wedge. The crude oil (CL) rally seems to be boosting up the sentiments for the equity indices therefore we would monitor the price actions of the crude oil this week.
Source: Saxo Bank
On the back of the sharp selloff from copper (HG), AUDUSD
plunged to touch the previous downtrend (from April) which would be the interim support level for now. The last week’s breakout above 0.77 appears to be a false break as AUDUSD failed to show a daily close above it and the key resistance level remains at 0.7750. Unless copper reverses the recent weakness, AUDUSD is expected to remain under further selling pressure.
Source: Saxo Bank.
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Today's information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Gayle Bryant