Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 25 July 2016 at 0:06 GMT

Today's Trade: Cautious start likely for ASX

Trading Desk / Saxo Capital Markets
  • Woolworths announces it will slash 500 jobs in a $1 billion restructure
  • S&P 500 capped the slowest trading week in 2016 with a record close Friday
  • EURUSD now approaching Brexit low of 1.0911
  • Gold price expected to remain under further selling pressure

By Saxo Capital Markets (Australia)

Overnight and early trading

A cautious open is expected for the Australian market as it awaits key data later this week. Meanwhile, Woolworths announced this morning it will slash 500 jobs and close dozens of underperforming stores in an almost $1 billion restructure. 

 New door opens ... Woolworths has announced a major restructure of its business. Photo: iStock

The S&P 500 capped the slowest trading week in 2016 with a record close Friday. An average of roughly 5.9 billion US shares changed hands a day last week, about 1.7 billion fewer shares than has been typical so far this year and the quietest week since the end of December. Traders have attributed the light trading volumes to a typical summer slowdown, especially after a busy several weeks. 

Last week, the S&P 500 rose 0.6% and the Dow Jones Industrial Average gained 0.3%. It was the first week the indexes have moved less than 1% since early June. Earnings drove trading all week. With 126 companies in the S&P 500 reporting, earnings in the index are on track to contract 4.4% in the second quarter from the prior year, according to FactSet. As of June 30, analysts had expected corporate profits to fall 5.3% in the second quarter.

Better-than-expected results from software giant Microsoft and chip-maker Qualcomm helped lift the S&P 500’s technology sector to a 2% weekly gain. Financial shares in the S&P 500 gained 0.7% for the week as big banks posted second-quarter results that topped analysts’ expectations.
On Friday, Honeywell International posted second-quarter revenue and profit gains but cut its revenue forecast for the year. Its shares fell $3.05, or 2.6%, to $115.61.

General Electric shares slipped 53 cents, or 1.6%, to 32.06 after the company reported better-than-expected earnings but also described the current business environment as “a volatile and slow-growth economy.”

On Friday, the S&P 500 rose 9.86 points, or 0.5%, to 2175.03, a new record. The Dow industrials added 53.62, or 0.3%, to 18570.85, while the Nasdaq Composite gained 26.26, or 0.5%, to 5100.16.

European stocks lost ground after some of the first economic data since the UK referendum came in unexpectedly strong for the Eurozone, but worse than anticipated for Britain. The Stoxx Europe 600 index fell 0.1% Friday but closed the week up 0.7%. London's FTSE remained resilient during trade, finishing up 0.46%. Meanwhile, France's CAC and Germany's DAX both wavered, finishing up around 0.1% and down 0.1% respectively.

Data showed the UK economy likely contracted in July as businesses cut output and payrolls. A measure of private-sector activity in the UK dropped to its lowest level since early 2009.

Source: Bloomberg,

US earnings

  • Monday: Kimberly-Clark, Rockwell Collins, Gilead Sciences, Ryanair, Sprint, Celanese, Las Vegas Sands, Texas Instruments, Canadian National Airways, Express Scripts, Eastman Chemical, Luxottica Group, Cadence Designs
  • Tuesday: Apple, Caterpillar, Verizon, 3M, DuPont, United Technologies, McDonald's, Eli Lilly, BP, Twitter, KeyCorp, KKR, Freeport-McMoRan, Martin Marietta Materials, Paccar, United Health Services, Starwood Hotels, T. Rowe Price, LVMH, Valero Energy, Under Armour, JetBlue, Anadarko Petroleum, Chubb, Panera Bread, US Steel
  • Wednesday: Boeing, Coca-Cola, Comcast, Facebook, Amgen, State Street, Whole Foods, Groupon, GoPro, Cheesecake Factory, GlaxoSmithKline, Lumber Liquidators, Six Flags, Altria, Deutsche Bank, Fiat Chrysler, Statoil, Dr. Pepper Snapple, Ingersoll Rand, Hess, Corning, Nissan, Norfolk Southern, Nintendo, Southern Co, Anthem, Statoil, General Dynamics, Nasdaq OMX, Northrop Grumman, Mondelez
  • Thursday:, Alphabet, AstraZeneca, Bristol-Myers Squibb, Colgate-Palmolive, Celgene, Cigna, Total, MasterCard, Ford, Dow Chemical, Diageo, ConocoPhillips, Credit Suisse, Royal Dutch Shell, BNP Paribas, Hershey, HCA, Harley-Davidson, Marsh & McLennan, Marathon Petroleum, Potash, PG&E, TransCanda, Raytheon, Expedia, CBS, Samsung
  • Friday: Exxon Mobil, Chevron, Merck, AB InBev, UPS, UBS, Sanofi, Xerox, CBOE Holdings, Philips 66, Cabot Oil, Barclays, Eni, Tenneco, Lexmark, CNA Financial

Local markets and commodities

  • S&P/ASX 200 Index futures up 0.1%; futures relative to estimated fair value suggest an early gain of 0.5%
  • Bank of New York Australia ADR Index -0.4%, BHP Billiton ADR -1.5% to A$19.13 equivalent, 0.8% discount to last Sydney close, Rio Tinto ADR -0.7% to A$42.01 equivalent, 13% discount last Sydney close
  • Gold prices dropped Friday amid profit-taking and a higher risk appetite in the stock markets. Gold for August delivery settled down 0.6% at $1,323.40 a troy ounce on the Comex division of the New York Mercantile Exchange. The precious metal fell to a three-week low in the past week, as investor concerns over the state of the global economy have abated. 
  • Traders will be watching the release of the Federal Reserve’s policy statement this week after its July meeting. Expectations for a rate increase in September have grown since the release of strong US home-building data this week, which showed that new home construction rose 4.8% in June from the previous month. Rising interest rates tend to hurt gold prices, as the metal is a non interest-bearing asset and so struggles to compete with yield-bearing assets when borrowing costs increase. 
  • In early reporting, Newcrest stated that their Q4 gold output fell 6% to 598,000/oz, due to a halt at Gosowong, Indonesia. Q4 copper production 21,228 tons, down around 7.4%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Oil traded near the lowest close in two months as US oil producers continued to revive drilling in the shale patch, adding rigs for the fourth consecutive week in the longest streak of increases since August. US crude oil for September delivery settled down 56 cents, or 1.3%, to $44.19/barrel on the New York Mercantile Exchange, the lowest settlement since May 9. Prices fell 5.3% last week. 
  • Brent, the global benchmark, fell 51 cents, or 1.1%, to $45.69/barrel on ICE Futures Europe, the lowest settlement since May 10. Prices dropped 4% last week. Rigs targeting oil in the US rose by 14 to 371 last week, after 27 had already been added since the start of the month, Baker Hughes said on its website on July 22. 
  • US crude and gasoline supplies are at the highest seasonal levels in at least two decades, government data show. Oil retreated in recent weeks as a rally spurred by supply disruptions in Nigeria and Canada and falling US output lost momentum. Prices remain up about 68% from a 12-year low in February, a recovery that has prompted American producers to begin returning drilling rigs to service. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Heavy rain in northern China continues to hamper trading and production of steel and iron ore. This has resulted in steel mills being reluctant to buy raw materials until the extreme weather subsides. Iron ore futures post biggest weekly fall since May 13, dropping 7.2% on Dalian Commodity Exchange. Ore for Sept. delivery closes Friday down 4.1% at 428.5 yuan/tonne. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Benchmark nickel on the London Metal Exchange slid 3.2% to close at $10,420/tonne, after gaining 1.7% on Thursday when it hit a 10-month high of $10,900. 
  • LME zinc finished down 0.4% at $2245/tonne. A drop in global zinc mine supply has squeezed production of refined metal, helping LME zinc prices jump nearly 7% so far this month, adding to June's near 10% gain. 
  • Aluminium outperformed, ending 0.7% higher at $1611/ tonne as consumers went bargain-hunting after prices pulled back from a one-year peak of $1703 last Friday. Copper slipped by 1.1% to close at $4920/tonne, having hit its highest since July 15 at $5000/tonne last week. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Asaleo Care (AHY): Fell 30% on Friday after cutting forecast
  • Downer EDI (DOW): Working with China’s State Grid on Ausgrid bid, AFR says
  • BHP (BHP): Reaffirms underground expansion pathway for Olympic Dam
  • Newcrest Mining (NCM): Scheduled to release production report
  • Pulse Health (PHG): Thynne, Savage said to buy 10% of Pulse Health, AFR reports
  • Reliance Worldwide (RWC): To replace Asciano in ASX 200


The US dollar index rallied to push above the recent swing high 97.37 so EURUSD tumbled below 1.10 and is now approaching the Brexit low 1.0911. We expect further strengthening of the US dollar in the coming days unless we see another dovish comments from the Federal Open Market Committee this Thursday morning. 

The key resistance level remains at 1.1070 where the 200 DMA crosses and the support levels would be 1.0911 – 1.0820.
 Source: Saxo Bank

The price actions of gold (XAUUSD) in the last three days have been choppy and difficult to anticipate the direction but we are biased to the downside with the resistance level 1,335. The bond prices are still quite subdued and the equity indices are looking strong therefore the price of the precious metal is expected to remain under further selling pressure.
 Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more 

Today's information 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. Please join us for the Weekly Macro Call at 1030 AEST.


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