Article / 10 May 2016 at 1:11 GMT

Today's Trade: China data slaughters miners

Trading Desk / Saxo Capital Markets
Australia

  • ASX slips after a mixed performance on Wall Street and weak Chinese trade data
  • The state of the world's second economy weighed on US materials stocks
  • The big two miners are shadowing sharp falls in London trade
  • Overnight BHP Billiton dropped 6.1% and Rio Tinto fell 7.9%
  • The AUD is now looking to drop lower, into the realm of USD 72c

By Saxo Capital Markets

Overnight and early trading

Heavy selling in mining and energy names has pushed the ASX lower in early trade, with sharemarket losses limited by gains in the banks.

The ASX/S&P 200 was trading 19 points or 0.4% lower at 5301, while the AUDUSD is threatening to fall below 73 US cents.

After a torrid night of trading in London and a heavy fall in the iron ore prices BHP shares are off 4.5%, Rio 4.3%, and South32 was down 5%. Fortescue shares have lost another 7% and are now more than 20 per cent below their recent peak. Even gold miners are lower, with Newcrest losing 4.6%.

In overseas markets:

A rally in health-care and biotechnology shares aided the Nasdaq Composite Index to outperform the Dow Jones and the S&P 500 overnight: the Nasdaq lifted 0.3% while the Dow fell 35 points, or 0.2%, to 17706. The S&P 500 gained 0.1%.

The iShares Nasdaq Biotechnology ETF (IBB) closed 2.59% higher for its best day since April 21. The underperformance in the Dow Jones industrial average was attributed to poor runs by  Caterpillar and Chevron, down 3.52% and 1.48% respectively.

Healthcare companies were among the biggest gainers in the S&P 500. Pharmaceutical company Allergan gained 6%, while Mallinckrodt rose 6.1%. The Nasdaq Biotechnology Index climbed 2.5%.

Shares of Teva Pharmaceuticals Industries rose 5.1% after the company reported a better-than-expected profit. Christian O’Brien, who trades healthcare stocks at Raymond James, said the Teva report helped ease lingering concerns over earnings at pharmaceutical companies and that “you’re seeing a bit of a spillover into biotech as well”.

The healthcare rally was offset by declines in commodity prices that sent shares of energy and
materials companies in the S&P 500 lower, with both sectors falling more than 1%.

Gold, silver and copper prices all declined, while US crude fell 2.7% to $43.44/barrel after reports that wildfires in Canada had slowed and moved away from key oil production facilities. Energy shares in the S&P 500 fell 1.2% and were among the biggest decliners in the index.

The decline in commodities prices helped boost U.S. government bonds: the yield on the benchmark 10-year Treasury note was 1.759%, compared with 1.779% Friday. The CBOE Volatility Index (VIX) traded lower near 14.5.

Over in Europe the Stoxx Europe 600 climbed 0.5%. The Dax rallied 1.1% after data showed a sharp rebound in the country’s manufacturing orders. The CAC added 0.5% whilst the FTSE was negative by 0.18%.

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 Spot gold has fallen on a stronger USD, not reaching the key level of $1,300/oz. Photo: iStock

Weak trade data from China released on Sunday pressured European mining stocks: The European basic resources stock index slumped with Anglo American leading the pack lower, closing 13.8% down. Glencore fell 8.96% and Arcelormittal sank 12.14%.

Italian banks were under pressure with Banco Popolare tanking 8.7%, after its shareholders approved a 1 billion euro-capital increase, which is expected to be completed by the end of June.

UniCredit slipped 2.3% after the Financial Times newspaper cited a top 10 shareholder saying the lender "needs more capital and it cannot do that with the current management as they have lost the confidence of the market".


Local market and commodities

  • The S&P/ASX 200 Index futures -0.3; futures relative to estimated fair value suggest an early decline of 0.1%.
  •  Bank of New York Australia ADR Index -2%. BHP Billiton ADR -6% and Rio Tinto ADR -7.9%.
  • Spot gold has fallen on a stronger USD and a lack of follow through from weaker US payroll data. Breaking a four-day losing streak on Friday, gold failed to reach the key level of $1,300/oz before sentiment adjusted on interest rate expectations. In the end gold finished down 2% at $1,264. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil has been hit hard by sellers, with WTI and Brent down 4.6% and 5.1% to $43.39/b and $43.61/b respectively. The market initially rallied 2% as the fires in Canada continue to rage, removing almost 1 million b/d from the market. But as the fires have moved, so too has the expectation of how long it will take for oil to start flowing again. With the largest number of long contracts held since last summer, further gains were limited and profit taking set in. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore continues to be hit as waves of speculators pull out of their trades that initially drove iron ore so high, so quickly. Falling 5.7% to $54.99, selling pressure from steel prices flowed through to iron ore as demand concerns were raised again. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals were met with a wall of selling as the risk off approach in this space accelerated. Aluminium, copper, nickel and zinc lost 2.3%, 2.6%, 4.7% and 2.9% respectively. Adding to the selling was data released showing industrial metal imports for April were cooling. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • In other news: ANZ Roy Morgan Australia weekly consumer confidence data due 9:30 a.m. Sydney time; ANZ Bank (ANZ), National Australia Bank (NAB): Souring Aussie resource debts add to pressures on bank earnings; APN News (APN), Fairfax (FXJ) are said to be in NZ merger talks: Australian; Atlas Iron (AGO): Cut to SD from CC by S&P on debt restructure; CSL (CSL): Baxter CEO Almeida will be disciplined on M&A; CVC (CVC): Said to hire Nomura to explore Green’s Foods sale: AFR; Incitec Pivot (IPL): Scheduled to release 1H results; NOTE: Co. seen posting ‘weak’ results on lower fertilizer prices; Orica (ORI): No quick commodities rebound, CEO says; Virgin Australia (VAH): Cathay Pacific said interested in stake in co.: AFR; Westpac (WBC): Plans $4bm debt offering in five parts.


Stock-to-Watch: Evolution (EVN)

Gold has failed to continue its rally following non-farm payrolls, selling off 2% last night. Canadian gold stocks were down with the index losing 4.7%. Evolution has run hard and broken outside of its upward channel.

It tested previous highs at the long term ceiling before retracing before giving it another shot these past few days. With the selling in gold taking place, EVN may need more time to consolidate before going again.

Looking at the daily chart, EVN has a history of retracing to the 61.80% level which gives a level of $1.75 to watch.

Evolution (EVN) yearly chart
 
a
 
 Evolution (EVN) monthly chart
b
Source: Both charts, Saxo Bank
 
Earnings this week

Tuesday: Disney, Electronic Arts, Nuance Communications, Planet Fitness, Norwegian Cruise Lines, Nokia, Dean Foods, Credit Suisse, Soda Stream, Lumber Liquidators
Wednesday: Macy's, Wendy's, Nissan, Toyota, Allianz
Thursday: Kohl's, Nordstrom, Shake Shack, Nvidia, Party City, Ralph Lauren
Friday: Honda Motor, JC Penney, Brookfield Asset Management

Broker upgrades and downgrades

- Altium (ALU): Cut to sell from hold at Bell Potter
- Cimic (CIM): Hochtief cut to hold vs buy at Societe Generale
- Commonwealth Bank (CBA): Raised to buy vs hold at Bell Potter


Open positions

c
 
Open orders
 
See Apple/Disney story here

AUDUSD

The US dollar index extended gains above the previous downtrend that began back in March last year. It would still be early to confirm the reversal has begun until it trades above 95.

AUDUSD has remained under selling pressure below the support level 0.7330.

The current downside momentum appears to be stronger than ever, therefore the 0.73 handle may be broken to test the next support level at 0.7250 where we would look to buy in the anticipation of retracements.

AUDUSD monthly chart

d
Source: Saxo Bank

 
AUS 200.I

The AUS200 showed a lot of resilience to close well above the resistance level 5,300 led by the strength from the banking stocks, however AUS200 is expected to be weighed down by the energy and the material sectors as both crude and copper declined sharply lower.

The overnight price actions of the Dax (GER30) look interesting as it closed below the psychological level 10,000, although it initially rallied on the back of the better than expected German factory orders (1.9% vs 0.7%).

Furthermore the Shanghai Composite Index should be closely watched today as it sold off close to 6% in two trading sessions and we saw a clear break out below the key support level 2,900 yesterday.
 
e Source: Saxo Bank - create your own charts with SaxoTrader; click here to learn more

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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