Article / 07 June 2016 at 0:44 GMT

Today's Trade: Commodities rally boosts ASX200

Trading Desk / Saxo Capital Markets
  • The ASX200 had a strong start ahead of the RBA's rate decision this afternoon
  • Overseas, US stocks rose to a seven-month high
  • Commodities rallied into a bull market as crude closed at a 10-month high
  • Gold capped its first back-to-back gain in almost three weeks
  • AUDUSD remains bid up just below the interim resistance level 0.7380

By Saxo Capital Markets (Australia)

Overnight and early trading

  • The ASX200 opened strongly, led by commodities. It was up 0.4% at 5382 at 1010 AEST (0010 GMT)
  • US stocks climbed to a seven-month high and the dollar touched a three-week low as Federal Reserve Chair Janet Yellen reiterated her intention to raise rates only gradually once the economy improves. 
  • Commodities rallied into a bull market as crude closed at a 10-month high. The S&P 500 Index closed at the highest level since November, pushing a four-month rally to 15%.
  • Emerging-market equities jumped more than 1% to a one-month high, while the weaker dollar bolstered demand for resources denominated in the greenback. The Bloomberg Commodity Index capped a 20% rally from a January low to meet the definition of a bull market. Treasuries fell for the first time in five days.
  • Yellen acknowledged the weakest jobs growth in six years was “disappointing” but said that positive forces in the economy outweigh negative developments, warranting gradual rate increases without specifying their precise timing. The odds for an increase in summer fell to 22% after rising past 50% last week. 
  • Emerging-market assets and commodities benefit from lower US interest rates as investors seek higher returns from riskier assets.
  • Markets are being pulled in different directions, with worries over a slowing US economy and British polls weighing on some assets, and a weaker dollar and chances the Fed will keep interest rates lower for longer supporting others.
  • The S&P 500 Index advanced 0.5% to 2,109.38, slipping from a 10-month high on a closing basis in the final half hour of trading. Shares fell Friday after the disappointing US jobs data cast doubt on the strength of the world’s biggest economy, though the index trimmed losses into the close. The Fed meets next week.
  • Lenders rebounded from their worst drop in almost two months, while rising crude prices helped Halliburton climb to its highest in nearly a year and Transocean jumped more than 13% to lead energy producers to a 2% gain. The group closed at the highest since April 27.
  • The Stoxx Europe 600 Index advanced 0.3%. The UK’s FTSE 100 Index climbed the most among major western-European markets, gaining 1%, as miners jumped and the pound weakened after the Brexit polls.
  • The MSCI Emerging Markets Index rose 1.3% to a one-month high, advancing for a third day and climbing above its 50-day moving average. Benchmark gauges in Russia and the Philippines jumped over 1%. South Korea’s market is shut for a holiday.
  • The four-year bear market that pushed commodities to the lowest level in a quarter century came to end as supply constraints drive a recovery in everything from soybeans to zinc. The Bloomberg commodity gauge, which measures returns on raw materials rose 1.1% to push its rally from a January low past 20% to meet the definition of a bull market. 
  • West Texas Intermediate jumped 2.2% to settle at $49.69 a barrel, the highest since July 21 (see short trade set up over OILUSJUL16 CFD. Brent crude added 1.8% to $50.55 a barrel, after falling 0.7% last week as Opec refrained from freezing output at a meeting in Vienna.
  • The global oil surplus is shrinking faster than expected and has the potential to send prices as high as $60 a barrel this year, according to Ali Majed Al Mansoori, chairman of the Abu Dhabi Department of Economic Development.
  • Gold capped its first back-to-back gain in almost three weeks as investors reconsidered an initial hawkish reading of Yellen’s speech. Gold futures for August delivery added 0.4% to settle at $1,247.40/ounce in New York, extending Friday’s 2.5% advance. That takes this year’s gain to 18%.
  • The US dollar swung between gains and losses after last week’s 1.6% decline triggered by the jobs report. The greenback was little changed at $1.1367 against the euro, after weakening 1.9% in the previous session. It rallied 0.7% to 107.68 yen, halting a four-day slide. 
  • The MSCI Emerging Markets Currency Index rose 1.1%. Indonesia’s rupiah climbed 1.6%, and Malaysia’s ringgit strengthened 1.2%. The rand rallied 1.3% after South Africa’s credit rating was affirmed by S&P Global Markets on Friday.
  • Treasuries gave back some of the gains from last week following the jobs report, when two-year yields fell on June 3 by the most since September. The rate climbed two basis points to 0.79% Monday. The yield on 10-year notes rose three basis points to 1.73%.
  • Government bonds from the euro region’s high-debt and deficit nations declined relative to benchmark German bunds with the UK’s vote on its European Union membership and Spanish general elections both due this month.

Source: Bloomberg,

 Looking up ... commodities rallied strongly as crude closed at a 10-month high. Photo: iStock

Local markets

  • Bank of New York Australia ADR Index up 3%. BHP Billiton ADR +4.9%. Rio Tinto ADR up 5.3%
  • Spot gold held its prior day's trading, up 0.1% to $1,246. On Monday, Yellen said interest rate hikes were likely because "positive economic forces have outweighed the negative" for the United States, though the weak jobs report have bears watching. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil skipped higher, with WTI and Brent up 1.4% and 1.0% to $49.76 and $50.54 respectively. US oil prices rose on Monday as Nigeria's oil industry reeled from crippling attacks and traders cited data pointing to fresh draws in US stockpiles. Output of Nigeria's Bonny Light crude has fallen by an estimated 170,000 barrels/day following recent attacks on pipeline infrastructure, industry sources said. Total crude production has fallen more than 500,000 b/d in a country that was once Africa's biggest oil producer. Market intelligence firm Genscape reported a drop of just over 1 million barrels in inventory at the Cushing, Oklahoma delivery point for US crude futures during the week to June 3, traders who saw the data said. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore kicked up 2.1% to $51.11. Iron ore futures in China climbed the most since trading started in 2013 as rebar stockpiles continued to shrink, signalling the surge in steel production to a record may have further to run to satisfy demand. Producers in China churned out a record amount of steel on a daily basis in April as they responded to a spurt in prices that rescued margins. Figures for May are due on Sunday. The industry remains wracked by chronic oversupply and is reliant on exports to clear its surplus. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were led by nickel, up 1.8%. Nickel had its biggest advance in three weeks amid concern about potential disruptions to supply in Colombia and the Philippines. The main union at South32’s Cerro Matoso, the world’s second-biggest ferro-nickel mine, said it will press ahead with plans to strike starting June 14. Over the weekend, Philippine President-elect Rodrigo Duterte warned mining companies whose operations threaten the environment to either upgrade their practices or face closure. Much of what they do now, “especially in Surigao,” is problematic, he said, referring to the province that ships nickel ore to China. Zinc’s falling inventories at the LME also saw gains of 1.7%. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • BHP Billiton (BHP): Agrees to invest in carbon capture research work in China
  • Estia (EHC): Might be among aged-care providers in line for audit by Department of Health: Australian; Note: Watch peers
  • Origin Energy (ORG): Demerger remains an option if debt reduction, Queensland LNG derisking fails: AFR
  • Spark Infrastructure (SKI): Trade of 6.73% stake moves at 3.5% discount

Stock to watch: Origin Energy (ORG)

ORG is one stock that has been in our sights for a few weeks now. Initially identified as a long trade idea on May 17, ORG had broken its ceiling of resistance at $A5.50 where it has now created a floor of support. Energy held up last night and we are watching ORG to break through its 161.80 Fibonacci Extension where it had been consolidating between $A5.50 – $A5.75. 

The clear stop loss (or potential short) would be at $A5.50 where both the floor and strong upward trend line meet. Upside potential levels can be found at $A6.08 and potentially even $A6.62 before the end of the financial year.

Source: Saxo Bank
Broker upgrades and downgrades

  • Aurizon (AZJ): Cut to underperform vs sector perform at RBC Capital Markets
  • Japara Healthcare (JHC): Raised to add vs hold at Morgans Financial

Open positions

Original trade views


AUDUSD remains bid up just below the interim resistance level 0.7380 ahead of today’s Reserve Bank of Australia rate decision at 1430 (0430 GMT). The current probability of another 25 basis point cut has risen from 8% to 34% as the Australian 10-year bond yield dropped to a record low. 

We would be surprised if we see another cut today but the recent rally in the bond prices (XT) is indicating there could be one more cut on its way. The focus would also be on the statement regarding the forward guidance even if the rate remain unchanged. The key resistance level would be 0.75 handle, which should provide some selling opportunities, while the support level is at 0.7308.

Source: Saxo Bank

EURUSD remained choppy between the interim resistance level 1.14 handle and the 50% retracement level 1.1356 even though Fed chair Janet Yellen indicated no clear indication on the next rate hike timing. The probability of the June rate hike halved from 4% to 2%. The key support level would be 1.13 and the resistance level is at 1.1470. 

 Source: Saxo Bank


The AUS200 continued to recover from last week’s heavy losses as the materials and the big-four banks rebounded. The current level 5,368 is just above the intraday high 5,360 on May 3, when the RBA cut rates to 1.75%. The resistance levels would be 5,400 and 5,425 while the support levels are 5,350 and 5,300.

 Source: Saxo Bank


The US500 initially dipped when Yellen started her speech but it quickly reversed to break the April high of  2,111 as energy stocks lifted on the back of the strong gains from crude oil. There is no signs of fading of the upside momentum in the current conditions unless we see genuine weakness from the crude oil (CL). 

The daily close above $50 in the price of crude oil may signal further extension of the rally in the near term. 

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

Data 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. Watch its daily morning call on Periscope at 0945 AEST: #SaxoAPAC


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