Today's Trade: Commodity price gains drive S&P/ASX200 rebound
- The US oil benchmark has settled above $50/b for the first time since May
- Sliding stockpiles and improved demand prospects gave oil sentiment a lift
- Rising iron ore spot prices are good news for leading Australian miners
- Signs of labour market strength make another Fed hike this year more likely
Overnight and early trading
- The S&P/ASX200 soared higher at the open; it was up 0.81% to 5,767.20 at 1023 AEST. Shares in BHP and Rio Tinto soared in early trading.
- Most major Asia-Pacific region equity markets were poised for gains after strong US hiring data at the end of last week bolstered American stocks. The yen was little changed Monday after slumping by the most in 1.5 weeks on Friday.
- Contracts on bourses in Japan, Australia, South Korea and Taiwan all advanced in the most recent trading.
Steel reinforcing bar futures in China have risen strongly, taking the spot physical iron ore market along for the ride. Photo: Shutterstock
- The Dow Jones Industrial Average ended the week at a fresh record, buoyed by a jobs report that showed employers continued hiring at a healthy rate in July. Corporate earnings that have shown broad strength across industries and a brighter global economic outlook have kept stocks climbing in the second half of the year.
- Gains by the shares of multinational companies that reported strong quarterly results, including Apple and Boeing, helped lift the Dow industrials over 22000 for the first time on Wednesday. With US economic growth looking slow but steady, strength in earnings will be key to stocks continuing their ascent, investors and analysts say.
- The Dow industrials added 66.71 points, or 0.3%, to 22092.81—for their eighth straight closing record. The blue-chip index added 1.2% for the week. The VIX sits just above 10. Gains in the shares of financial companies helped the S&P 500 eke out a gain. The S&P 500 rose 4.67 points, or 0.2%, to 2476.83 and finished up 0.2% from the previous Friday, led by a 1.8% weekly gain in its financial sector.
- It was the 12th consecutive session for the S&P 500 without a daily move of at least 0.3% in either direction—its longest such streak on record.
- The Nasdaq Composite added 11.22 points, or 0.2%, to 6351.56, but ended down 0.4% for the week.
- Friday’s monthly jobs report was the latest data to show that the labor market continues to be a bright spot in the US economic recovery.
- Nonfarm payrolls rose by a seasonally adjusted 209,000 in July, the Labor Department said Friday, more than the 180,000 that economists surveyed by The Wall Street Journal had expected. Another highlight from the morning’s jobs report: Labor-force participation increased while the unemployment rate declined.
- Continued signs of strength in the labor market should bode well for stock gains and keep the Federal Reserve on track to raise interest rates once more by the end of the year, analysts say.
- Federal-funds futures, used by investors to bet on the U.S. interest-rate outlook, showed a 50% chance that the Fed would raise rates by the end of the year, according to CME Group data.
- Government bonds and gold, which tend to be sensitive to expectations around the Fed’s interest-rate path, retreated following the jobs report.
- U.S. government-bond prices fell, with the yield on the 10-year US Treasury note climbing to 2.269%, from 2.230% Thursday. Higher interest rates tend to reduce the appeal of long-dated government debt.
- Gold also pulled back, with contracts for August delivery losing 0.7% to $1,258.30. Prices for gold tend to fall when investors expect tightening monetary policy because the metal struggles to compete with yield-bearing assets.
- U.S. crude oil for September delivery rose 1.1% to $49.58/barrel ahead of a planned meeting of Opec in the coming week in Abu Dhabi. Hopes that Opec could chip away at a global glut have helped oil rise in eight of the past 10 trading sessions, although scepticism that the cartel will be able to hold down output kept prices in a tight range during the week. For the week, crude prices fell 0.3%. Year to date, they are down 7.7%.
- Source: Bloomberg, TradingFloor.com, WSJ.com
US earnings due out this week
- Monday: Envision Healthcare Corp, Marriott International Inc/MD, CBS Corp, Albemarle Corp
- Tuesday: CBS Corp, Marriott International Inc/MD, Edwards Lifesciences Corp, Range Resources Corp, Cabot Oil & Gas Corp, Cimarex Energy Co, Noble Corp plc, SRC Energy Inc, SandRidge Energy Inc, Occidental Petroleum Corp, Pioneer Natural Resources Co, ONEOK Inc, Energen Corp, Comstock Resources Inc, Williams Cos Inc/The, Cheniere Energy Inc, Cloud Peak Energy Inc, Tellurian Inc, Liquefied Natural Gas Ltd, Sanchez Energy Corp, EnLink Midstream LLC, Lilis Energy Inc, NextDecade Corp, Accenture PLC, Extended Stay America Inc, Boyd Gaming Corp, Pebblebrook Hotel Trust, Playa Hotels & Resorts NV, Hilton Worldwide Holdings Inc, Park Hotels & Resorts Inc, Gaming and Leisure Properties Inc, Host Hotels & Resorts Inc, Marriott Vacations Worldwide Corp, Fluor Corp, Dover Corp, Albany International Corp, Clorox Co/The, Dun & Bradstreet Corp/The, General Mills Inc, Vertex Pharmaceuticals Inc, Noble Energy Inc, Global Payments Inc, Acuity Brands Inc, Expeditors International of Washington Inc, AES Corp/VA, ,Jacobs Engineering Group Inc, TransDigm Group Inc, Henry Schein Inc, Michael Kors Holdings Ltd, Gartner Inc, Zoetis Inc, Sealed Air Corp, Honeywell International Inc, Michael Kors Holdings Ltd, Gartner Inc, Ralph Lauren Corp, AT&T Inc, Zoetis Inc, Envision Healthcare Corp, CVS Health Corp, CVS Health Corp, United Rentals Inc, Albemarle Corp, Ralph Lauren Corp, AES Corp/VA, Red Hat Inc
- Wednesday: Akamai Technologies Inc, American Financial Group Inc/OH, Cincinnati Financial Corp, American Tower Corp, Andeavor, Arconic Inc, Boeing Co/The, Caterpillar Inc, CenturyLink Inc, Cincinnati Financial Corp, CR Bard Inc, Crown Castle International Corp, CSRA Inc, Delphi Automotive PLC, DENTSPLY SIRONA Inc, DXC Technology Co, Eastman Chemical Co, Equifax Inc, Fluor Corp, Henry Schein Inc, Jacobs Engineering Group Inc, LKQ Corp, LyondellBasell Industries NV, Monster Beverage Corp, Mylan NV, Praxair Inc, Priceline Group Inc/The, Rockwell Collins Inc, Scripps Networks , Interactive Inc, Sealed Air Corp, TransDigm Group Inc, TripAdvisor Inc, Verizon Communications Inc, Walt Disney Co/The
- Thursday: 3M Co, Acuity Brands Inc, Advanced Micro Devices Inc, Boston Scientific Corp, CA Inc
- Celgene Corp, CenturyLink Inc, Cimarex Energy Co, CSRA Inc, Delphi Automotive PLC, DXC Technology Co, Ecolab Inc, Edwards Lifesciences Corp, Equifax Inc, General Motors Co, Hologic Inc,
- International Flavors & Fragrances Inc, Kohl's Corp, Lam Research Corp, Macy's Inc, Marsh & McLennan Cos Inc, Mylan NV, News Corp, Nordstrom Inc, Perrigo Co PLC, Public Service Enterprise Group Inc, Ralph Lauren Corp, Red Hat Inc, Twenty-First Century Fox Inc, Visa Inc, WestRock Co, Xilinx Inc, Zions Bancorporation
- Friday: Macy's Inc, Ecolab Inc, NVIDIA Corp, Nordstrom Inc, News Corp, NVIDIA Corp
- Bank of New York Australia ADR Index +0.2%, BHP Billiton ADR +1% to A$26.01 equivalent, 1.1% premium from last Sydney close, Rio Tinto ADR 1.4% to A$59.11 equivalent, ~9% discount to last Sydney close
- Gold fell on Friday after hitting a seven-week high earlier this week, as the dollar rose from multi-month lows, after monthly U.S. non-farm payrolls data was better-than-expected. Spot gold was down 0.77% to $1,258.36/oz, near its lowest level since July 28 when gold traded as low as $1,256.90/oz. It traded flat at $1,268.61/oz before the report. U.S. gold futures for December delivery settled at $1,264.60/oz.
- The US. economy added 209,000 jobs in July and the unemployment rate was 4.3%, according to a government report Friday. Economists surveyed by Reuters had expected the report to show growth of 183,000 with the jobless rate ticking down to 4.3%, the lowest since March 2001. Limiting losses in gold was escalating political turmoil in Washington which has cooled expectations for growth and inflation, and boosted safe haven assets like the precious metal. News broke late Thursday that U.S. special counsel Robert Mueller has impanelled a grand jury in Washington to investigate allegations of Russia's interference in the 2016 presidential elections. Gold stocks in Toronto shed 1.65% on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil pared a weekly decline as strong U.S. jobs growth improves the outlook that rising demand may counter the supply glut roiling the market since 2014. Futures rose 1.1% in New York Friday, trimming a weekly drop to 0.3%. While American production hovers at its highest since July 2015 and output from Opec climbed last month, sliding stockpiles and the prospects for improved demand growth lent to a more positive sentiment. The U.S. economy added 209,000 payrolls in July.
- The U.S. benchmark settled above $50/barrel earlier this week for the first time since May, following an 8.6% rally last week, the biggest this year. The breach of the key level didn’t last long, though, as doubts still linger that Opec and its allies will succeed in rebalancing the market. Russia says it has kept output levels from May and plans to do so until the Opec production-cut pact expires. WTI for September delivery added 55 cents in its biggest one-day rally of the week, settling at $49.58/b on the New York Mercantile Exchange. Total volume traded was about 2.3% below the 100-day average. Brent for October settlement gained 41 cents to close the session at $52.42/bl on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.69 to October WTI. U.S. oil output expanded by 20,000 barrels a day to 9.43 million last week, the Energy Information Administration said Wednesday. Nationwide crude stockpiles in the US have declined the past five weeks and fuel demand jumped by 21,000 barrels a day to 9.84 million last week, a record-high. But as the summer driving season ends next month, the boost it has given to the oil market may fade. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- US economic data had little impact on the bulk sector, with steel and iron ore prices surging higher. Steel rebar futures in China were up strongly as investors becoming increasingly confident that production curbs and strong demand will see the market tighten even further in 2017. This saw the spot physical iron ore market dragged along for the ride. Spot iron ore added 1.6% or $1.19 to close at $74.12. Brazilian iron ore export volumes to China increased by 17.5% year-on-year in July, according to figures released by the country's foreign trade ministry, MDIC. Shipments came to 18.17 million tonnes, against 15.46 mln tonnes a year before. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Zinc prices clawed higher on Friday, getting a boost from another surge in Chinese steel prices and from investors who are still bullish about shortages of the metal developing. Benchmark zinc on the London Metal Exchange closed 0.7% higher at $US2812 a tonne after slipping 0.3% in the previous session. LME aluminium finished down 0.3% at $US1910.50 a tonne. Three-month LME copper ended 0.3% firmer at $US6372 a tonne. Money managers have increased their bullish copper bets by 18,645 net-long positions to 104,268, weekly CFTC data on futures and options show. The net-long position was the most bullish on record in data going back to June 2006. Long-only positions rose 16,868 lots to 137,984 in the week ending August 1. The long-only total was the highest on record. Lead shed 0.3% to $US2361, nickel lost 1.3% to $US10,250 and tin ended 0.7% weaker at $US20,510. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Australia’s NSW mulls selling longer-dated bonds.
- Verizon goes to Australia as quest for cheap debt leads overseas.
- Australian Pharma Industries (API): May be set to make bid for Laser Clinics Australia: AFR.
- Commonwealth Bank (CBA): Ian Narev intends to stay as CBA CEO, Australian says
- Dexus (DXS): Could sustain high leasing margin on bullish office market: BIOrigin Energy (ORG): May be considering sale of smart meter unit: AFR.
- OrotonGroup (ORL): To discontinue Gap franchise in Australia.
- St Barbara (SBM): CEO Bob Vassey to be interviewed on Bloomberg TV.
- Ten Network (TEN): Offers for network due by August 18: AFR.
- Bluescope (BSL): Raised to overweight at JPMorgan, price target $A15.
- Trade Me (TME): Raised to hold at Morningstar.
- Sims Metal (SGM): Cut to neutral at JPMorgan, PT $A13.60.
- Monday: James Hardie Industries PLC AGM.
- Tuesday: Shopping Centres Australasia Property Group, Transurban Group, James Hardie Industries PLC, IOOF Holdings Ltd.
- Wednesday: Cochlear Ltd, Commonwealth Bank of Australia, carsales.com Ltd, SKYCITY Entertainment Group Ltd.
- Thursday: AGL Energy Ltd, Magellan Financial Group Ltd, News Corp, AMP Ltd.
- Friday: Goodman Group, National Australia Bank Ltd (TRADING UPDATE ONLY), REA Group Ltd.
We may see some temporary pause in the recent strength but we favour buying any pull back as we were impressed with the rebound off 24 last week where 200 DMA seems to have become a key support level.
Choppy outlook for S&P/ASX200
We don’t expect any change to the way our index has traded from May: choppy trading and continued consolidation between the 200 day moving average at 5800. Only a break either way: above 5800 or below the 200 day moving average is expected to then set a proper trend for our Aussie index.
It is possible to see a bullish pennant formation as long as last week's low of 0.7891 is not breached.
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– Edited by Robert Ryan
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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.