Article / 17 August 2016 at 1:00 GMT

Today's Trade: Company results come pouring in

Trading Desk / Saxo Capital Markets

  • The ASX has slipped 0.2% to 5521.2 at the open, following a soft US lead
  • Atlanta Fed chief Dennis Lockhart sets the stage for at least one hike this year 
  • After BHP's dire result, QBE reports 46% drop in half-year profit
  • Shares weighed down by disappointing results from QBE and CSL
  • A busy day for earnings with Crown, Arrium and Stockland also reporting

Overnight and early trading

The ASX/S&P 200 started cautiously with mixed messages from the US Fed hitting Wall Street and plenty of gyrations in stock and currencies. But in the market's favour, oil and iron ore rose last night. Aussie companies reporting will be the main action today.

Overnight, US stocks fell with Treasuries, while the dollar pared its decline, after Federal Reserve officials stoked speculation over interest rate increases despite evidence of uneven growth in the world’s largest economy.

The S&P 500 Index retreated from a record high after New York Fed President William Dudley said borrowing costs could be boosted as soon as next month.

Meanwhile, Atlanta Fed chief Dennis Lockhart said he’s confident growth is accelerating, setting the stage for at least one hike this year.

Yields on two-year Treasury notes, the coupon maturity most sensitive to policy expectations, climbed as the greenback trimmed a drop of more than 1% versus major peers.

Oil rose above $46/barrel on optimism over a potential output freeze. Equities have found favour over the past month, while the USD has lost ground, as conflicting signals over the US labour market and growth cast doubt over the Fed’s plans to tighten monetary policy.

 US crude has risen 4% in the last two sessions, but will Opec disappoint? Photo: iStock

Odds on the next US rate rise have been pushed out as central banks elsewhere inject unprecedented stimulus, with investors pricing in about one hike between now and the end of next year - estimates Dudley says are “too low.”

The policy maker said in an interview Tuesday that markets are “too complacent” about the need for a gradual increase in short- term interest rates over the next year or so.

The S&P 500 fell 0.6% to 2,178.15 in New York, after recent gains pushed its valuation to the highest level since 2002.

Phone and utilities shares led declines Tuesday, falling at least 1.2%. Praxair surged on merger talks with Germany’s Linde and Morgan Stanley climbed to a seven-month high after activist Jeff Ubben’s ValueAct Capital Management disclosed a 2% stake.

Cintas jumped to a record after agreeing to buy G&K Services in a $2.2 billion tie-up of providers of workplace uniforms and corporate apparel.

The MSCI Emerging Markets Index halted an eight-day rally, dropping less than 0.1%. Stocks in Qatar climbed after FTSE Russell said it would relax the criteria to decide which of the nation’s shares will join its developing nations index next month.

The Stoxx Europe 600 Index dropped 0.8% as gains in the euro weighed on exporters. Volkswagen AG slipped after a report that the US Department of Justice was said to find evidence of criminal acts in a diesel-emissions cheating probe.

Futures on Asian equities were mixed following a Japan-led drop on Tuesday. Contracts on the Nikkei 225 Stock Average slipped at 1.8% in Chicago, while those on Hong Kong’s Hang Seng Index advanced 0.1%.

FTSE China A50 Index futures gained 0.3% in most recent trade. Yields on 10-year Treasuries rose two basis points, or 0.02 percentage points, to 1.57%, after climbing four basis points last session.

Rates on two-year notes increased two basis points to 0.75%, the highest closing yield this month. After liftoff from near zero in December, The Fed has twice cut its projections for the number of rate hikes this year, from four to two and then one.

Investors will be scouring minutes of the Federal Open Market Committee’s July meeting out Wednesday for further insight into officials’ latest thinking.

The odds of a rate increase at the September 20-21 meeting of the FOMC are about 22%, according to pricing in federal funds futures, compared with 24% a week ago.

Long-dated UK government bonds fell after investors lined up to sell them to the Bank of England in the first successful purchase operation of that debt segment since the bank expanded its quantitative easing program this month.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, fell 0.7%, declining for a third straight session.

The yen briefly strengthened past 100 per dollar for the first time since the aftermath of the UK’s vote to leave the European Union, before ending Tuesday up 0.9% to 100.31.

GBPUSD rose 1.3% to $1.3046, after dropping to its weakest closing level since June 1985 on Monday. The Canadian dollar climbed for a seventh day, the currency’s longest winning streak since December 2012.

Oil closed at its highest price in five weeks, bolstered by the weakening dollar and speculation that Opec talks next month could result in a deal to stabilise prices via a freeze on output.

West Texas Intermediate crude gained 1.8% to $46.58/barrel, rising for a fourth straight day. Russian Energy Minister Alexander Novak told Arabic language newspaper Asharq Al-Awsat that the nation was open to cooperating to stabilise markets after Saudi Energy Minister Khalid Al-Falih said talks in Algiers may result in action.

Nickel dropped after posting the biggest advance in more than two weeks on Monday, while gold and copper advanced. Oil’s bounce helped drive the Bloomberg Commodity Index up 0.6% to its highest level in almost a month.

Information sources: Bloomberg,

Key earnings

AUS: CSL, Primary Health Care, Dexus Property Group, Crown Resorts, Charter Hall Retail REIT, Mesoblast FlexiGroup Australia, CSG, Hunter Hall International, Cue Energy Resources, Datetix Group, Euroz, Sonic Healthcare, Challenger, Arrium, Stockland, Vicinity Centres, Schaffer Corp, BlackWall Property Trust, Dexus Property Group, Aveo Group, QBE Insurance
US: Target, Staples, Lowes, Cisco, L Brands, NetApp, Eaton Vance, American Eagle Outfitters, Performance Food, CACI

AUS: Whitehaven Coal, Energy Action, Asciano, MMA Offshore, ASG Group, 1300 Smiles, RXP Services, Paragon Care, IDT Australia, Mastermyne Group, Ainsworth Game Technology, ITL, JCurve Solutions, AJ Lucas Group, MGC Pharmaceuticals,Treasury Wine Estates, Konekt, SAI Global, Brambles, ASX, 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 -0.1%; futures relative to estimated fair value suggest an early fall of 0.2%.
  • Bank of New York Australia ADR Index +0.2%, BHP Billiton ADR +1% to A$20.46 equivalent, 1% premium to last Sydney close, Rio Tinto ADR +2.1% to A$42.09 equivalent, ~13% discount to last Sydney close.
  • Gold posted the biggest gain in two weeks as equities and the dollar declined, drawing demand from investors who looked past speculation US interest rates will rise this year. Gold futures for December delivery rose 0.7% to settle at $1,356.90 an ounce on Comex, the biggest gain since August 2.
  • Prices earlier swung between $1,344.80 and $1,364.30. Holdings in bullion-backed ETPs rose slightly to 2,027.6 tons on Monday, after falling the most this year on Friday, data compiled by Bloomberg show. Gold futures have climbed 28% this year on speculation the Fed will be slow to raise rates.
  • While New York Fed President William Dudley told Fox Business Network that rates could rise as soon as next month, Fed funds futures data show the market is unconvinced, with the odds staying below 50% until February. Silver futures for September delivery increased 0.1% to $19.874 an ounce. Despite gold’s overnight gains, goldies in Toronto lost 0.79%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil closed at its highest in five weeks, bolstered by a weakening dollar and speculation that Opec talks next month could result in a crude output freeze. Futures climbed 1.8% in New York, extending gains following comments from Saudi Arabia’s energy minister that the country is prepared to act to stabilise markets. The dollar extended declines following mixed US economic reports.
  • West Texas Intermediate for September delivery added 84 cents to settle at $46.58/b on the New York Mercantile Exchange, the highest since July 12. Total volume traded Tuesday was about 4% above the 100-day average.
  • Brent for October settlement rose 88 cents, or 1.8%, to close at $49.23 a barrel on the London-based ICE Futures Europe exchange, the highest since July 4. The global benchmark crude settled at a $2.01 premium to WTI for October delivery, the widest spread since April.
  • Nigerian Minister of State for Petroleum Emmanuel Kachikwu said he has “sparse” optimism that Opec will trim output. Russia sees no signals that Iran will change its position on a production cap and agree to an output freeze, news service Interfax reported, citing an unidentified diplomatic source close to the talks.
  • Opec members will discuss the market when they gather for the International Energy Forum in Algeria next month, according to Mohammed bin Saleh Al-Sada, Qatar’s energy and industry minister and the group’s current president.
  • US crude stockpiles are forecast to have grown by 950,000 barrels, according to a Bloomberg survey ahead of a weekly report from the Energy Information Administration due tonight. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore surged over 3% to settle at $62.03/tonne after news that China would ramp up its restructuring effort boosted steel prices. Meanwhile, iron ore’s 2016 rally may be about to face a challenge from the changing of the seasons according to Morgan Stanley.
  • Morgan Stanley has forecast that prices may tumble back to $40/t this half as the approach of winter in China typically blunts steel demand and output. “Our short-term forecast still features a September-October seasonal pullback as China’s steel demand and production rate abates,” analysts including Joel Crane wrote in a report.
  • Over the past 10 years, iron ore prices have on average dropped in September, October and November, according to the report. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • BHP reported yesterday after the ASX market close: BHP Billiton has slumped to its worst result since it was formed in 2001, after a year in which sliding commodity prices and declining production coincided with a fatal and costly dam disaster in Brazil. 
  • BHP posted an underlying attributable profit for the 2016 financial year of $1.21 billion (A$1.6 billion), which was better than the $1.09 billion that analysts expected. But the mining giant slumped to a $6.38 billion ($8.3 billion) loss, after a long list of impairments, charges and exceptional items were included.
  • The Samarco dam failure cost the company $2.2 billion for the year. Weaker commodity prices cost $10.7 billion. Shareholders will shoulder some of the burden, with dividends shrinking dramatically under BHP's new dividend policy, which states that at least 50% of underlying profits will be paid to shareholders every six months.
  • London Metal Exchange benchmark copper closed 0.9% firmer at $4,811/t. Three-month LME aluminium ended up 1% at $1693, the highest since July 15. LME nickel slid 2.2% to close at $10,255, the weakest since July 26. Trade has been especially volatile in recent days, with traders watching for developments on the Philippines' mining crackdown. The results of an environmental audit are due this month. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news:  Aveo Group (AOG): Scheduled to release FY results; NOTE: Adj. net income est. A$87.9m (6 analysts); Bendigo & Adelaide Bank (BEN): May be a bidder for South Australia’s A$2b Home Start loan assets: Australian; Challenger (CGF): Ratings unaffected by full-year results: S&P; Companies trading ex-div: Downer EDI (DOW), Commonwealth Bank (CBA), Magellan Financial (MFG), Resmed (RMD); Crown Resorts (CWN): Scheduled to release FY results; NOTE: Normalised net est. A$405m (6 analysts); CSL (CSL): Scheduled to release FY results; NOTE: Adj. net income est. $1.23b (11 analysts); Dexus (DXS): Scheduled to release FY results; NOTE: FFO/shr est. A$0.629 (5 analysts); Evolution Mining (EVN): Scheduled to release FY results; NOTE: Adj. net income est. A$233m (10 analysts); Fletcher Building (FBU): FY net NZ$462m; Net income GAAP est. NZ$432.6m (9 analysts); Fonterra (FSF): Whole milk powder avg. price rises to $2,695/t; Nuplex (NPX): FY net NZ$84.4m; Adj. net income est. NZ$76.8m (5 analysts);Primary Health (PRY): Scheduled to release FY results; NOTE: Adj. net income est. A$105.9m (10 analysts); QBE Insurance (QBE): Scheduled to release 1H results; NOTE: Net income GAAP est. $294m (3 analysts); Sonic Healthcare (SHL): Scheduled to release FY results; NOTE: Adj. net income est. A$434.5m (11 analysts); Spotless (SPO): Said to abandon laundries unit sale: AFR; Stockland (SGP): Scheduled to release FY results; NOTE: FFO/shr est. A$0.299 (6 analysts); Vicinity Centres (VCX): Scheduled to release FY results; NOTE: FFO/shr est. A$0.195 (7 analysts); Westfield (WDC): Eataly, Apple among draws at World Trade Center’s new mall.

Broker gradings

  •  Stockland (SGP): Cut to neutral vs outperform at Credit Suisse
  • nvocare (IVC): Cut to underweight vs neutral at JPMorgan
  • Mayne Pharma (MYX): Cut to neutral vs buy at UBS

Stock to watch

In early reporting, Evolution Mining (EVN.xasx) full-year underlying net profit rose 114% to $A226.9 million. FY statutory net loss came in at $A24.3m on one-off acquisition costs, integration costs, impairments. The company declared a final dividend 2 cents a share unfranked.

Evolution is currently sitting on a trendline which extends from April this year, joining the higher swing lows over the stock.

Today’s price action will be key, and support above this trendline may see it trade higher to target the gap at $A2.91 followed by a retest of the most recent lower swing high at the $A3 handle.

A break below this trendline is a near term negative and could see Evolution test $2.35.
Evolution Mining monthly chart


Source: Saxo Bank

US500.i and EURUSD

The US500 broke the lower support line of the rising wedge last night but failed to decline below the support level 2,175.

The US500 is expected to remain resilient but retest of the previous support line would provide shorting opportunity, while AUS200 is forming a triangle pattern as price actions have been narrowing with a key support level at 5,500.
US 500 weekly chart

Source; Saxo Bank

The US CPI numbers (0%) were in line with the expectations so initial reactions were negative on the US dollar but it reversed shortly after the hawkish comments from the Fed’s William Dudley.

The 10 year treasury bond (ZN) fell and gold (XAUUSD) also erased half of the last night’s rally.

EURUSD broke above 1.13 handle where the previous uptrend (from Dec 15 low) crosses the downtrend (from May 16 high) but it closed below it. Unless we see a daily close above yesterday’s high 1.1322, we would look to sell any rallies at 1.13.

EURUSD monthly chart
Source: Saxo Bank

Today's Trade 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. Watch the recording of this Week’s Macro Monday Call at 1030 AEST.


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