Today's Trade: Correction on Wall St sends S&P/ASX200 tumbling
- Oil fell to its lowest in five weeks on surging US supplies, technical indicators
- The yield on the benchmark 10-year US Treasury note soared to 2.851%
- The DJIA and S&P 500 entered correction territory on worries about rising rates
- Gold prices inched higher, ending a four-session losing streak
Overnight and early trading
- The S&P/ASX200 took an early tumble; it was down 1.50% to 5,802.60 at 1133 AEDT (0033 GMT).
- Asian stocks looked set to slump on Friday, following a plunge in their U.S. counterparts as the dread that gripped equity markets earlier in the week re-emerged on concern that rising interest rates will drag down economic growth.
- Futures on Japanese, Australian, and Korean shares all showed declines of over 2%. U.S. stocks fell to two-month lows after a nine-day swoon, erasing their gains for the year.
- The Dow Jones Industrial Average and S&P 500 entered correction territory for the first time in two years Thursday as worries about rising interest rates and newfound volatility rattled markets again.
- A shaky day in the bond market appeared to spook equity investors and pushed the Dow Jones Industrial Average down 1,032.89 points, or 4.1%, to 23860.46. The plunge marks second-steepest point decline on record, after Monday’s 1,175.21-point swoon. The losses escalated into the close, with the blue-chip index falling about 450 points in the final 30 minutes of trading.
- The S&P 500 fell 3.8% to 2581 and is now down more than 10% from its record close on January 26. The Nasdaq Composite dropped 3.9% to 6777 and is off 9.7% from its high.
- Fears that a pickup in growth and inflation could force central banks to tighten monetary policy more quickly than expected have driven government-bond yields higher throughout the year. That, in turn, can pressure stock prices as fixed-income interest payments become more attractive than stock dividends.
- The yield on the benchmark 10-year U.S. Treasury note rose to 2.851%, near its highest level since early 2014, from 2.843% on Wednesday.
- Similar concerns sparked the earlier tumble in stocks when data showed wage growth accelerating at the fastest rate since 2009—a sign that long dormant inflation could be picking up, analysts said. Since then, stocks have taken a wild ride, giving up January’s big gains and flirting with correction territory.
- Twice in the past week the 10-year Treasury yield has climbed above 2.85%, its highest closing level since January 2014, and stocks have subsequently declined after both occurrences. Most investor forecasts, however, say yields would need to reach 3% to 3.5% to threaten the nearly nine-year bull run in stocks.
- The action in bonds has contributed to choppy stock trading, with the Dow oscillating from gains to losses in rapid succession and notching its two biggest intraday ranges earlier in the week.
- Equity markets outside the U.S. remained jittery Thursday. The Stoxx Europe 600 fell 1.6%, sliding again after breaking a seven-day losing streak Wednesday.
- Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
- Bank of New York Australia ADR Index is down 2.0% to 274.8, BHP Billiton ADRs are down 2.4% to $A29.03 equivalent, a 1.4% discount to last Sydney close, Rio Tinto ADRs are down 2.2% to $A67.61 equivalent, a 12.8% discount to last Sydney close
- Gold prices inched higher and ended a four-session losing streak with the US dollar little changed and stocks falling. Front-month gold for February delivery added 0.4% to $1,316.90 a troy ounce on Comex. Prices had fallen for four straight sessions as the dollar rebounded from multiyear lows: the US dollar swung between small gains and losses overnight. Gold traders will be monitoring economic data and central bank signals moving forward, as gold struggles to compete with yield-bearing assets such as Treasurys when borrowing costs rise but also is used to hedge against higher inflation. Some analysts have said that means a higher interest-rate and inflationary environment could keep gold prices moving higher after coming off their best year since 2010. Goldies in Toronto squeezed out a 0.3% gain overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil spiraled to the lowest in five weeks as surging U.S. crude supply coupled with technical indicators signaling the potential for further price declines. Futures fell for a fifth day in New York, posting the longest streak of losses since April 2017. The U.S. benchmark flirted with its 50-day moving average, a key technical level, while other indicators of market momentum showed the decline may not be over. The negative chart formations follow reports this week that U.S. oil production is surging even faster than previously forecast. WTI for March delivery fell 64 cents to settle at $61.15/barrel on the New York Mercantile Exchange. Total volume traded was about 52% above the 100-day average. Brent for April settlement declined 70 cents to end the session at $64.81/b on the London-based ICE Futures Europe exchange, the lowest level since December. The global benchmark traded at a $3.87 premium to WTI for the same month. U.S. oil output increased for a fourth week, up by 332,000 barrels a day last week, the EIA data showed. Crude in the nation’s storage tanks and terminals increased by 1.9 million barrels, while gasoline and distillate stockpiles also expanded, the data showed. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
- Iron ore was 0.2% higher to $77.40 a ton- its highest level in almost a month. Prices have gained for five straight days and are 5.3% higher this year. Iron ore has held its own during the turmoil in stocks this week as Chinese data showed that shipments topped 100 million metric tons in January, the second-highest volume ever and a record for the month, as mills bought more cargoes amid expectations steel output will rebound when winter curbs are lifted. Purchases swelled to 100.3 million tons, 9.3% higher than a year ago, and well above the 84.1 million tons seen in December, according to customs data on Thursday. The record monthly figure in the world’s largest buyer stands at 102.8 million tons, which was set in September. Iron ore investors have been tracking China’s bid to fight pollution by cutting mills’ output, a drive that’s buttressed prices of higher-quality ores that are cleaner, while fueling bets that steel demand will snap back when the curbs end. In anticipation, mills have been building up their ore inventory, helping to boost holdings across mainland ports to a record. The January figure is good news for miners including Rio Tinto Group, BHP Billiton Ltd. and Vale SA. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Copper prices reached an almost eight-week low as stockpiles tracked by the London Metal Exchange climbed to the highest in more than six months. The metal fell as much as 1% to $6,809 a metric ton after 21,125 tons were shipped to LME warehouses. Copper prices slipped 0.5% to settle at $6,845 in London. The decline followed a 2.8% drop Wednesday that came as a stronger dollar and angst over gyrations in equities shook metal markets. The supply-demand outlook in copper has been clouded by a weeks-long cycle of inflows followed by outflows that has continued since 2016. Zinc gained 1.2% to end at $US3422 a tonne, supported by continued tight supplies. LME aluminium gained 0.6% to close at $US2170 a tonne, bouncing after hitting $US2148, its lowest since December 22. Nickel shed 0.4% to $US13,125 while tin fell 1.3% to $US21,325. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Macquarie Group (MQG): TDC’s Board Rejects Takeover Proposal From Danish Pension Funds.
- McGrath (MEA): John McGrath Says No Margin Lending Facility on His Shares.
- Myer (MYR): Second-Largest Holder Investors Mutual Backs Board Over Top Holder Lew: AFR.
- Rio Tinto (RIO): China Wealth Fund Said to Join Fray for $2 Billion Rio Portfolio.
- Specialty Fashion (SFH): Bracken May Be Named Specialty Fashion CEO: AFR.
- Tabcorp (TAH): AusSuper, UniSuper Are Said to Purchase Stake in Tabcorp: AFR.
- Wesfarmers (WES): Said to Consider Review of Coles Pub Unit in Near Future: AFR.
- Bluescope (BSL): Upgraded to Overweight at JPMorgan; price target $A16.30.
- Centuria Industrial (CIP): Raised to Add at Morgans Financial.
- Hansen Tech (HSN): Upgraded to Outperform at Credit Suisse; PT $A4.25.
- Janison Education Group (JAN): Rated New Buy at Bell Potter; PT $A0.55.
- Mirvac Group (MGR): Upgraded to Overweight at JPMorgan; PT $A2.55.
- NAB (NAB): Upgraded to Overweight at JPMorgan; PT $A32.
We like getting long on US treasury (ZN), gold (XAUUSD) and yen pairs. USDJPY looks the most interesting as it has now fallen back down to the uptrend of the long term triangle. Selling pressure should remain intact, but the five year uptrend needs to be respected at the same time.
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters.
– Edited by Robert Ryan
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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.