Article / 04 October 2017 at 23:17 GMT

Today's Trade: Crude oil prices extend losses

Trading Desk / Saxo Capital Markets
Australia
  • The ASX is poised to rise in early trade
  • US stocks ended their session at fresh records
  • Oil slid below $50/barrel for the first time in two weeks

By Saxo Capital Markets (Australia)

Overnight
 
  • US stocks ended a meandering session at fresh records, while the dollar and Treasuries were little changed as a host of events vied for investor attention.
  • The S&P 500 Index got a slight boost from data showing American services industries climbed at the fastest pace in 12 years, while private jobs numbers met expectations. The data did little to change views on the timing or pace for monetary tightening as investors await government payroll data Friday.
  • Shares of internet retailers helped nudge the S&P 500 to a record and its seventh straight session of gains Wednesday.
  • E-commerce firms like Netflix and Amazon.com have been among the market’s best performers this year, contributing to ongoing gains in US stocks despite concerns about their valuations and rapid rise. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite set a trio of records again Wednesday. Each index has hit more than 40 fresh highs this year.
  • The Dow industrials inched up 19.97 points, or 0.1%, to 22,661.64 to extend its winning streak to six. The S&P 500 rose 3.16 points, or 0.1%, to 2537.74 and the Nasdaq Composite swung between small gains and losses and closed up 2.91 points, or less than 0.1%, at 6534.63 to also log its seventh straight session of gains.
  • Netflix was among the biggest gainers in the S&P 500, rising $5.26, or 2.9%, to $184.45 after UBS raised its price target on the stock. The bank raised its subscriber-growth projections for the streaming giant, noting that the previous quarter’s momentum likely continued.
  • Other internet retailers also were among the S&P 500’s best performers, including TripAdvisor and Priceline Group. Shares of Amazon.com advanced $8.35, or 0.9%, to $965.45.
  • PepsiCo shares swung after the food and beverage giant reported weaker-than-expected sales in the most recent quarter. Shares closed up 21 cents, or 0.2%, at $109.34, paring losses after falling as much as 2.7% earlier in the session.
  • Shares of Mylan climbed $5.27, or 16%, to $37.80 – their best day in almost nine years – after the company said it received US Food and Drug Administration approval to offer generic versions of Copaxone, Teva Pharmaceutical ’s multiple sclerosis treatment.
  • US economic data was mixed Wednesday. First, a report showed hiring at private US employers grew less than expected last month, with hurricanes denting economic growth. Then, the Institute for Supply Management said its index measuring service-sector activity rose to its highest level since 2005. Investors will be closely monitoring Friday’s monthly jobs report for another reading on the economy.
  • The yield on the 10-year US Treasury note was unchanged at 2.332%.
  • Elsewhere, the Stoxx Europe 600 fell 0.1% after rising for nine straight sessions – the longest run since July 2015.
  • Spain’s IBEX 35 index led global declines – falling 2.9% to extend this week’s losses – as investors continued to weigh the implications of escalating tensions around Catalonia. The king of Spain accused Catalan leaders of pushing the country toward a constitutional crisis Tuesday, with the region’s officials pledging to declare independence within days.
Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

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Qantas shares may take flight today after a broker upgrade. Photo: Shutterstock

Local markets and commodities

  • S&P/ASX 200 futures up 0.3% to 5,647 as of 0659 AEDT in Sydney. Futures relative to fair value suggest early 0.2% gain
  • Bank of New York Australia ADR Index is down 0.4% to 270.6, BHP Billiton ADRs are down 0.2% to A$26.19 equivalent, a 0.7% premium to last Sydney close, Rio Tinto ADRs little changed at A$61.79 equivalent, a 8.4% discount to last Sydney close
  • Gold pared gains on Wednesday as the US dollar came off its lows on strong data from the US service sector index. Having touched it’s lowest since mid-August on Tuesday, spot gold was up 0.35% at $1,276.0699/ounce. 
  • Earlier on Wednesday, it reached a high of $1,282/ounce. US gold futures for December delivery settled up 0.31% at $1,278.60/ounce. Investors would be listening closely to comments by Federal Reserve Chair Janet Yellen later Wednesday at a Federal Reserve Bank of St. Louis event, for more hints about possible US interest rate increases through 2018. Gold stocks in Toronto moved higher again by 0.79%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil slid below $50/barrel for the first time in two weeks as a flood of US crude reignited concerns over a global glut. Futures fell 0.9% in New York after a government report showed record US exports at a time when autumn refinery maintenance typically lowers demand. 
  • The decline is also likely being spurred by producers rushing to lock in revenue near $50/barrel with hedging contracts. While a rally in September helped propel oil into a bull market, prices have slipped back after recent data showed Opec output increased last month. Russian President Vladimir Putin said in Moscow that a possible extension of the deal with Opec to reduce production, due to expire in March, “should be at least until the end of 2018.” Opec's plan to monitor oil exports is a work in progress, Secretary-General Mohammad Barkindo said in a Bloomberg Television interview. 
  • West Texas Intermediate for November delivery dropped 44 cents to settle at $49.98/barrel on the New York Mercantile Exchange. Total volume traded was about 13% below the 100-day average. 
  • Brent for December settlement declined 20 cents to end the session at $55.80/barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.48 to December WTI. US crude stockpiles fell 6.02 million barrels to about 465 million barrels last week, the biggest drop since since mid-August, Energy Information Administration data showed Wednesday. 
  • Crude exports jumped to 1.98 million barrels/day and production rose for a fourth week. Gasoline inventories increased by the most since early August, while distillate supplies slid to the lowest level since June 2015. Meanwhile, the refinery utilisation rate dropped in the midst of seasonal maintenance at plants. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Bulks were unchanged with China’s markets closed. Bank of America Merrill Lynch has raised its 2017 iron ore estimate to $69/ton from $65. The bank underestimated a significant surge in steel production with restocking in China. Strong demand combined with steel capacity curtailments has meant that remaining mills have preferred higher over lower grade materials. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Benchmark zinc on the London Metal Exchange ended up 1.2% higher at $3302/tonne. Earlier the metal, used to rust-proof steel, touched $3308.75, its highest since August 2007. Copper ended little changed at $6521, aluminium traded up 1.7% at $2167, tin was bid down 0.1% to $20,775 and nickel fell 0.05% to $10,615. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Companies trading ex-dividend today: ARB, AWN, BILL, DNA, IAF, ICS, IGB, IHCB, IHD, IHEB, IHHY, ILB, ILC, IOZ, ISEC, MNY, SGM
  • BHP Billiton (BHP AU), Rio Tinto (RIO LN), Fortescue (FMG AU): Iron Pours Out of Top Shipper as Cargo-Tracker Reveals Spike
  • OceanaGold (OGC AU): Achieves Commercial Production at Haile Gold Mine
  • Propertylink (PLG AU): ESR Acquires 18.06% in Propertylink; PLG Says Open to Talks
  • Select Harvests (SHV AU): Abu Dhabi Fund Said to Be Among Those Eyeing Select Harvests, AFR Says

Broker upgrades and downgrades

  • Technology One (TNE AU): Raised to Buy at Bell Potter, PT A$5.50
  • Virgin Australia (VAH AU): Raised to Neutral at Goldman, PT A$0.18
  • Qantas (QAN AU): Raised to Buy at Goldman, PT A$6.86

Volatility trade idea (from Georgio Stoev, Product Manager – Futures and Listed Options)

  • CBOE VIX closed at a record low for the year, 9.51 handle
  • YTD average for the volatility index is at 11.4 and only 7.2 for the realised volatility of the SPX (S&P 500 Index)
  • Risk premium, as measured by the CBOE SKEW is steady at 137.15
  • Majority of the CBOE volatility indices were lower, as well:
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Volatility straddle trade idea

  • Buy ATM straddle on the SPX or its tracking ETF SPY given volatility is very low.
  • A straddle, a symmetrical spread, consisting of buying a call and a put will benefit from moves in either direction (up/down) of the underlying (gamma positive). In addition, any lift in volatility will also help the strategy (vega positive). The strategy will lose if there’s no movement in the price due to the time decay (THETA negative).
  • Buy + 1 17 NOV 17 253 call/put at $5.57
  • Risk premium
  • CBOE SKEW is flat at 137.15
  • VVIX (volatility of volatility) also receding at 91.59
  • RVX (Russell 2000 – small cap index) is at premium to the bigger brethren VIX.
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Earnings season

Selected stocks with estimated earnings dates and IV estimates
 









































Courtesy: IVolatility.com

Today's 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. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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