Article / 21 August 2017 at 0:59 GMT

Today's Trade: Earnings impact, global volatility weigh on S&P/ASX200

Trading Desk / Saxo Capital Markets
Australia
  • Gold jumped to its highest in more than nine months on Friday
  • The rise came as USD retreated on political uncertainty in the US
  • Wall St rallied on the news of the departure of Steve Bannon from the White House
  • But the rally was shortlived and indexes later headed lower
  • Crude rallied on the back of a partial refinery shutdown and lower US rig count
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 lost ground in early trading, adding to Friday's fall. The benchmark index was down  0.64% to 5,710.40 at 1032 AEST (0032 GMT).
  • Asian stocks look set to open broadly higher on Monday as investors prepare for a key meeting of global central bankers and recover from a tumultuous week in Washington that culminated in the departure of a controversial Donald Trump adviser.
  • US stocks rallied from session lows on Friday after the White House announced that Steve Bannon would be leaving his job as chief strategist. American gauges ended the day lower as investors remain on edge after a terror attack in Barcelona and amid simmering tensions on the Korean peninsula. Japan and Hong Kong equity-index futures were higher early Monday, while those in Australia and South Korea declined. Oil extended gains and the yen fell.
  • The Dow Jones Industrial Average ended the week lower, capping a rocky stretch that included political turmoil, terror attacks and disappointing earnings.
  • Stock indexes spent much of Friday hovering between slight gains and losses, as a lack of major economic data and corporate earnings contributed to quiet trading. Then declines picked up toward the close on Friday, echoing Thursday’s late-session selloff.
  • The Dow industrials fell 76.22 points, or 0.4%, to 21674.51 on Friday, posting a weekly decline of 0.8%. It is the second week of declines for the blue-chip index and the worst two-week percentage drop—1.9%—in nearly a year. Even with the recent declines, the Dow industrials remain up 9.7% in 2017.
  • The S&P 500 fell 4.46 points, or 0.2%, Friday to 2425.55, while the Nasdaq Composite shed 5.39 points, or less than 0.1%, to close at 6216.53.
  • The Dow industrials had briefly jumped into positive territory following reports that chief strategist Steve Bannon was leaving his role at the White House. Bannon has been viewed as a controversial figure within the Trump administration.
  • A day earlier, the Dow industrials posted their biggest decline in three months, as Wal-Mart Stores and Cisco Systems declined following earnings reports, and investors were rattled by a terror attack in Spain and fallout from President Donald Trump’s remarks on the protests in Charlottesville, Va.
  • Wal-Mart shares fell on Thursday after the company said same-store sales rose but profit fell. Earlier in the week, shares of Advance Auto Parts and Dick’s Sporting Goods posted their biggest percentage declines on record after the companies missed earnings expectations.
  • On Friday, shoe retailer Foot Locker tumbled $13.32, or 28%, to $34.38 after profit and sales failed to meet analysts’ expectations. The drop, its largest decline since 2008, also weighed on competitor Finish Line, which fell 98 cents, or 8.2%, to 11.01.
  • In the latter part of the week, investors shifted to assets viewed as safer in times of stress, citing concerns about simmering geopolitical tensions and the Trump administration’s strained relationship with business leaders.
  • The yield on the 10-year Treasury note slipped marginally to 2.196% Friday from 2.197% Thursday. Yields fall as prices rise.
  • Utilities, viewed as bond proxies for stock investors, were among the best performers in the S&P 500 on Friday.
  • At the same time, investors fled from smaller-company shares. The Russell 2000, a benchmark of small-cap stocks, fell 1.2% for the week. The index jumped in late 2016 as investors bet that smaller, U.S.-focused companies would benefit from Trump’s policies. This year, the index has largely underperformed the broader stock market.
  • European markets were broadly lower Friday. The Stoxx Europe 600 slid 0.7%, while Spain’s benchmark IBEX 35 dropped 0.6%.
  • Shares of European travel companies had some of the largest losses of the day. International Consolidated Airlines Group —one of the biggest decliners in the U.K.—fell 2%. Airline shares in Europe tend to experience a short-lived selloff in the wake of terror attacks as investors assess the potential for a hit to tourism. For the week, the Stoxx Europe 600 rose 0.6%.
  • Source: Bloomberg, TradingFloor.com, WSJ.com
Local markets
  • Bank of New York Australia ADR Index +0.1%, BHP Billiton ADR -0.2% to A$25.48 equivalent, 0.4% premium to last Sydney close, Rio Tinto ADR +0.7% to A$56.30 equivalent, ~11% discount to last Sydney close
  • Gold jumped to its highest in more than nine months on Friday as the dollar retreated on political uncertainty in the US and the suspected Islamist attack in Spain boosted bullion's safe-haven appeal. Spot gold, flat at $1,288.06/oz in trading Friday, earlier in the day touched its highest since November 9 at $1,300.80/oz. U.S. gold futures for December delivery rose settled down at $1,291.60/oz. Spain mounted a sweeping anti-terrorism operation on Friday after a suspected Islamist militant drove a van into crowds in Barcelona, killing 13 people in what police suspect was one of a planned wave of attacks. Markets were also uncertain about President Trump's ability to push ahead with policies after the disbandment of two high-profile business advisory councils over his remarks on violence in Virginia. USD fell to a four-month low against the  yen, which along with gold is often seen as a safe-haven in times of  turmoil. Gold stocks in Toronto tanked on Friday dropping 1.70%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR


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Spain has mounted an anti-terrorist operation following the attack on crowds visiting the popular Las Ramblas pedestrian mall in Barcelona, above. Photo: Shutterstock


  • Brent rose to the highest since late May on signs supplies are tightening and a broader market rally sparked by Steve Bannon’s departure. The global benchmark rose 3.3%. U.S. stocks surged earlier following the ouster of President Trump’s chief strategist. Government data earlier in the week showed that crude stockpiles declined the most since September last week, while U.S. oil production had the biggest weekly advance since June. Meanwhile, the global physical market is strengthening beyond the seasonal peak in demand. Oil in New York has lingered below $50 a barrel as Opec and its allies make efforts to reduce supplies and help rebalance the market.
  • While US crude production is at the highest level since July 2015, the latest data from Baker Hughes Inc. show nationwide oil rigs declined by five this week. West Texas Intermediate for September delivery climbed $1.42 to settle at $48.51/barrel on the New York Mercantile Exchange, the biggest advance in more than three weeks. Total volume traded was about 16% above the 100-day average. Prices declined 0.6% this week. Brent for October settlement advanced $1.69 to end the session at $52.72/b on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.06 to WTI, the widest level since September 2015. The removal of Bannon, the former chairman of Breitbart News, may quell some of the fallout from Trump’s remarks on violence in Charlottesville, Virginia, which continue to raise questions about his ability to retain his team and focus on his economic plans and U.S. energy strategy. Brent futures for the nearest delivery traded at a premium of 31 cents to those for the following month, in backwardation for an eighth straight day. This pattern typically signals tighter supplies, while the opposite contango structure signals a glut. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore was higher despite signs that China’s housing market is slowing did little to dent investor sentiment. Prices fell in nine cities and were unchanged in five, according to NBS data. Growth in prices was also their weakest in five months in second and third tier cities in China. This has been the driver behind the strength in steel demand in the real estate sector. Spot iron ore rose 3.4% or $2.53 to close at $77.94. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Zinc prices were on track on Friday for their biggest weekly rise since November, as a sharp fall in stocks held the metal near its highest in a decade. Aluminium and copper also ended the week near multi-year highs and nickel touched its highest level since March after a wave of speculative buying underpinned by expectations of strong demand in China, the world's biggest metals consumer. Benchmark zinc on the London Metal Exchange closed up 2% at $3,124 a tonne after hitting a 10-year high of $3,150. It was set for a weekly rise of 7.9%. Aluminium closed down 0.7% at $2,062 but still close to the Thursday's peak of $2,112, the highest since September 2014. It was up 0.8% on the week on expectations of capacity cuts in China. Benchmark copper did not trade but was bid down 0.1% at $6,485 a tonne after hitting $6,580 on Thursday, the highest level since November 2014. It was set for a weekly gain of 1.1%. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Trading ex-div.: Domino’s Pizza Enterprises.
  • APN Outdoor (APO): H1 results expected.
  • Kingsgate Consolidated (KCN): Surges as Thailand lifts gold mine’s suspension.
  • Mirvac Group (MGR): Increases ownership in two Sydney retail assets; Cut to hold at Shaw and Partners, PT $A2.38.
  • Seven Group (SVW): Caterpillar Asia Pacific July rolling 3- month retail machine sales +45% after rising 40% in June; NOTE: is authorized dealer in West Australia, NSW, North China.
  • Westpac (WBC): Halts plan to sell $A10bn car loans portfolio: Australian
  • In early reporting: Fortescue Metals Group reporting its full year profit more than doubled on the back of higher iron ore prices and lower costs as it also doubled its final dividend payout. Net profit jumped to $2.09 billion ($A2.63 bn) in the year ended June 30 from $985 mln a year earlier. Revenue climbed 19 per cent to $8.457 bn from the year-earlier $7.08 bn. The company will pay out a final dividend of 25¢ a share, up from 12¢ last year.
  • Bluescope sees lower margins in H1; FY17 as underlying NPAT misses: Sees H1, 2018 underlying EBIT of around 80% of H2, 2017 ($A527.3mln). Says high scrap prices in the U.S. and importers taking advantage of gaps in Australia’s anti-dumping regime to impact steel margins. Productivity improvements at Australian Steel Products not yet offsetting increased electricity costs. Combined gas and electricity costs at major sites forecast to increase 75% from FY16 to ~$A145mln this fiscal. FY17 NPAT $A715.9mln, est. $A601.7mln (3 analysts, $A571mln-$A656mln). Free cash flow up 17% to A$749.3mln.
  • Beach Energy (BPT): FY results expected; NOTE: FY17 adj. net income est. $A144.2mln (13 analysts).
  • BHP Billiton (BHP): Funds to go for jugular if miner doesn’t deliver the goods; Poised to post div. $0.84/share: Telegraph.
  • Brambles (BXB): FY results expected; NOTE: FY17 adj. net income est. $608.6mln  (8 analysts).
  • G8 Education (GEM): 1H results expected; NOTE: 2-analyst rev. est. $A379mln.
  • Goodman Group (GMG): FY results expected; NOTE: FY17 FFO/share est. $A0.433 (8 analysts).
  • Growthpoint (GOZ): FY results expected; NOTE: FY17 rev. est. $A238.3mln (4 analysts)
  • GWA Group (GWA): FY results expected; NOTE: FY17 adj. net income est. $A52.6mln  (8 analysts)
Broker upgrades, downgrades
  • CSL (CSL): Raised to buy at Wilsons, price target $A137.
  • QBE Insurance Group (QBE): Cut to hold at Shaw and Partners, PT $A11.78.
  • Seymour Whyte (SWL): New underperform at APP Securities, PT $A1.12.
  • Sims Metal Management (SGM): Raised to neutral at Credit Suisse, PT $A13.50.
Australian corporate earnings (including event and forecast)
  • Fortescue FY result $2.2bn cash profit, +160% on previous corresponding period (PCP). Debt reduction a focus.
  • Bluescope steel FY result $670m cash profit, +125% on PCP. Down and nearly out after $2b worth of losses in three years to 2014, a massive turnaround story.
  • Goodman Group FY result $775mln cash profit, +8% on PCP. Warehouse revaluations will help, commentary on Amazon arrival will be interesting.
  • NIB FY result $115mln cash profit, +25% on PCP. Focus on claims inflation & 2018 guidance which may be weaker.
  • Tuesday: BHP FY result $7.5bn cash profit, +525% on PCP. Big rebound could see a bigger dividend. Expect some commentary on strategic outlook
  • Oil Search first half result $60mln cash profit, +140% on PCP. Price rebound has helped, also still very active looking for new reserves.
  • Amcor FY result $690mln cash profit, +3% on PCP. Will new CEO be making any changes? Has the balance sheet to add to the business.
  • Wednesday: Woolworths FY result $1.5bn cash profit, down a bit on last year. Sales growth building, Big W is still a problem, but Master's isn't anymore.
  • Coca Cola Amatil first half result $190mln cash profit, flat like the demand for its fizzy drinks. Impact of container deposit scheme could be a factor.
  • IAG FY result $970mln cash profit, +40% (PCP). A better year, pricing momentum improving, but claims inflation growing too.
  • Worley Parsons FY result $130mln cash profit, -13% (PCP). May have bottomed after a tough couple of years in energy construction. Guidance important.
  • Thursday: S32 FY result $1150mln cash profit after a $1.6bn impairment hit loss last year. Plenty of cash for dividends this time.
  • Flight Centre FY result $225mln cash profit, -10% (PCP). International airfares, stabilised but demand for US and Europe down.
  • Santos FY result Will be a big loss having flagged $1.1b oil price-related impairments. Total write-downs on GLNG stake approaching $3bn.
  • Perpetual FY result $130mln cash profit, flat. Poor final quarter, funds under management fell. Focus on cost-cutting and new products.
  • Friday: Nine Entertainment FY result $115mln cash profit, down a bit on last year. Tough times and still uncertainty over media law changes.
  • Medibank Private FY result $435mln  cash profit, +4% on PCP. Ongoing problems with brand and low margin business cannibalising premium business.
  • Source: ABC Business
Gold under selling pressure

Gold (XAUUSD) made a false break above both triple top of  1,295 and the psychological level of 1,300 last Friday.

The yellow metal then reversed precipitously and settled at its intraday low. So gold is likely to remain under selling pressure for now.

Gold chart
1
 
USDCAD falls on crude rally

USDCAD broke below the 1.26 handle as crude oil (CL) rallied sharply higher on the back of the unit shutdown at one of the largest oil refineries in the US, as well as the five rig count fall in the weekly rig count to a total of 763.

The price action from Friday shows a outside reversal that indicates further weakness ahead.

USDCAD chart
1
 
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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.

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