Article / 02 November 2017 at 0:11 GMT

Today's Trade: Energy explorers gain on buoyant crude prices

Trading Desk / Saxo Capital Markets
Australia
  • The US dollar firmed as the Fed signalled it will consider lifting rates this year
  • Gold edged lower early on Wednesday as the dollar firmed
  • Most S&P500 firms have reported higher than expected earnings
  • Iron ore prices rebounded, but remained just below the key $60/tonne level
  • Oil settled near an eight-month high after smaller-than-expected falls in stockpiles

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX 200 made modest gains in early trading; it was up 0.13% to 5,945.30
    at 1109 AEST (0009 GMT).
  • The energy sector is in the spotlight today, thanks to firmer crude prices. Shares in Worley Parson were up 2.2% to $14.66 at 1047 AEST.
  • The Dow Jones Industrial Average and S&P 500 climbed to start November, after major indexes posted a flurry of records last month.
  • Investors and analysts have said they expect earnings growth around the world to keep supporting major indexes, which have continued to hover near all-time highs in recent sessions.

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Buoyant crude oil prices have supported shares in listed energy firms in both Australia and the US. Photo: Shutterstock

  • The Dow industrials rose 57.77 points, or 0.2%, to 23435.01 after the blue-chip index posted its seventh straight monthly gain Tuesday, its longest streak since April 2012. The S&P 500 climbed 4.10 points, or 0.2%, to 2579.36, and the tech-heavy Nasdaq Composite swung between small gains and losses and closed down 11.14 points, or 0.2%, at 6716.53.
  • With nearly 70% of S&P 500 companies having reported as of the market close Wednesday, roughly three-quarters of those firms have exceeded earnings expectations, compared with the five-year average of 69%, according to FactSet.
  • Estée Lauder was among the biggest gainers Wednesday. Shares climbed $10.31, or 9.2%, to $122.12 after the beauty company reported an increase in organic sales and raised its forecast for fiscal year 2018.
  • Buoyant oil prices supported shares of energy firms, with Devon Energy and Marathon Oil also among the best performers in the S&P 500. The index’s energy sector rose 1.1%, with U.S. crude oil prices near their highest level of the year amid signs that production cuts by major suppliers are helping to rebalance the market.
  • Stocks inched slightly higher after the Fed left rates unchanged as expected but signalled it would consider lifting them before year’s end amid signs the economy was gaining momentum.
  • The dollar was also slightly higher after the Fed’s statement, which investors and analysts said offered few surprises.
  • Some investors and analysts have said formal details on the next chair of the Fed or on potential changes to taxes will also be critical for understanding the future path of U.S. monetary policy. The Wall Street Journal reported after the market closed that the White House has notified Fed governor Jerome Powell that President Donald Trump intends to nominate him for the role.
  • Elsewhere, the Stoxx Europe 600 advanced 0.4%. Clothing retailer Next fell 9.1% after the firm’s earnings, while shares of Standard Chartered declined 6% after it reported higher costs and lower revenue than expected.
  • Gains in technology shares boosted major Asian bourses. Japan’s Nikkei Stock Average closed up 1.9% in its biggest daily point gain since May, while Hong Kong’s Hang Seng Index rose 1.2%.
  • The US dollar firmed as the Federal Reserve held interest rates steady and signalled it will consider lifting them before year end. This was the last Fed meeting before President Donald Trump is expected to name a successor to Fed Chairwoman Janet Yellen. Market attention has focused on Jerome Powell, a current Fed board member and former executive at the Carlyle Group, as Trump’s most likely pick. The announcement is expected today.
  • Fed officials forecast at their September meeting that they would raise interest rates for a third time this year, and three more times in 2018. Ahead of Wednesday’s statement, futures prices suggest a 98% probability that the central bank raises interest rates by the end of this year, according to the CME Group.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets
  • Bank of New York Australia ADR Index is up 1.3% to 276.0, BHP Billiton ADRs are up 2.5% to $A27.38 equivalent, a 1.6% premium to last Sydney close, Rio Tinto ADRs are up 2.3% to $A63.93 equivalent, a 8.7% discount to last Sydney close.
  • Gold edged lower early Wednesday as the dollar firmed with investors awaiting hints on the Fed's monetary policy stance following its two-day meeting. The market is also looking forward to the impending naming of the next Fed chair, the Bank of England policy meeting today and more data, including U.S. payrolls figures on Friday. Spot gold was down 0.1% at $1,269.86/oz. U.S. gold futures for December delivery were nearly unchanged at $1,270.90. Gold stocks in Toronto recovered on Friday adding 0.8%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Crude oil settled near an eight-month high after a closely watched U.S. government report showed smaller-than- expected declines in domestic crude and gasoline stockpiles. Futures closed down 0.2% in New York after earlier topping $55/barrel for the first time since early January. The government’s tally of oil and gasoline held in US storage tanks failed to register withdrawals as large as those reported by the industry-funded American Petroleum Institute on Tuesday. A 5.2% October rally in the benchmark US crude grade was largely fuelled by the determination of Saudi Arabia, Russia and other major oil producers to extend output curbs well into 2018. While a formal decision to extend the caps may not be made at a November 30 meeting, it’ll come sooner or later, according to PIRA Energy Group, a unit of S&P Global Platts.
  • Meanwhile, overall Opec production dropped 180,000 barrels a day in October from September to 32.59 million a day, data shows. West Texas Intermediate crude for December delivery fell 8 cents to settle at $54.30/b on the New York Mercantile Exchange, just pennies off the Tuesday close at a level not seen since February. Brent for January settlement slipped 45 cents to end the session $60.49/b on the London-based ICE Futures Europe exchange. The international benchmark traded at a premium of $5.98 to January WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore prices rebounded but remained just below the key $60/t level. The weakness in prices over the past few days has now enticed some traders back into the market. However investors have also been active, with futures moving higher to the point that the futures curve on Dalian Exchange has now moved into contango for the first time in quite a long time. Spot iron ore added 1.4% or $0.83 to close at $59.35. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Base metals surged higher on the back of stronger fundamentals and increasing optimism about the impact electric cars will have on demand. Nickel once again led the sector higher, surging another 4% after strong gains earlier this week. Investors, buoyed by comments from the LME week, continue to pile in. Futures on the Shanghai Futures Exchange were up by the exchange’s limit in trading late yesterday, while on the LME it hit $13,000/t for the first time since June 2015. Nickel stocks: IGO, WSA.
  • Zinc was also stronger after another large drawdown in inventories at LME warehouses. BHP Billiton Ltd., the world’s biggest miner, wants to own even more copper deposits as electric cars drive an increasingly bullish outlook for metal. “We want more copper resources in our portfolio,” Daniel Malchuk, head of BHP’s Minerals Americas division, said in a speech at Bloomberg Intelligence’s LME Week Forum in London. The company is already the fourth-largest copper producer. Malchuk said that an electric car will use about 80 kg  of copper, quadruple the amount used in a regular petrol car, and that some models could need up to 105 kg. With BHP forecasting 140 million electric vehicles on the road by 2035, that would equate to about 12 mln tons of demand from the sector over the period, he said. Copper stocks: OZL, SFR;  Aluminium stock: AWC
  • Companies trading ex-dividend today: Bank of Queensland.
  • Bapcor (BAP): Annual Meeting Scheduled.
  • BHP Billiton (BHP): Wants More Copper Mines as Electric Car Fever Drives Prices.
  • Boral (BLD): Annual Meeting Scheduled; NOTE: Tuesday: Boral May Lift Outlook Amid Warmer Australia: Deutsche Bank.
  • CBA (CBA), Westpac (WBC), ANZ Bank (ANZ): Australia to Introduce Mandatory Credit Reporting for Lenders; South Australia Bank Tax Rejected by Upper House: Australian; ANZ Appoints Chris Raciti as CEO Korea.
  • Challenger (CGF): May Be Alternative Lender in Craveable Debt Deal: AFR
  • Credit Corp (CCP): Annual meeting scheduled.
  • Downer EDI (DOW): Annual Meeting Scheduled.
  • Eclipx Group (ECX): FY Results Expected.
  • Fairfax Media (FXJ): Annual Meeting Scheduled.
  • National Australia Bank (NAB): FY Results Expected; NOTE: Adj. Net Income Est. $A6.68bn (15 analysts, range $A6.57bn-$A6.85bn).
  • Perpetual (PPT): Annual Meeting Scheduled.
  • Prospect Resources (PSC): Zimbabwe Lithium Mine to Go Ahead: The Source.
  • Rio Tinto (RIO): Rio Tinto Says Africa Key to Growth Even After Costly Missteps.
  • Seven West Media (SWM): Annual Meeting Scheduled.
  • Telstra (TLS): Investor Day Scheduled; NOTE: FY18 Income Target $A28.3bn-$A30.2bn; Ebitda $A10.7bn-$A11.2bn; Payout 70-90% Underlying Earnings.
Broker upgrades, downgrades
  • Bendigo & Adelaide (BEN AU): Cut to Sell at Shaw and Partners; Price target $A11.19.
  • Domino’s Pizza Enterprises (DMP AU): Domino’s Pizza Enterprises Upgraded to Buy at Morningstar.
  • Estia Health (EHE AU): Raised to Equal-weight at Morgan Stanley; PT $A3.45.
  • Investa Office (IOF AU): Cut to Neutral at Credit Suisse, PT $A4.58.
  • Link Administration (LNK AU): Raised to Neutral at Credit Suisse.
  • Vicinity (VCX AU): Vicinity Raised to Neutral at Credit Suisse; Price target $A2.65.
  • Platinum Asset (PTM AU): New Sell at Shaw and Partners, PT $A6.30.
ASX Company releases
  • Thursday: AGM: Perpetual Ltd, Fairfax Media Ltd, Boral Ltd, Seven West Media Ltd, Credit Corp Group Ltd, Downer EDI Ltd, Bapcor Ltd. Earnings: National Australia Bank Ltd, Eclipx Group Ltd.
  • Friday: AGM: Nanosonics Ltd, Spark New Zealand Ltd. Earnings: Ten Network, Genworth Mortgage Insurance Australia Ltd.

Bullish palladium outlook

Palladium has been outperforming other precious metals and it has spiked last night to retest its 2017 high of $1,000, which still remains as a key psychological level.

However yesterday’s price action suggest the upside momentum should continue, to the top side. The next resistance level would be $1,095 (the 2001 high) and we would like to see another daily close above $1,000 to maintain our bullish outlook.

Palladium trend
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

For more on forex, click here.

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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