Article / 07 November 2017 at 23:26 GMT

Today's Trade: Energy falls weigh on ASX200

Trading Desk / Saxo Capital Markets
Australia
  • The ASX200 was lower at the start, weighed down by energy and materials
  • CBA said its cash earnings rose 6% in the September quarter to $A2.65 billion
  • Gold prices fell 0.5% on Tuesday, retreating a bit from the previous day's rally
  • Spot iron ore prices dipped slightly, despite gains on futures markets in Asia

By Saxo Capital Markets (Australia)

Overnight
  
  • Asian stock-index futures declined, suggesting a pause in a rally that lifted regional equities to the highest levels in at least a decade. The dollar advanced against G10 peers with the Australian and New Zealand dollars among the biggest decliners.
  • Futures tipped stocks to head lower in Japan, Australia and Hong Kong. The Nikkei 225 Stock Average rallied on Tuesday to close at its strongest level since January 1992, buoyed by corporate earnings and a weakening yen.
  • The S&P 500 drifted lower Tuesday, snapping the index’s five-session winning streak.
  • Shares of Priceline Group and TripAdvisor posted double-digit losses, making them the S&P 500’s biggest percentage decliners after the online travel companies disappointed investors with their quarterly results. Meanwhile, falling bond yields pressured bank stocks, and proposed deals swung shares of chip makers and media companies.
  • The S&P 500 slipped 0.49 points, or less than 0.1%, to 2590.64. The index has now gone 45 consecutive trading days without a decline of 0.5% or greater, the longest such streak since 1968.
  • The Nasdaq Composite fell 18.65 points, or 0.3%, to 6767.78 Tuesday, while the Dow Jones Industrial Average eked out a slight gain to close at a fresh record. The blue-chip index rose 8.81 points, or less than 0.1%, to 23557.23, its sixth straight session of gains.
  • TripAdvisor shed $9.18, or 23%, to $30.35 after the online travel booking company missed revised sales estimates as it struggled with users’ shift toward mobile. Priceline – which lost 257.28, or 14%, to 1,645.72 – lowered its profit outlook for the remainder of the year, overshadowing better-than-expected sales and earnings.
  • Banks in the S&P 500 slumped, dragging down the financials sector of the broad index by 1.3%.
  • US government bonds continued to strengthen, sending the yield on the 10-year Treasury note down to 2.309% from 2.318% Monday. Yields fall as bond prices rise.
  • Declining bond yields don’t bode well for banks, which earn money on the difference between what they pay on deposits and what they charge to lend money.
  • Broadcom shares fell 6.20, or 2.2%, to 271.32 as investors continued to assess the chip maker’s bid for Qualcomm. Shares of Qualcomm gained 1.58, or 2.5%, to 64.10.
  • 21st Century Fox added 30 cents, or 1.1%, to 27.75 after reports that Walt Disney had held talks to purchase a large chunk of the company’s entertainment business, though those talks have since cooled. Shares of Disney added 97 cents, or 1%, to 101.61. 
  • In 2013, News Corp, owner of The Wall Street Journal and other publishing businesses, and 21st Century Fox, home to the major entertainment assets, were split into their own businesses.
  • Robust corporate earnings have helped push stocks to fresh highs in recent weeks. More than 80% of the companies in the S&P 500 have reported for the third quarter so far, according to FactSet. Many have reported upbeat results, especially among the energy sector, which is rebounding from a slump in commodities prices in 2016.
  • However, sectors such as financials have posted earnings declines from the year before, with insurance companies the biggest drag due to severe summer storms.
  • The Stoxx Europe 600 shed 0.5%, while Japan’s Nikkei Stock Average rose 1.7% to levels last seen in early 1992.

Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

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 Commonwealth Bank's first-quarter profits have lifted 6% to $A2.65 billion, helped by increases in rates for customers with interest-only home loans and lower bad debts. Photo: Shutterstock

Local markets and commodities

  • S&P/ASX 200 Index futures are down 0.5% to 5973. Future relative to fair value suggest an early decline of 0.3%
  • Bank of New York Australia ADR Index is down 0.5% to 274.4, BHP Billiton ADRs are down 0.6% to A$28.23 equivalent, a 1.8% discount to last Sydney close, Rio Tinto ADRs are down 1.2% to A$65.15 equivalent, a 12.8% discount to last Sydney close
  • Gold prices fell 0.5% on Tuesday, retreating a bit from the previous day's rally as a stronger US dollar reduced the appeal of safe-haven investments, and oil prices also dipped. Spot gold was down 0.5% at $1,275.30/ounce. 
  • US gold futures for December delivery settled down 0.5% at $1,275.80/ounce. Gold stocks in Toronto were relatively flat overnight, dropping 0.13%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Traders who have steadily boosted crude since the month began took a deep breath Tuesday, with prices dropping on concerns of an overbought market and rising shale production. On Monday, prices jumped 3.1%, breaching $57/barrel as arrests of senior officials in Saudi Arabia raised questions about instability there. 
  • Oil prices fell back 0.3% Tuesday as the market lingered at overbought levels, and Opec said US shale output will soar to 7.5 million barrels/day in 2021, 56% higher than forecast a year earlier. Strength in the dollar also acted as a downward force. 
  • The US benchmark’s 14-day relative strength index hovers above 70, a level that signals the commodity is overbought. Saudi Arabia said it has only frozen the bank accounts of individuals and not those of the companies they own or manage, as the kingdom seeks to ease tension among global investors over a crackdown that’s seen princes and billionaires arrested. 
  • West Texas Intermediate for December delivery fell 15 cents to settle at $57.20/barrel on the New York Mercantile Exchange. Total volume traded was about 11% above the 100-day average. Prices climbed $1.71, or 3.1%, to $57.35 on Monday, the highest close since June 2015. 
  • Brent for January settlement slipped 58 cents to end the session at $63.69/barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.26 to January WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Spot iron ore prices dipped slightly, despite gains on futures markets in Asia. Shipping data continues to suggest iron ore imports into China remain strong, despite the recent curbs on steel mill capacity around Beijing. 
  • Iron futures on the Dalian Exchange rose nearly 0.5%, despite a fall in steel futures. Spot iron ore lost 1.1% or $3.48 to close at $62.66. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • A stronger USD saw investor appetite for base metals weaken considerably. After rising nearly 20% over the past month, investors locked in gains in the nickel market. This was sparked by data showing that higher prices have enticed more nickel ore exports from Indonesia. 
  • Indonesia’s Energy and Mineral Resources Ministry said export quotas of nickel ore have surged to 20.4m tonnes. Concerns about the high level of inventories on the LME also weighed on sentiment. Nickel fell sharply as a stronger dollar encouraged investors to take profits after prices rose almost 10% to two-year highs last week on growing expectations of demand from manufacturers of batteries used to power electric vehicles. 
  • Copper, aluminium and zinc also fell but remained near multi-year highs on strong global growth and supply worries from a crackdown on polluting smelters in China. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In early reporting, Commonwealth Bank of Australia said its cash earnings rose 6% in the September quarter to $A2.65 billion, with a lower bad debt charge and improved margins from its recent interest rate rises boosting the result. 
  • The nation's largest bank said its net interest margin rose in the quarter, as did its common equity tier one capital ratio. Its operating income for the first quarter was 4% higher. The NIM was pushed up by the higher interest rates CBA put through for investor and interest -only borrowers to stay under APRA's lending caps and was "partly offset by the impact of the banking levy, higher funding costs and competition".  
  • But expenses rose 4%. These "include provisions for our current estimates of future project costs associated with regulatory actions and compliance programs". However, any costs that could be incurred from the AUSTRAC proceedings – after CBA was sued by the transactions regulator for alleged money laundering failures – have not been included in the provisions.
  • Companies trading ex-dividend today: Brickworks
  • Aconex (ACX AU): Annual Meeting Scheduled
  • Altium (ALU AU): Annual Meeting Scheduled
  • BT Investment (BTT AU): FY Results Expected; NOTE: Adj. Net Income Est. A$170.3mln (12 Analysts)
  • Domino’s Pizza (DMP AU): Annual Meeting Scheduled; NOTE: Co. in August Forecast FY18 NPAT Growth ~20%
  • Fairfax Media (FXJ AU): Domain Holdings Australia Will Be Added to S&P/ASX 200 Index
  • Fonterra (FSF AU): Whole Milk Powder Average Price Falls to $2,852/T
  • Fortescue (FMG AU): Annual Meeting Scheduled; NOTE: Co. in October Forecast FY18 Cash Cost Target $11-$12/Wmt; Price Realization Target 70%-75% Platts 62 CFR
  • GrainCorp (GNC AU): Craft Beer Boom Sees Century-Old Barley Reclaimed From Barn
  • Incitec Pivot (IPL AU): Fertilizer Rally Could Be Kaput After India Cancels Big Tender
  • Kingsgate (KCN AU): Thailand Entering Arbitration With Kingsgate, Sansern Says
  • Macquarie Group (MQG AU): GE, Macquarie and Norsk Hydro Fund Giant Wind Farm Near Arctic
  • Rio Tinto (RIO AU): Is Said to Bid for Potash’s SQM Stake, Mostrador Says
  • Sims Metal (SGM AU): Annual Meeting Scheduled; NOTE: Co. in August Forecast FY18 Underlying ROIC 10%
  • Westfield (WFD AU): May Move After Brookfield Is Said to Hold Early Talks About Takeover of Peer GGP

Broker upgrades and downgrades

  • Independence Group (IGO AU): Cut to Hold at Global Mining Research
  • Platinum Asset (PTM AU): Downgraded to Sell at Morningstar

Australian company earnings

  • Wednesday: AGM: Altium Ltd, Aconex Ltd, BT Investment Management Ltd, Sims Metal Management Ltd, Fortescue Metals Group Ltd, Domino's Pizza Enterprises Ltd. Earnings: BT Investment Management Ltd & Commonwealth Bank of Australia
  • Thursday: AGM: Flight Centre Travel Group Ltd, Trade Me Group Ltd, Charter Hall Group . Earnings: Goodman Group, James Hardie Industries PLC, Janus Henderson Group PLC
  • Friday: Nine Entertainment Co Holdings Ltd, Breville Group Ltd, Medibank Pvt Ltd. Earnings: News Corp

CSL:xasx

On August 16, CSL touched and bounced off its 200 DMA despite reporting full-year net profit climbing 7.6% and revenue rising 12%. Since then CSL has rallied more than 20% in less than three month and the YTD return is now over 40%. Upward momentum should remain strong as the bullish flag looks to have formed, although a potential double top cannot be ruled out at $145 (the record high).

CSL monthly
1
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more
 
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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