Today's Trade: Energy gets spark from oil, M&A talk
- ASX makes a positive start to Friday trade, driven by a rally in mining stocks
- Energy sector alight with merger talk after Oil Search makes bid on rival
- Big banks kept up, with all four moving up higher at the open
By Saxo Capital Markets
Overnight and early trading
The benchmark S&P/ASX 200 index was up slightly at the opening of trade, climbing 12 points, or 0.23%, to 5,335.3, while the broader All Ordinaries index lifted 11.9 points, or 0.22%, to 5,397.5.
The energy sector was abuzz with M&A talk after Oil Search made a $3 billion bid for PNG partner InterOil. The big banks also followed the positive trend, with the four major players all higher at the open.
In overnight trading:
Global stocks slid to a six-week low and commodities fell as markets braced for the possibility that the Federal Reserve will raise interest rates as soon as next month.
Fed Funds futures show the odds of a move surged to 30%, after tripling to 12% on Tuesday as data on inflation, housing starts and industrial production beat forecasts. Markets reacted calmly when the Fed raised rates in December for the first time since 2006, reflecting investor conviction in the US recovery’s ability to withstand tighter monetary policy.
A Labor Department report Thursday showed filings for US unemployment benefits declined last week from a more than one-year peak, although they still came in higher than economists had estimated. The Philadelphia Fed business-outlook survey missed forecasts.
Cisco Systems rose after forecasting fourth-quarter sales and earnings that will top analysts’ estimates.
Bayer tumbled after Monsanto, the world’s largest seed maker, said it received an unsolicited takeover approach from the German company.
Sterling cemented its lead over the Australian dollar on Thursday as better-than-forecast retail sales data showed there’s still life in the UK economy.
Data yesterday indicated US crude stockpiles unexpectedly increased, keeping supplies at the highest level in more than eight decades.
Gold slid to a three-week low on concern the Fed is moving closer to raising interest rates. Metal for June delivery slid 1.5% to $1,255.4 an ounce.
Sources: Bloomberg, TradingFloor.com
Local markets and commodities
- S&P/ASX 200 Index futures -0.1%; futures relative to estimated fair value suggest an early gain of 0.2%
- Bank of New York Australia ADR Index +0.4%. BHP Billiton ADR little changed. Rio Tinto ADR +1.2%.
- Spot gold fell 0.3% to $1,255 to a three-week low on Thursday, extending the previous day's decline, after minutes from the Federal Reserve's April policy meeting signalled that it could raise US interest rates as soon as next month. Gold is highly sensitive to interest rate hikes, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
- Crude oil gained ground, with WTI and Brent up 1.4% and 1.5% to $48.16 and $48.78 respectively. Last month, deliveries of petroleum rose by 3.6% from a year ago to 19.7 million barrels per day, marking the highest April deliveries in eight years, the American Petroleum Institute reported on Thursday. Qua Iboe crude oil terminal, Nigeria's largest which typically exports more than 300,000 barrels per day, was reportedly closed due to militants' threats
- Iron ore tumbled, down 5.8% to $53.47. Port inventories rose to now be above 100m/t. After last month’s speculative rally, iron ore is likely to extend declines because of rising supply from the major producers and faltering demand in China, the biggest buyer. Iron ore has retreated from a 15-month high after widespread predictions the frenzy in China that propelled prices upward in April wouldn’t endure as regulators clamped down and the rallies induced higher production.
- Base metals were down across the board on a firm US dollar and concerns about China’s property market are weighing on them. Copper touched three month lows. Goldman raised its price forecasts for zinc as a bullish exception in metals. It increased its six- and 12-month estimates for zinc to $2,100 a ton from $1,700 a ton previously, according to a report dated Thursday.
- In other news: Ausdrill (ASL): Robit to buy Ausdrill unit Drilling Tools Australia for EU42m; Centuria (CMA), GPT Metro (GMF), Growthpoint (GOZ): Centuria takes stake in GPT Metro Office Fund: Australia; Seven Group (SVW): Caterpillar April machine sales fall 12% vs March 13% decline; Spark Infrastructure (SKI): Annual meeting; NOTE: Co. in Feb. saw 2016 distribution at least A$0.125, 2017 at least A$0.13; Sydney Airport (SYD): Annual meeting scheduled; NOTE: Co. in Feb. forecast FY16 distribution A$0.30/shr; Capex ~A$400m; Ten Network (TEN), Telstra (TLS): Telstra, News Corp. may consider allowing Ten to acquire Foxtel in reverse takeover: AFR
Earnings this week
Stock to watch: China Molybdenum (03993:xhkg)
Niobium is hard to find and hard to value. Global demand for niobium is about 90,000 to 100,000 metric tons annually.
China Molybdenum outmanoeuvred at least 15 companies last month to purchase Anglo American’s niobium and phosphate unit in Brazil, agreeing to pay $1.5 billion.
The buying frenzy that included South 32, Vale SA, Apollo Global Management LLC and X2 Resources showcased the growing appeal of a market that may be worth $4 billion for a soft, silvery metal. See Bloomberg article here: The Commodity That No One Knows About But Everybody Wants to Buy
China Molybdenum monthly chart
China Molybdenum yearly chart
The US currency strengthened versus most of its major peers as New York Fed President William Dudley said June was a live meeting and Richmond Fed President Jeffrey Lacker said the case for hiking would likely be “very strong.”
The AUDUSD settled below the 200 Day Moving Average for two days in a row now however yesterday’s support at the downtrend line (orange) was decisive as it rallied off this trendline.
The AUDUSD settled above the 61.8% Fibonacci retracement (Jan 2016 low to the April 2016 top) which is also supportive of a potential move higher. First level of resistance would be met at the 200 DMA (0.7254) and above would be 0.7329.
AUDUSD monthly chart
The EURUSD broke below the interim support level 1.12 handle which is the 38.2% Fibonacci retracements between the December low 1.0525 and the May high 1.1615, as the US dollar index extended the gains and continued to trade above the previous resistance level 95.
In the near term, it is possible to see some short covering to the upside as the EURUSD is trading in an oversold territory due to the sharp sell off in May.
EURUSD monthly chart
The AUS200.i has formed an intra-day double bottom just above the 5300 level which was the level of support during the day session yesterday.
The AUS200 is indicating slight losses on the open and we see gains on the close to be a low probability event today given we are heading into the weekend. The AUS200.i pushed higher on the open yesterday and this pattern could repeat today so the level of resistance to watch would be the 5350 level as marked on the hourly chart below.
Should the downward momentum continue in overseas markets this would drag our AUS200.i down with it and the level of support to watch would be the 5270-5280 area as marked in the daily chart.
AUS200 daily chart
AUS 200 monthly chart
The US500 looked to have made a genuine break out below 2,040 in the early opening of the US equity markets as the April low 2,033 was broken but the US500 reversed to recover majority of the losses into the close on the back of the rebound in the price of crude oil.
Although the overnight price actions seem to indicate the false breakout for now, the US500 has been making lower lows and lower highs in the last two weeks, therefore the selling pressure is expected to remain under the next resistance level 2,060.
US500 monthly chart
-- Edited by Adam Courtenay
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets