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Article / 26 September 2016 at 1:50 GMT

Today's Trade: Energy saps ASX winning streak

Trading Desk / Saxo Capital Markets
Australia
  • Shares have opened slightly lower, as energy sector hit by oil price slump
  • The ASX has fallen 0.3% to 5412.4 and the All Ords was down 0.3% at 5501
  • Oil tumbles on weekend on Saudi statement - US crude prices extend losses
  • US stocks closed lower on Friday, with energy sector falling more than 1%

By Saxo Capital Markets

Overnight and early trading

The ASX/S&P 200 was generally down in early trade with the big retailers Wesfarmers and Woolies weighing heaviest on the index - Wesfarmers is down 1% and Woolies 1.5% respectively.

The rally in global equities sputtered on Friday as traders grew more sceptical about the efficacy of central bank stimulus amid mixed economic data.

Oil tumbled on the Saudi statement. US crude prices extended losses in late-morning trade and settled 3.97% lower at $44.48/barrel.

Big oil producers will gather in Algiers for the next few days amid hopes that Saudi Arabia and Iran, in particular, are willing to step off the supply pedal. However, on Friday the Saudis dented expectations by saying it saw the Algiers talks as consultative in nature.

US stocks closed lower on Friday, with energy falling more than 1%, as oil prices fell sharply while investors digested key manufacturing data, following two strong sessions.

The Dow Jones industrial average closed down about 130 points and fell as much as 137.62 points at session lows, with Goldman Sachs, 3M and Apple contributing the most losses.

The S&P 500 fell 0.6%, with energy leading decliners. The real estate sector, which began trading earlier this week, rose approximately 0.4% on Friday and led all 11 sectors for the week.

The Nasdaq Composite dropped 0.55% as shares of Apple fell 1.67% after a report from GfK supposedly raised concerns about the latest iPhone's sales and after Facebook said it overestimated viewing time for video ads.

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 The big oil producers will gather in Algiers for the next few days amid hopes
that Saudi Arabia and Iran will step off the supply pedal. Photo: Flickr


The three major indices still posted weekly gains of around 1%, but snapped a three-day winning streak.

ASX futures fell 24 points or 0.4% on Saturday morning as Wall Street retreated, reflecting waning interest in energy stocks.

The US September read on the Markit Manufacturing Flash PMI came in at 51.4, below the August read of 52.0.

The data were released after the Eurozone PMI showed that business activity in the 19-country region fell to 52.6 in September versus 52.9 in August and below market expectations.

European equities fell on Friday, with the pan-European Stoxx 600 index dropping around 1%.
Last week, the Federal Reserve kept interest rates unchanged and hinted at a possible rate hike later this year.

The central bank also lowered its economic forecasts for the next few years. That said, three Fed officials dissented, expressing their desire for higher interest rates.

Boston Fed President Eric Rosengren explained why he dissented on Friday, saying the sustainability of the economic expansion makes the case for raising interest rates compelling.

With central banks now moving off centre stage, investors will turn their attention to the first of three US presidential debates on Monday ahead of the November 8 vote.

Republican candidate Donald Trump has been locked in a fierce election battle for months with rival Hillary Clinton.

While he has sharply narrowed her lead both nationally and in several battleground states according to recent polls, handicappers still give the Democratic candidate the edge in winning the electoral votes needed to clinch the office.

The US dollar rose slightly against a basket of currencies, with EURUSD near $1.123 and the yen around 101.

In corporate news, Twitter's stock soared 21.42%, posting its best trading session of all time, after CNBC reported the firm has received expressions of interest from several technology or media companies and may receive a formal bid shortly.

Motor oil maker Valvoline saw its shares rise 5% in its initial public offering. Valvoline is a spinoff of Ashland.

About three stocks declined for every advancing one at the New York Stock Exchange, with an exchange volume of 811.33 million and a composite volume of 3.204 billion at the close. The CBOE Volatility Index (VIX), traded near 12.2.

Longer-dated US Treasuries posted their best week since July as markets readjusted their view to a slower pace of rate hikes by the Federal Reserve. The US dollar rose against major peers. AUDUSD was trading at US76.25¢ on Saturday morning.

Gold futures for December delivery settled $3 lower at $1,341.70/oz.

Information sources: Bloomberg, TradingFloor.com

Local markets and commodities
 
  • S&P/ASX 200 Index futures were down 0.4%; futures relative to estimated fair value suggest an early decline of 0.3%.
  • Bank of New York Australia ADR Index -0.2%, BHP Billiton ADR +0.3% to A$21.35 equivalent, 0.8% discount to last Sydney close, Rio Tinto ADR -0.3% to A$42.54 equivalent, 15% discount to last Sydney close.
  • Gold prices edged lower Friday, as profit-taking and a strong dollar pulled prices down from a two-week high the previous day. Gold for December delivery settled down 0.2% at $1,341.70/oz on the Comex division of the New York Mercantile Exchange, breaking a four-day winning streak. Gold also suffered from strength in the US dollar which added marginal gains. Gold stocks lost over 2% in Toronto on Friday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil futures fell sharply Friday, posting their biggest daily loss in two months on skepticism that the world’s largest exporters can cooperate and ease a supply glut that has dragged down prices for two years. Crude dropped just before noon after Bloomberg News reported Saudi Arabia doesn’t expect Opec to reach an agreement when it meets Wednesday in Algeria’s capital.
  • The comments echo those made last weekend by the group’s secretary-general to Algeria’s state news agency APS that the meeting is informal and not for decision-making. US Light, sweet crude for November delivery settled down $1.84, or 4%, to $44.48/b on the New York Mercantile Exchange. It was the largest daily loss since July 13 and erased most of the gains from a four-session winning streak. Nymex crude ended the week up 86 cents, or 2%.
  • Brent, the global benchmark, lost $1.76, or 3.7%, to $45.89/b. It ended the week up 12 cents, or 0.3%. Saudi Arabian and Iranian oil officials clashed last week over production limits while meeting at the Opec headquarters in Vienna, The Wall Street Journal reported Friday. Saudi Arabia and Iran couldn’t agree on what statistics should be used to determine oil output levels for a potential “freeze” - the term used to describe a joint effort by big producers to limit their petroleum output at the current pace or lower. Short bursts of optimism have often been broken by news of internal disputes and by widespread skepticism from analysts and traders about Opec’s ability to strike a deal. Heavyweights including Saudi Arabia, Iran and Iraq have longstanding political rivalries and have been in a fierce competition to undercut each other and sell more oil. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore added 0.45c to $56.79, rising for a third session. According to a note from Citigroup today, Iron ore prices will find support in next one to two months, then face strong headwinds through 2017, Citi analysts including Ed Morse commented. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Nickel on the London Metal Exchange ended flat on Friday at $10,660/tonne, having earlier hit a six-week high of $10,715. Prices gained 9.3% on the week, the biggest weekly rise since July. LME copper ended flat at $US4855/tonne, but gained 1.2% on the week. Copper for December delivery on Comex added 0.3% to $2.201/oz, taking this quarter’s gains to 0.3 percent.
  • Aluminium ended up 0.2% at $1636 a tonne, having earlier hit a month high of $1652.50, with volumes extremely high at above 22,500 lots. Tin closed up 0.8% at $19,645/t. LME data showed on warrant or available tin stocks tumbled 38% to 1860 tonnes, their lowest levels according to Reuters data which goes back to 1999. Zinc ended down 0.8% at $2276/t while lead closed down 1.5% at $1919.50/tonne.
  • In other news: Elders (ELD): To buy 30% stake in Stockco’s Australian business; Fortescue (FMG): CEO says it and Vale remain committed to JV plan; SAI Global (SAI AU): To recommend A$1 billion offer from Baring Private, AFR reports.

Stock to watch


Northern Star Resources (NST) found a strong support level at $A4 which coincided with the 200 Day Moving Average and this level used to be a solid resistance level during February-March this year.

NST is now approaching the previous support level at $A4.60 and break out above this level is expected to signal a reversal of the two month selloff that started in early July.

We would look to buy either on the break above $A4.60 or buy any pull back down towards the gap at $A4.39 targeting $A5.19.
 
Northern Star Resources

1
 

AUS200 and AUDUSD

As US 10 year bond yields are falling, the USD also continues to remain under selling pressure. If we see a clear break out below 95 which crosses the uptrend (from May low), then the US dollar index (DX) is likely to weaken much further.

However, the commodity pairs are struggling and the interim support level would be 0.76 for AUDUSD while 0.7570 could be a good retracement level to go long.

AUDUSD monthly chart
 
2
 
The AUS200 made a solid rally led by the energy and mining sectors last Friday in the Asian session, but it wiped the majority of those gains in the overnight SYCOM hours.

The US500 was weak and the cash S&P500 index filled the gap that was created last Thursday open.

The huge weekly gains (170 points) from last week indicate the upside momentum is strong therefore we expect the similar although we may see some retracements before breaking above 5,435 which has been a key resistance level this month.

AUS 200 monthly chart
 
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Source: All charts, Saxo Bank - create charts with SaxoTrader. Click here to learn more 


Today's Trade Information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

-- Edited by Adam Courtenay

Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch the recording of this Week’s Macro Monday Call at 1030 AEST.

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