Today's Trade: Energy returns to ASX as traders await RBA
- Gains limited by NAB and Macquarie dropping as they trade ex-dividend
- ANZ has announced it will cut 200 jobs in its Australian division
- OIl price jump has helped energy stocks, with Origin up 3% and Woodside 1.3%
The S&P/ASX 200 opened 0.3% higher at 5373.4 points, following healthy gains in the resources sector. BHP Billiton jumped 2% as the price of oil and iron ore increased overnight, while Woodside Petroleum gained 1% and Rio Tinto rose 0.9%.
However, two of the large banks trading ex-dividend did crimp the market. NAB slumped 3.65% to $27.96 as it trades ex-dividend and also cops a recommendation downgrade to neutral at Macquarie.
Macquarie is also trading ex-dividend and has lost 3.25% this morning to $69.74.
Overnight and early trading
Oil extended last week’s gains past $47/barrel as Goldman Sachs increased its price forecast, saying the market had moved into a supply deficit earlier than expected. Precious metals rallied with aluminium and materials producers climbing, boosting stocks in developing nations.
Data Friday showing a jump in US retail sales bolstered the case for the Federal Reserve to raise interest rates as other central banks struggle to fuel price growth via stimulus efforts.
Industrial metals from copper to lead rallied, with nickel up 0.9% in London.
The Bloomberg Dollar Spot Index held near its highest close since March as the greenback gained 0.4% versus the yen.
Improved economic data in the U.S. prompted speculation over a potential rate hike this year, possibly as soon as next month. The odds of a Fed rate increase by September are 37%, Fed funds futures show, from 29% a week ago.
Treasuries fell, sending yields on 10-year notes up by five basis points, or 0.05% to 1.76%. The difference between two- and 10-year yields was at the narrowest since 2007, based on closing prices. The spread between the securities was 94 basis points, compared with 122 basis points at the end of last year.
The stockpile stood at $116.8 billion as of March, down almost 6% from a record in January, according to data the Treasury disclosed on Monday.
Local markets and commodities
- The S&P/ASX 200 Index futures +0.9%; futures relative to estimated fair value suggest an early gain of 0.5%.
- Bank of New York Australia ADR Index +2.4%. BHP Billiton ADR +3.3%. Rio Tinto ADR +2.6%.
- Spot gold reversed intraday gains of 1.2% to close up just 0.1% to $1,275. Reaching highs early in the NY session, gold turned on a dime as it fell from $1,285 to $1,275 within the hour when Wall Street began to lift. Preventing gold from turning red was an increase of ETF buying - for the fourteenth day in a row. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Crude oil rose on both sides of the Atlantic, with WTI and Brent up 2.3% and 1.2% to $47.90 and $49.05 respectively. Oil is now at highs not seen since November 2, before the final fall to February’s lows. Supply side concerns still rest on the physical markets as increasing disruptions around the globe has lifted traders outlook. Goldman Sachs changing bearish view on oil also assisted confidence levels at the current price levels. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore has taken a small step down as it lost 0.4% to $54.34. Record production of steel last month from wider profit margins, has added caution to traders. Now that pricing for the metal is being trimmed, the boost in production is expected to be paired and iron ore demand to follow. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Base metals were mixed. Aluminium was one of the best performers as concerns over surging Chinese output for the metal eased. The National Bureau of Statistics showed China’s output falling 1.2% year on year in April to 2.57m tonnes. As China makes up over 50% of global supply, a reduction in their production can only add to a positive view if this continues to follow through. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
- Other news: RBA Minutes from the May meeting will be released today at 1130 AEST (0230 GMT); DuluxGroup (DLX): Scheduled to release 1H result; NOTE: Rev. est. A$869.3m (3 analysts, range A$861m-A$879m); Infigen Energy (IFN): Seeking expressions of interest in co.: AFR; NOTE: Mkt. cap A$650m. AWE rejects cash offer from Lone Star Japan at 30% premium (yesterday); OzForex Group (OFX): Scheduled to release FY result; NOTE: Adj. net income est. A$24.2m (6 analysts, range A$21.9m- A$26m); Sonic Healthcare (SHL): Australian pathology stocks rose yesterday on Turnbull proposal for rents; Vocus (VOC): ~A$1.2b refinancing split into 3 year and 5 year tranches.
Since Origin Energy (ORG.xasx) found a solid double bottom at $A3.44 earlier this year, it has been forming an inverse head and shoulders reversal pattern with the neck line at $A5.50.
We are anticipating a potential break out today as the upward momentum appears to be accelerating. If we apply the first extension range from the January low of $A3.44 to the April swing low $A4.42, the 100% extension sits at $A6.48 which is also coincides with the 50% extension of the head and shoulders range.
Therefore $A6.48 is expected to be a reasonable profit target as well as a major resistance level. The stop loss would be at $A4.99 which is below the May low of $A5.02 and the uptrend line.
Target 1: 5.82
Target 2: 6.48
Stop loss: 4.99
CFD MARGIN: 15%
Goldman Sachs on a weekly chart formed a textbook Head-and-Shoulder pattern, and broke with conviction in the New Year. Now it has formed a flagging pattern, rising back to the 38.2% extension level.
This week’s trading broke this short-term upward trend and instead tested the re-entering the channel before retracing. This trading behaviour could indicate Goldman is on track to continue its Head-and-Shoulder pattern with its first target level of $150 (50% Fibonacci retracement) and then potentially $126.21 (100% retracement)
Goldman Sachs quarterly chart
- Cochlear (COH): Raised to equal weight vs underweight at Morgan Stanley
- South32 (S32): Rated new outperform at RBC Capital
The EURUSD pair went on to trade as high as 1.1341 following a weaker print in the US Empire Manufacturing Index which came in at minus 9.02 against estimates of a gain of 6.5.
These gains were quickly reversed however with the pair closing the session at 1.1321. The market is also awaiting the European Central Bank meeting minutes due Thursday.
Overhead resistance would be the overnight high of 1.1341 then 1.1360. A break of the recent swing low at 1.1282 would signal further momentum to the downside.
The AUDUSD was supported at the 200 Day Moving Average yesterday (around 0.72565) and another close above this level today could signal a temporary retracement north. We view this 200 DMA level as the support for the day. Resistance would come in at 0.7330 and 0.7380.
The price actions were quiet in the European session, but the US500 rallied sharply higher as Apple (AAPL) raised sentiment on the announcement that Warren Buffett has taken a $1 billion stake on Apple during the March quarter and a rally in crude oil also boosted equity indices.
It is visible that the US500 bounced off the neck line (2,040) off the head and shoulders, therefore we have to see a clear break out below this level in order to confirm a proper sell off.
The resistance level should lie below the downtrend line which needs to hold, otherwise we may have to switch our near term bearish view.
- Edited by Adam Courtenay
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.
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