Article / 17 May 2016 at 1:22 GMT

Today's Trade: Energy returns to ASX as traders await RBA

Trading Desk / Saxo Capital Markets
Australia
  • 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%

By Saxo Capital Markets

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

US equities climbed as Warren Buffett’s bet on Apple sent the iPhone maker’s shares rallying, while crude oil’s surge to a six-month high amid speculation a supply glut has eased boosted commodity producer shares around the world.

The S&P 500 Index rebounded after three weeks of losses, with Apple jumping the most in 10 weeks after Berkshire Hathaway disclosed a stake.

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.

The pickup in commodity prices supported global equities after about $1.8 trillion in value was wiped out in the first two weeks of May amid weaker economic data and disappointing earnings reports.

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 A word from Warren Buffett can do wonders for a stock. Photo: iStock

Buffett’s bet on Apple lifted its shares from their lowest level since 2014, after they’d slumped on concern over sales growth.

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.

Ole Hansen wrote on trading floor that during the week ended May 10, money managers were net buyers of dollars for the first time in 10 weeks, according to the weekly Commitments of Traders forex report, which covers the positioning in eight major International Monetary Market currency futures held by money managers.

While EUR and GBP net shorts continued to be reduced and CAD net longs were added, strong selling of AUD and MXN triggered this rather rare situation of net support for the dollar, he says

The S&P 500 rose 1% to 2,066.66, rebounding from a third weekly decline, its longest sliding streak since January. The gauge topped its average price during the past 50 days after closing Friday below that level for the first time in two months.

Apple jumped 3.7% after Buffett’s Nebraska-based company disclosed a stake in the technology giant worth more than $1 billion at the end of the first quarter. Yahoo! rose as it was reported that Buffett is backing a group bidding for the company’s Internet assets.

Anacor Pharmaceuticals advanced after Pfizer said it would buy the company. Memorial Resource Development climbed as Range Resources agreed to purchase it, while Tribune Publishing surged after Gannett boosted its all-cash offer for the publisher.

The Stoxx Europe 600 Index erased losses to close little changed Monday. German and Swiss markets were among those shut, and the volume of shares changing hands was about 47% below the 30-day average.

The MSCI Emerging Markets Index added 0.2% after falling as much as 0.4% earlier in the session. Benchmark gauges in Russia, Poland, South Africa and the Philippines climbed at least 1%.

Futures on Asian equity indexes foreshadowed gains, with contracts on Japan’s Nikkei 225 Stock Average rising 1.3% in Chicago. In Australia, futures on the S&P/ASX 200 Index signaled a 0.9% increase, while those on Hong Kong’s Hang Seng Index added 0.4% in most recent trading.

Brent oil rose 2.4% to end Monday at $48.97/barrel, its highest close since November 3, with data showing China’s refineries processed crude at record rates in April, helping ease a supply glut as the number of active rigs in the US declines.

West Texas Intermediate climbed 3.3% to $47.72 as Goldman Sachs raised its price forecast for the second half to $50, from a March estimate of $45.

Gold advanced as holdings in exchange-traded funds backed by the metal climbed for a 14th straight day, reaching the highest point in more than two years. Futures for June delivery rose 0.1% to settle at $1,274.20 an ounce in New York.

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.

The currencies of commodity-exporting countries strengthened as crude prices surged. The Brazilian real, Norwegian krone and Canadian dollar advanced against the US currency as oil gained more than 2%.

South Africa’s rand fell for a second day after reports that police are set to arrest Finance Minister Pravin Gordhan over alleged irregularities at the nation’s revenue service.

According to John Hardy, the USDCAD found support around the 1.2500 area and resistance around the 1.3000 area and may have outlined the key tactical support level this week as the bounce of 1.3000 resistance was gathered up ahead of 1.2750.

USD bulls are finding broader confirmation this week on more hawkish rate expectations and firm retail sales print to close the week. A second corrective rally wave next week in USDCAD could focus on a move toward the 1.3250/1.3300 zone next, Hardy says.

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.

JPMorgan Chaseanalysts led by Alex Roever joined a growing chorus of banks paring year-end projections for the 10- year note yield, trimming their estimate to 1.9% from 2.15%.

The Treasury Department has released a breakdown of Saudi Arabia’s holdings of US debt, after keeping the figures secret for more than four decades.

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.

Source: Bloomberg, TradingFloor.com

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.

New trade

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.

Entry: Market

Target 1: 5.82

Target 2: 6.48

Stop loss:
4.99

CFD MARGIN: 15%
 
Origin Energy quarterly chart
b
Source: Saxo Bank

Stock-to-Watch: Goldman Sachs (GS)

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
c
Source: Saxo Bank
 
Broker upgrades and downgrades

- Cochlear (COH): Raised to equal weight vs underweight at Morgan Stanley
- GUD Holdings (GUD): Cut to neutral vs buy at UBS
- JB Hi-Fi (JBH): Cut to neutral vs overweight at JPMorgan
- Peninsula Energy (PEN): Rated new outperform at BMO
- Sonic Healthcare (SHL): Raised to neutral vs underperform at Credit Suisse
- South32 (S32): Rated new outperform at RBC Capital


EURUSD and AUDUSD

The EURUSD retraced to the topside following Friday’s sell off in what was a quiet session as Germany and France were closed due to a public holiday.

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.

Looking ahead for AUDUSD, all eyes are on the RBA’s Monetary Policy Meeting Minutes due at 1130 AEST.

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.
 
 
US500.I

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.
 
Today's Trade 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.
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