Article / 01 April 2016 at 0:03 GMT

Today's Trade: Falling banks lead ASX lower

Trading Desk / Saxo Capital Markets
Australia
  • Local markets opened lower with sectors falling across the board
  • Crude oil enjoyed a rise with WTI and Brent up 1.1% and 1.9% respectively
  • AUDUSD broke above 0.77 again to make a new high of 0.7722 

By Saxo Capital Markets (Australia)

Local markets opened weaker with all sectors hit. The ASX 200 and All Ords were down 1.2% and 1.1% respectively at the open. The big-four banks all dropped, losing yesterday's gains. 

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 Losing heat ... iron ore prices have declined for a seventh day in a row. Photo: iStock

Overnight

  • US stocks closed slightly lower to end a quarter that started with huge turbulence
  • The Dow Jones Industrial Average dropped 32 points, or 0.2%, to 17685. The S&P 500 fell 0.2%, while the Nasdaq Composite rose less than 0.1%. For the quarter, the Dow Industrials recorded a first-quarter increase of 1.5%, while the S&P 500 rose 0.8%
  • Materials ended almost 0.9% lower to lead nearly all S&P 500 sectors lower. Only utilities gained on the day
  • A rebound in oil prices, easy monetary policy and better-than-expected US economic data left major indices with gains for the quarter despite losses from the first six weeks of the year, when stocks fell sharply amid concerns about the global economy and an unclear course for the world’s central banks
  • Moving the Nasdaq Composite was Microsoft up 0.33% and the iShares Nasdaq Biotechnology ETF (IBB) which rose 2.3%. Apple closed 0.52% lower
  • Boeing was the greatest contributor to declines in the Dow, down 1.28% and IBM contributed the most to gains, rising 2.05%. Morgan Stanley on Thursday raised its price target on IBM to $168 from $140 based on the perspective the firm is "beginning to show a path toward revenue monetisation" in its Watson data analytics service. Shares of IBM closed 2% higher
  • In economic news, initial jobless claims came in at 276,000 while Chicago PMI rose to 53.6 in March from 47.6 in February
  • The CBOE Volatility Index (VIX) held near 14
  • The Stoxx Europe 600 fell 1.1% Thursday: the Dax lost 0.81%, the FTSE shed 0.46% and the CAC tumbled 1.34%
  • Banking and telecoms stocks led declines in Europe: French operators Orange and Bouygues said they would extend negotiations around completing their tie-up to the weekend, saying talks were "not yet sufficiently advanced". The news sent shares of Bouygues and Orange sharply lower by 3.64% and also dragged down other French names in the sector including Iliad. The sector closed lower by 1.6%
  • In the banking sector, Italy's Unicredit could delay a EUR 1.76 billion ($2 billion) rights issue for Banca Popolare di Vicenza, which was set for April, according to a report by Reuters, citing sources. Unicredit shares closed 3% lower and dragged down other Italian banks which are also looking to raise further capital
  • Eurozone inflation edged higher in March but remained in negative territory, while the UK’s gross domestic product was revised higher in the fourth quarter, but its current-account deficit also came in well above expectations

Local markets and commodities

  • Bank of New York Australia ADR Index -0.3%. BHP Billiton ADR -1.5%. Rio Tinto ADR -0.9%
  • Spot gold had an inside day yesterday as it closed up 0.5% to $1,232. Supported by the weaker USD, gold's upward tick came as equity markets declined in the afternoon session in New York. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil has enjoyed a rise with WTI and Brent up 1.1% and 1.9% to $38.25 and $39.60 respectively. For the month of March, oil rose 14% off its 12-year lows in January. Opec production rose 65,000/barrels a day to 33.09mln/b day. Iran’s production lifted from 2.8mln/b to 3.2mln/b a day in March. Iran still has the capacity to boost production an additional 800,000/b. The April 17 meeting in Qatar will be of great importance for where the world's production levels are targeted for and subsequently the future price of oil. Volatility as we approach this date is expected to rise in speculation. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore prices have declined for a seventh day now, off 0.8% to $53.75/tonne. With a lack of commentary from the Chinese government about stimulus, the optimism of another burst in commodity demand is waning. The 17% one-day rally in iron ore earlier this month also runs the risk of keeping higher-cost miners in the game in hope, who’d have previously been ready to enter maintenance-only phase. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were generally up as inventories fell slightly in aluminium, nickel and zinc. Copper fell away 0.3% over demand concerns for the fifth day now and its longest downward run since January. This relates to our comments on iron ore. While central banks around the world continue talking, it’s the numbers that show how things are really going. S&P is looking to cut China’s credit outlook. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • AIG Australia PMI for March due 0930 Sydney time
  • RBA March commodity price index due 1630
  • S&P/ASX 200 fell 4% in three months to March, declining for third quarter in four
  • APA (APA): Signs multi-asset gas transport pact with Incitec Pivot
  • Primary Health (PRY), Mineral Resources (MIN), Cimic (CIM): Best performers on benchmark index in March quarter
  • Recall (REC): Iron Mountain, US, reach accord easing way for Recall purchase
  • Select Harvest (SHV), Programmed Maintenance Services (PRG), OzForex (OFX): Worst performers on benchmark index in March quarter

Stock to watch: Pilbara Minerals (PLS.xasx)

Not all mining commodities are going through tough times. Lithium has seen an enormous surge in demand given the growth in Tesla, Honda and Toyota’s hybrid cars and home batteries. We have previously flagged PLS as a stock to watch as it consolidated in an upward triangle. 

Breaking out on Wednesday on strong volumes, PLS held up well yesterday. A retracement to $0.405 is possible but using this level as a new floor offers a new stage in the share price. Fibonacci extensions offer an early price target of $0.54.

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 Source: Saxo Bank

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Source: Saxo Bank
 
Broker upgrades and downgrades

  • Duet Group (DUE): Raised to sector perform vs underperform at RBC Capital Markets
  • Navitas (NVT): Cut to hold vs buy at Blue Ocean Equities
  • Rio Tinto (RIO): Downgraded to sell on copper, aluminium markets: Axiom
  • Virgin Australia (VAH): Outlook revised to negative from stable by S&P

Performance

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AUDUSD

The Canadian GDP came out the strongest since 2013, so USDCAD dipped towards the key support level 1.2840 but it bounced right back. AUDUSD broke above 0.77 handle again to make a new high 0.7722 which is just below the 100% extension of the inverse head and shoulders formation. 

While the upside momentum still exists, AUDUSD appears to trade at an overbought area and the overnight price actions suggest some scope for possible reversal in the near term. Today’s major focuses are the Chinese Caixin PMI at 1245 and the nonfarm payroll at 2330.

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 Source: Saxo Bank

AUS200.I

Yesterday we saw a typical month end/quarter-end window dressing in AUS200 as the buyers came in to lift the markets towards 5,100 which is the key resistance level. The e-mini S&P500 showed some weakness with choppy price actions ahead of tonight’s nonfarm payroll figures. 

Once again the performance of the big four banks would be the key to determine the direction of AUS200 as we witnessed a glimpse of a recovery yesterday. We expect some pull-backs from yesterday’s aggressive gains and 5,100 should remain as a resistance level.

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Source: Saxo Bank. 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. Watch its daily morning call on Periscope at 0945: #SaxoAPAC.

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