Today's Trade: Falling hope of Fed rise bumps Aussie dollar
- The US services sector expands at its weakest pace in six years
- ASX marks time as investors await new data signal
- Gold futures post longest rally since August, rising for a third straight session
- Outlook for iron ore declines over stockpile concerns
By Saxo Capital Markets (Australia)
Australian shares rose slightly as investors waited for the imminent GDP figures, but the A$ rose for the fifth day in a row on the back of US services figures that weakened the prospect of a Fed rate rise.
- Treasuries rallied, while the dollar slumped when data showing weak expansion in US services industries increased speculation that the Federal Reserve will keep interest rates lower for longer. The Nasdaq climbed to a record high. US bond yields fell across maturities and the greenback dropped against most of its major peers as traders pared bets on a September hike from the Fed to 24%
- Gauges of both developed and emerging-market shares rose to their highest levels in at least a year. The dollar’s retreat boosted the allure of commodities, spurring gains in gold and a rebound in New York-traded crude oil.
- The US services sector expanded at its weakest pace in six years last month, data that jolted markets out of a state of limbo after Friday’s lukewarm reading on August payrolls. The slowdown in a key US industry raises questions about the strength of the world’s largest economy
- This is fuelling speculation the Fed will hold off on raising borrowing costs in September. The first month with better-than-even odds of a hike is December.
- The ISMs non-manufacturing index slumped to 51.4, the lowest reading since February 2010 and down from 55.5 in July. Recent ISM survey data shows contraction in manufacturing, hiring, automobile sales and consumer sentiment.
- Uneven economic data for the U.S. may exacerbate the greenback’s 5.1% slump this year by dimming expectations that monetary policy will further diverge from that of the Bank of Japan and the European Central Bank.
- Australia’s dollar rose for a fifth day, its longest winning streak since March, after the Reserve Bank held interest rates while South Africa’s rand led gains among the world’s major currencies.
- Yields on US Treasuries due in a decade retreated seven basis points to 1.54%. Rates on two-year notes, which tend to be more sensitive to the monetary policy outlook, dropped six basis points to 0.73%.
- Longer-dated UK government bonds pared an earlier advance as the Bank of England’s latest attempt to get investors to part with the securities in its quantitative-easing program found more offers than at a previous bid.
- Spanish 10-year securities rose for a third day even as the probability of a third round of general elections in December increased after Acting Prime Minister Mariano Rajoy lost a second confidence vote in the parliament last week.
- The S&P 500 Index rose 0.3% , holding in a narrow range in post-holiday trading. The Nasdaq Composite added 0.5% to a fresh all-time high, with gains led by Amazon.com Inc. and Facebook Inc.
- The Stoxx Europe 600 Index erased gains, falling 0.3% after the US services data. Investors were also awaiting Thursday’s ECB meeting, with most economists predicting president Mario Draghi will lengthen quantitative easing for a second time and leave rates unchanged.
- Futures on Asian indexes were mixed. Contracts on Japan’s Nikkei 225 Stock Average dropped more than 0.8% in Osaka and Chicago amid a 1.4% surge in the yen. Futures on indexes in Australia and Hong Kong also retreated, while those on the FTSE China A50 Index and South Korea’s Kospi gauge climbed.
- Gold futures for December delivery posted their longest rally since August 2, rising for a third straight session. Platinum futures had their biggest advance in more than four months as gains in the rand spurred speculation that production costs will rise.
- WTI oil for October delivery rose 0.9% from Friday levels to close at $44.83 a barrel on the New York Mercantile Exchange. Brent oil fell 0.6% after a pledge by Russia and Saudi Arabia to cooperate in stabilising the market failed to include specific measures to support prices. Saudi Energy Minister Khalid Al-Falih said there was no need to freeze production right now.
- Thursday: Karoon Gas Australia, FAR, Intrepid Mines
- Friday: Altura Mining, Stavely Minerals, Rex Mineral
- The S&P/ASX 200 Index futures -0.2%; futures relative to estimated fair value suggest an early decline of 0.1%.
- Bank of New York Australia ADR Index +2.3%, BHP Billiton ADR +3.2% to A$20.56 equivalent, on par with last Sydney close, Rio Tinto ADR +1.5% to A$41.10 equivalent, 15% discount to last Sydney close
- Gold prices closed at their highest in nearly three weeks on Tuesday, lifted by a weaker dollar and expectations that the Federal Reserve is unlikely to raise interest rates this month after a series of soft data releases. Gold for December delivery settled up 2.1% at $1,354 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest level since Aug. 18. It was the biggest one-session rally for gold prices since June 24. Goldies in Toronto rallied 3.83% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil prices were nearly flat in trading Tuesday, influenced by a weaker dollar and skepticism that major producers can reach a deal to freeze production and reduce global oversupply. US crude for October delivery settled up 39 cents at $44.83/barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 37 cents, or 0.8%, to $47.26/barrel on ICE Futures Europe. U.S. prices erased early losses to settle higher, as the dollar fell against other major currencies after disappointing U.S. economic data. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore shed 0.1% to $US59.16 a tonne overnight. In India, the country's top iron ore miner is feeling the squeeze despite a global rally in the price of the steel-making material. NMDC has cut prices about 6% in 2016 even as iron ore climbed 36% internationally. Challenges include record domestic supplies, moderating local steel demand and transport costs on India’s clogged railway. The stock has declined about 12% in the past three years, compared with a 50% advance in the benchmark S&P BSE Sensex Index. NMDC fell 0.6% in Mumbai on Tuesday, bucking the Sensex’s 1.6% climb. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Zinc had the biggest loss in six weeks as some investors closed out bullish bets on this year’s best- performing major commodity. The metal slumped as much as much as 1.9% , after touching a 15-month high on Monday. Zinc has rallied 44% this year on expectations of a supply shortage after mine closures from Australia to Ireland. The advance pushed it near a technical level that suggests to some traders that prices may be poised to retreat. Zinc for delivery in three months fell 1.7% to settle at $2,321 a metric ton on the London Metal Exchange.
- Aluminum rose 0.6% after touching the lowest since mid- June on Monday, while copper slipped 0.1% on the LME. Copper futures for December delivery gained 0.5% to $2.089 a pound on the Comex in New York. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Alumina (AWC): S&PGR affirms co.’s BBB- rating; outlook remains negative
- Trades ex-div.: APN Outdoor (APO), Asaleo Care (AHY), Brambles (BXB), Caltec (CTX), Cochlear (COH), Independence Group (IGO), Qantas (QAN), Spotless (SPO), Sunland (SDG)
- Aurizon (AZJ): Names Deutsche Bank as depositary bank for ADR program
- Cochlear (COH): Gets FDA approval for Kanso product
- Computershare (CPU): Buys Ricepoint Administration in Canada
- Fonterra (FSF): Whole milk powder avg. price rises to $2,793/t; Westpac sees chance Fonterra 2016-17 milk price to top NZ$5/kgms
- Mesoblast (MSB): Scheduled to host roadshow in U.S.
- NAB (NAB): Considers tier 2 Aussie bond deal, plans investor update
- NZME (NZM), Fairfax (FXJ): NZME agrees to buy all shares in Fairfax NZ
- OceanaGold (OGC): Robust economics from Haile underground study
- Origin Energy (ORG): May name replacement for CEO Grant King as soon as this week, CFO Frank Calabria seen as most likely contender: Australian
- Pact Group (PGH): Markets A$150m 5Y revolver to syndication
- Redcape (RPF): Relaunches sale process: Australian Spotless (SPO): Says named consultant to seek Koczkar’s replacement
Broker upgrades and downgrades
- GPT Group (GPT): Raised to neutral vs underperform at Credit Suiss
Stock to watch: Transurban (TCL)
Since forming a double top at 12.50 during May and July, Transurban (TCL) has been selling off aggressively, breaking the 200 DMA. It has now lost more than 10% in just over a month and yesterday’s low at $11 was 50% of the range between 12.50 and 11.50. We see a potential long opportunity if the prices approach $10.60, which was the Feb low and which also acted as key resistance levels in 2015.
– Edited by John Hampshire
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945: #SaxoAPAC and follow us on Twitter at twitter.com/SaxoAustralia.
Watch the recording of this Week’s Macro Monday Call here.