Article / 04 December 2017 at 23:48 GMT

Today's Trade: Falls for big four banks, retailers weigh on S&P/ASX200

Trading Desk / Saxo Capital Markets
Australia
  • US shale activity may surge, undermining Opec oil output reductions
  • Gold prices fell on Monday as USD following Senate approval of the tax overhaul
  • Nickel gained on Monday after Chinese steel futures hit three-month highs
  • Iron ore surged higher; it has risen nearly 25% in a month
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX 200 was down by a hefty 0.51% to 5,954.90 at 1039 AEST (2339 GMT, on Monday evening).
  • US stocks edged lower as selling in technology shares overwhelmed an advance by companies poised to benefit from proposed cuts to corporate taxes. The dollar strengthened and oil slumped.
  • The S&P 500 Index reversed gains of as much as 0.9 percent and the tech-heavy Nasdaq fell as investors assessed a rally that’s propelled stocks to numerous records this year. An index of the biggest tech shares slumped to a five-week low as investors switched out of the sector. The yield on benchmark U.S. debt climbed after the Senate’s passage of the legislation early Saturday drew focus away from the investigation into connections between President Donald Trump’s aides and Russia.
  • The Dow Jones Industrial Average finished at another record high after the Senate passed a tax bill, while declines in shares of technology companies weighed on the S&P 500 and Nasdaq Composite. VIX rose over 2% to 11.68.


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Aussie retailers have been popular shorts this year, following concerns that Amazon will take a large share of online retail spending; Amazon had its official launch today. Photo: Shutterstock
 
  • The Senate passed revisions to the U.S. tax code Saturday after Republicans overcame internal divisions, moving one step closer to pushing through $1.4 trillion in tax cuts. The House and Senate still need to reconcile competing versions of the tax plan, something GOP leaders hope to do by Christmas.
  • The Dow industrials rose 58.5 points, or 0.2%, to 24290.05, its 64th record close this year but well off its intraday high Monday of 24534. The S&P 500 fell 0.1%, after being up much of the day, and the Nasdaq Composite slipped 1.1% as technology stocks pulled back.
  • Banks, which some analysts say could be among the biggest beneficiaries of a tax cut, rallied, with the KBW Nasdaq Bank Index of large U.S. lenders rising 2.2% for its fifth consecutive session of gains.
  • One sector that lagged behind in Monday’s stock rally: technology. Shares of technology companies in the S&P 500 slid 1.9%, posting the steepest daily loss of the broad index’s 11 sectors.
  • While the Republican plan to cut corporate tax rates should lift earnings growth broadly, some analysts have said it could also spur a shift out of stocks that have outperformed this year into relative underperformers. Those analysts believe technology stocks in the S&P 500, which have nearly doubled the broad index’s gains this year, are vulnerable to a pullback.
  • The Stoxx Europe 600 climbed 0.9% Monday, lifted by broad gains across sectors.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

Local markets
  • Bank of New York Australia ADR Index is down 0.6% to 266.34, BHP Billiton ADRs are up 0.7% to $A27.82 equivalent, a 0.7% discount to last Sydney close, Rio Tinto ADRs are up 0.5% to $A63.91 equivalent, a 11.3% discount to last Sydney close
  • Gold prices fell on Monday toward the four-week lows hit last week as the U.S. dollar strengthened after the U.S. Senate approved a major tax overhaul and the market looked ahead to a meeting of the Federal Reserve later this month. Spot gold was down 0.5% at $1,274.16/oz $1,270.11, its lowest level since November 6. US gold futures for February delivery settled down $4.60, or 0.4%, at $1,277.70/oz. The dollar was lifted by expectations that US tax cuts would boost economic growth, which could fuel inflation and reinforce the case for higher U.S. interest rates when the U.S. central bank meets on December 12-13. The US Senate approved a tax reform bill on Saturday, moving President Donald Trump a big step closer to his goal of cutting taxes for businesses and the rich while offering everyday Americans a mixed bag of changes. Gold stocks in Toronto fell 1.42% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil retreated the most in more than two weeks amid worries that Opec’s deal to extend production cutbacks may take U.S. shale activity to a whole new level. Futures closed 1.5% lower in New York. Opec and partners including Russia last week agreed to keep cutting output through the end of next year. At the same time, North American explorers probably will boost spending by 20% in 2018, according to an Evercore ISI survey of industry budget trends. The slide comes after oil jumped about a fifth from early September as investors geared up for last week’s decision by Opec and its allies. The producers will maintain cuts until global supply meets demand, Saudi Arabia’s Energy Minister Khalid Al-Falih said. But the danger is U.S. shale activity may surge, undermining the OPEC reductions. The U.S. oil rig count was already at the highest level since September last week, according to Baker Hughes data released Friday, and U.S. output was at a record high in the latest weekly government statistics. West Texas Intermediate for January delivery fell 89 cents to settle at $57.47/barrel on the New York Mercantile Exchange. Total volume traded was about 32% below the 100-day average. Brent for February settlement slid $1.28 to end the session at $62.45 on the London-based ICE Futures Europe exchange, the lowest level in two weeks. The global benchmark crude was at a premium of $4.96 to February WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Iron ore prices surged higher, extending a rally that has seen it rise nearly 25% over the past month. Steel futures in Chine continue to push higher as inventories fall amid the production curbs in and around Beijing. However, restrictions on Chinese domestic supply also are having an impact. Environmental constraints have seen restrictions placed on the movement of iron ore by truck from domestic operations. This has pushed up demand for high grade iron ore from the seaborne market. Spot iron ore added 3.7% or $1.98 to close at $70.11. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Nickel gained on Monday as the metal mainly used in stainless steel got a boost after Chinese steel futures touched three-month highs, but a firmer dollar capped the rise. Benchmark nickel on the London Metal Exchange closed 0.8% higher at $11,385 a tonne, paring gains after touching an intraday high of $11,470. Capital Economics expects nickel - which has declined by 12% from a two-year peak of $13,030 hit on November 1 - to end this year at $10,750. Nickel stocks: IGO, WSA.
  • LME three month copper dipped 0.1% to finish at $6826 a tonne. Aluminium fell 0.3% to end at $2069 a tonne. China's central Shanxi province has introduced new rules curbing water use for steel, cement and aluminium production, state media reported. Zinc shed 2.2% to finish at $3178 a tonne while tin rose 0.4% to $19,525. Copper stocks: OZL, SFR;  Aluminium stock: AWC.
  • Amazon officially launched in Australia today, and will offer products across more than 20 categories including consumer electronics, clothing and sports equipment. The Australian retail names have been very popular shorts this year, following concerns that Amazon will take a large share of Australia’s growing online retail spending. Short interest has continued to build for JBH since March this year from 3.3m shares (3% of float) to a high of 18.4m (17% of float) shares in early November. Harvey Norman (HVN) saw short interest continue to build since March this year from 40.5mln shares (8.2% of float) to a high of 124.4mln shares (25.1% of float) in late September. Retails Stocks: MYR, JBH, SUL, HVN.
  • Companies trading ex-dividend today: Aristocrat, F&P Healthcare.
  • Base Resources (BSE): Acacia to Begin New Gold Exploration in Kenya in Q1: Minister.
  • Crown Resorts (CWN): Faces Suit Tied to Fallout From China Crackdown.
  • Graincorp (GNC): Australia Cuts Wheat Crop Outlook 6% After Dry Spring in East.
  • Harvey Norman (HVN), JB Hi-Fi (JBH), Myer (MYR), Super Retail (SUL ), Woolworths (WOW AU), Wesfarmers (WES): Amazon Launches Retail Offering in Australia
  • Macquarie Group (MQG): Pensions, PE Are Said to Eye Stakes in Germany’s Techem: Reuters
  • Rio Tinto (RIO): Vale Joins Rio Signaling No Return to Debt-Fueled Deal Binge
Broker upgrades, downgrades
  • Bingo Industries (BIN AU): Rated New Buy at Goldman; price target $A3.40
  • Estia Health (EHE AU): Downgraded to Neutral at UBS; PT $A3.75
  • GDI Property (GDI AU): Downgraded to Neutral at Credit Suisse; PT $A1.15
  • Magellan Financial (MFG AU): Upgraded to Buy at UBS; PT $A30
  • Metcash (MTS AU): Downgraded to Underperform at Credit Suisse; PT $A2.70
Australian corporate news
  • Wednesday: TPG Telecom (TPM) AGM
  • Thursday: Nufarm (NUF) AGM
  • Friday: Westpac WBC AGM
AUDJPY looks subdued

AUDJPY reversed at the ¥86 handle, which previously served as a support level back in August. Furthermore the 200 day moving average crosses the downtrend (from the October high of ¥89.08) near the interim resistance level 86.

Today’s focus is the RBA rate decisions at 1430 AEST (0330 GMT), and we are expecting yet another dull statement without any clear forward guidance, so AUDJPY should remain subdued.

AUDJPY chart
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Gold uptrend

Gold (XAUUSD) continues to stubbornly maintain the uptrend (from the December 16 low of $1,122.67/oz) which intersects 200 day moving average, and the recent support level of $1,267/oz.

The downside risk is expected to be limited to 1,267, so we look to stay long as the US dollar still looks unimpressed.
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Northern Star hits record high

Gold miner Northern Star Resources (NST) made an all time high of $A5.93 early last week but since then it has retraced below 2016 high of $A5.89.

The recent high was very close to 100% extension of the inverse head and shoulders range. So potential profit taking or a reversal should not be ignored while we maintain bullish bias as the upward momentum seems resilient.

Northern Star Resources chart
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Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

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