Article / 11 September 2017 at 1:46 GMT

Today's Trade: Financial sector comes to the fore

Trading Desk / Saxo Capital Markets
Australia
  • The ASX is up by 22 points, or 0.4%, at 5694 in early trading
  • Financials the best performer, adding 17 points to the index
  • Spot iron ore fell 1.7% to $US74.36 on Friday. futures fell 3.9%

Overnight and early trading

The dollar retraced some of last week’s decline against major peers as worries surrounding North Korea and hurricane Irma eased.

Equities across Asia look set for a mixed start. While devastating, Irma didn’t reach the feared Category 5 storm that some had expected and looks to have spared Miami, helping the dollar push off its lowest level in more than two years.

The JPY's weakness against the greenback may lend some support to Japanese equities at the start of Monday trading.

Markets in China remain in focus after inflation accelerated in August, exceeding estimates.

While Pyongyang didn’t launch an intercontinental ballistic missile over the weekend, there was a local celebration on its nuclear test.

With Federal Reserve speakers now in a blackout period before next week’s policy meeting, the focus this week remains on assessing the impact of natural disasters on US growth and data due on retail spending in the American economy.

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 Fed speakers are in a blackout period before next week’s policy meeting. Photo: Shutterstock

US stocks notched weekly declines, with severe weather and continuing tension between the US and North Korea driving some of the biggest moves.

Shares of financial companies rose Friday but posted their worst week in months as banks and insurers slid.

The Dow Jones Industrial Average edged up 13.01 points, or less than 0.1%, Friday to 21797.79.

The S&P 500 slipped 3.67 points, or 0.1%, to 2461.43 and the Nasdaq Composite fell 37.68 points, or 0.6%, to 6360.19, weighed down by declines in tech shares. All three indices posted weekly declines, snapping two-week winning streaks.

Insurance companies have been under pressure due to fallout from Hurricane Harvey and as Hurricane Irma has battered several Caribbean islands, threatening further damage as it approached Florida.

RenaissanceRe Holdings and Everest Re Group fell 6.4% and 10% respectively, for the week.

That was even as insurers stabilised on Friday, with Everest Re up $10.54, or 5%, to $222.48, Bermuda-based XL Group up 2.13, or 5.8%, to $38.61, and Chubb up $5.97, or 4.4%, to $140.85 on the day.

Orange-juice futures also fluctuated as traders watched the weather. Prices soared Friday as Hurricane Katia headed toward Mexico, one of the most important growing regions for oranges used in concentrated juice.

Frozen concentrated orange juice for November delivery rose 5.2% to $1.54 a pound on the ICE Futures US exchange, its highest close since May 2.

Orange-juice futures have surged 13% this past week with hurricanes threatening the key growing areas for juice, including Florida, which is home to most of the oranges used in US juice.

Hurricane concerns and North Korea’s missile tests pushed investors into Treasuries, which are viewed by many as relatively safe assets.

President Donald Trump on Thursday declined to rule out military action against North Korea, stating that a military confrontation is “something that certainly could happen.”

The rush into US government bonds drove down the yield on the 10-year Treasury note to 2.058% on Friday, the lowest yield since November 8.

That drop has contributed to a selloff in big banks, since lower long-term rates can cut into their profitability. As banks tumbled along with casualty and property insurance companies in the past week, the financial sector of the S&P 500 fell 2.8% from the previous Friday, its biggest weekly drop since late March.

The USD also struggled during the week, hurt by hurricane concerns as well as geopolitical risks and lower expectations that the Federal Reserve will raise interest rates again this year.

The dollar was also pushed down by a surge in the euro, which is benefiting from a robust economic recovery in the eurozone.

On Thursday, the European Central Bank upgraded the single-currency area’s growth forecasts, helping send the euro up 1.5% against the dollar during the week.

The Stoxx Europe 600 rose 0.1% Friday, but finished the week down 0.2%.

Source: Bloomberg, TradingFloor.com, WSJ.com

Local markets and commodities

  • BHP S&P/ASX 200 Index futures are unchanged at 5667 as of 6:58 a.m. Sydney time; futures relative to estimated fair value suggest little early change
  • Bank of New York Australia ADR Index is down 1.2% to 274.8, BHP Billiton ADRs are down 2.6% to A$26.68 equivalent, a 2.2% discount to last Sydney close, Rio Tinto ADRs are down 2.5% to A$59.90 equivalent, a 12.6% discount to last Sydney close.
  • Gold reached the highest in more than a year as the dollar slumped against the backdrop of a potential North Korean missile test and looming economic damage from natural disasters. Gold rose with havens as investors braced for destruction in Florida from Hurricane Irma. The dollar’s decline against most major peers further tempered risk appetite, while President Donald Trump’s administration sought to ratchet up pressure on North Korean leader Kim Jong Un.
  • Gold futures have risen 17% in 2017, on pace for the best year since 2010. December futures rose 0.1% to settle at $1,351.20/oz at 1340 on the Comex in New York, after touching $1,362.40/oz, the highest for a most-active contract since August 2016. Early Asia trade saw gold gap lower to clock losses over 0.5% as threats of another launch by North Korea over the weekend failed to eventuate: Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil prices tumbled Friday, as uncertainty gripped the market over the potential impact of Hurricane Irma as it approached the US Light, sweet crude for October delivery lost $1.61, or 3.3%, to $47.48/barrel on the New York Mercantile Exchange, its biggest one-day loss since July 5. Brent, the global benchmark, fell 71 cents, or 1.3%, to $53.78/b reversing gains from earlier in the session. While damage done in Florida will have less of an impact on energy infrastructure and refineries than in Houston, the prospect of a storm that travels up the east coast ignited some fears of further disruptions to refiners in that area. Some analysts also expect the storms to weigh on consumer demand for fuel.
  • Oil markets were also awaiting monthly reports set to be published this week by Opec and the International Energy Agency. Analysts will be looking to see if the IEA adjusts its demand estimates. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Spot iron ore prices were relatively unchanged, despite signs of weaker investor appetite in China. Steel and iron ore futures fell sharply as investors became more risk averse leading into a weekend full of macro risks. However, fundamentals remain positive. Imports of iron ore are strong, with August volumes up 1.1% y/y to 88.7 million tonnes. This is up a solid 2.8% from July. Concerns over weaker export demand also plagued the steel market, with exports of steel products falling 27.6% y/y to 6.5m tonnes. Gasoline futures fell 0.8% to $1.6476/gallon and diesel futures fell 1.1% to $1.7657/g. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Industrial metals’ dizzying rally to a three-year high capitulated on Friday amid tensions over North Korea and concern over Chinese manufacturing. Nickel led losses, slumping 4.6% to settle at $11,590/t on the London Metal Exchange, the biggest loss since November 2016. Copper fell 3% to $6,693/t, reversing its weekly gains. Traders rushed to the exit, with the volume of copper futures contracts traded in New York surging 63% above the 100-day average for this time of day. The LMEX Index of six main metals had its biggest loss since November as a slowdown in Chinese export growth raised concerns that a strengthening yuan is hurting the nation’s manufacturing sector and denting global trade. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In other news: Companies trading ex-dividend today: Blackmores, Caltex Australia, Downer EDI, Noni B, Orora, Qube, Reliance Worldwide, Retail Food Group, Sandfire, Steadfast Group; AGL Energy (AGL AU): Australia Keeps Pressure on AGL to Extend Life of Liddell Plant; ANZ Bank (ANZ AU): China’s Export Engine Slows as Imports Maintain Steady Gains; Commonwealth Bank (CBA): Said to eye global bond market this week: AFR; Independence Group (IGO AU): Electric Vehicle Metal Demand Boom Still to Hit Nickel Market; NAB (NAB AU): Australian Banks May Exit Wealth Management Without Being Forced; Tatts Group (TTS), Tabcorp (TAH): Tatts Chairman Boon optimistic holders will approve deal: AFR.

BHP, Anglo American, Vale and Rio

We are seeing a clear double top in four mining stocks – BHP (BLT), Anglo American (AAL), Vale and Rio Tinto (RIO) after a decent reversal that was formed last Friday.

These stocks all failed to push higher above the 2017 high. The most aggressive candlestick appears to be on BLT which formed an outside weekly reversal off the psychological resistance level 1,500.

While these price actions may signal potential reversal of the recent rally, we would like to see this week’s close to settle below last week’s low as a confirmation.

BLT quarterly chart

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Anglo American quarterly chart
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Vale quarterly chart
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Rio Tinto quarterly chart
Source: All charts, Saxo Bank

Today's Trade information 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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