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Optimism from Australia's central bank drove Chinese shares sharply higher overnight, with investors looking to the Aussie statement as a proxy for bullishness on the mainland economy.
Article / 06 April 2017 at 0:34 GMT

Today's Trade: Financials and miners weigh on ASX200

Trading Desk / Saxo Capital Markets
Australia
  • The ASX200 was lower at the start with financials and miners weighing the most
  • AUDUSD remains choppy and muted despite rallies from iron ore and copper
  • Crude closed at the highest level in almost one month

By Saxo Capital Markets (Australia)

The ASX200 opened lower as the banks, miners and Telstra all fell. At the start it was 0.3% lower at 5857. Bucking the trend were the goldminers.

Overnight

  • US stocks slipped overnight after enjoying a huge rally, giving back the day’s gains late in the session. The Dow Jones Industrial Average was up nearly 200 points early on, but retreated in the afternoon, ending down 41 points, or 0.2%, at 20,648. 
  • Late in the session, the Federal Reserve released minutes from its March policy meeting that showed officials agreed that they would likely begin reducing the central bank’s balance sheet later this year. Around the same time, a Reuters report said House Speaker Paul Ryan said changes to taxes would take longer than the healthcare overhaul would.
  • The S&P 500 lost 0.3%, and the Nasdaq Composite fell 0.6%. The Vix rallied 9.33% to 12.89.
  • According to the Fed minutes, some officials said stock prices looked high relative to some valuation measures, citing the possibility of a correction in financial markets as a risk to their economic forecasts. Companies in the S&P 500 have traded at more than 20 times their past 12 months of earnings for 106 consecutive sessions, the longest stretch since 2010, according to FactSet.
  • The move toward reducing the Fed’s portfolio, which includes assets purchased during and after the 2007-09 recession, came after data signalled strength in the labour force, reinforcing post-election bets on an expanding US economy. Those wagers have supported major indices even as concerns mount that the Trump administration may struggle to deliver on hoped-for policies such as tax cuts that could boost corporate profits.
  • Stocks rose broadly early in the session following gains in oil prices and data that showed the US private sector added a better-than-expected 263,000 jobs in March, according to payroll firm ADP and Moody’s Analytics. The Labor Department’s job report for March is expected Friday.
  • Also overnight, the Institute for Supply Management said non-manufacturing activity fell more than economists expected in March, while still showing expansion in industries such as healthcare and finance.
  • US government bond prices edged lower, with the yield on the benchmark 10-year US Treasury note rising to 2.352% from 2.350% Tuesday.
  • The US Dollar Index reversed initial gains to close the day with a loss of just less than 0.1%. The dollar had fallen sharply after the Fed’s March meeting as some investors were disappointed the central bank didn’t increase its projections for rates or economic growth.
  • The Stoxx Europe 600 inched up less than 0.1%, buoyed by gains in the energy and basic resources sectors.

Source: Bloomberg, TradingFloor.com

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Copper rose 2%, reflecting strength across base metals following upbeat US jobs data and the return of Chinese buyers after a two-day break. Photo: Shutterstock 

Local markets and commodities

  • The S&P/ASX 200 Index futures contract fell 0.3%; futures relative to estimated fair value suggest an early decline of 0.3%
  • Bank of New York Australia ADR Index -0.5%, BHP Billiton ADR +0.7% to A$24.52 equivalent, ~1% discount to last Sydney close, Rio Tinto ADR -0.7% to A$53.83 equivalent, ~13% discount to last Sydney close
  • An AFR article gaining attention this morning: Australia's banks could be forced to raise billions of dollars more capital after the prudential regulator warned they may have concentrated too much of their lending in increasingly risky and highly priced housing. Wayne Byres, the chair of the Australian Prudential Regulation Authority, said the watchdog needed to resolve the way the banks' allocate capital to home loans, as he announced a strategic review into property lending. "If we are going to put an increasing number of eggs into a single basket, we'd better make sure that basket is an unquestionably strong one," Byres said told The Australian Financial Review's Banking & Wealth Summit. 
  • The unexpected intervention came only days after APRA told the banks it would introduce lending limits on interest-only loans, a move he described as a "tactical response" to an overheating market.
  • Gold fell from one-month highs on Wednesday after better-than-expected US jobs data boosted US bond yields and the dollar but losses were limited after minutes from the Federal Reserve's March policy meeting were released. Bullion pared some losses after the Fed's minutes showed most policymakers think the central bank should take steps to begin trimming its $4.5 trillion balance sheet later this year as long as the economic data holds up. 
  • Spot gold inched up 0.02% to $1,255.70/ounce. US gold futures for June delivery fell $9.90 to settle at $1,248.50. Immediately prior to the release of the Fed minutes, spot gold was down 0.66% at $1,247.19 and gold futures fell 0.75% to $1,249. Gold stocks in Toronto edged 0.3% higher overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Crude closed at the highest level in almost one month as concern over record US stockpiles was offset by speculation that rising refinery demand will curb supply in coming weeks. Supplies rose to 535.5 million, the most in weekly data going back to 1982, the US Energy Information Administration said Wednesday. Refineries operated at 90.8% of capacity, up 1.5 percentage points from the prior week and the highest since January.
  • Refiners typically increase crude processing at this time of year as they prepare for the summer surge of gasoline demand. West Texas Intermediate for May delivery rose 12 cents to $51.15/barrel on the New York Mercantile Exchange. It was the highest close since March 7. Total volume traded was about 14% above the 100-day average. 
  • Brent for June settlement advanced 19 cents to $54.36/barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $2.76 premium to June WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Spot iron ore prices pushed back above $80/t as news of the new economic zone in Xiongan boosted sentiment in the sector. Spot prices rose 2.09% to close at $81.54. A fall in port inventories of iron ore also helped support prices. Stocks fell 0.3% to 132.1 tonnes last week, according to SteelHome. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Spot coking coal prices surged higher again as the reality of the disruption to Australian exports hit home. Producers such as BHP Billiton announce force majeure as a result of the closure of the coal rail network. This comes on the back of weaker level of exports. Shipping data shows that February exports from Queensland fell nearly 10% to 15.86 million tonnes. Coal stocks: WHC, NHC, YAL
  • Copper rose 2%, reflecting strength across base metals following upbeat jobs data from the United States and the return of Chinese buyers after a two-day break. Three-month copper on the London Metal Exchange closed up 2% at $5895/tonne. A move back through resistance at the 100-day moving average at $5790 improved its technical picture. 
  • LME nickel closed up 3.2% at $10,295/tonne, driven higher by gains in the steel sector after a cyclone in Australia damaged transport routes for coking coal. Zinc ended the day at $2778/tonne, up 1.5%. The discount of LME cash zinc to the three-month contract moved to $27.25/tonne, its widest since October 2015 indicating adequate supply of refined metal in the market. 
  • LME lead closed 0.1% higher at $2312/tonne, while tin ended up 0.4% at $20,105/tonne. Aluminium finished the day up 1.2% at $1961. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Trading ex-dividend: ARB, Harvey Norman, Melbourne IT, Nufarm, Sigma Pharmaceuticals
  • BHP Billiton (BHP): Iron cargoes swell as top exporters post Q1 records
  • Crown Resorts (CWN): Melco Crown named long research tactical idea at Morgan Stanley
  • Fortescue (FMG): CFO sees China’s steel consumption peak some way off; Iron ore rises 2.6%, most in three weeks, according to price index compiled by Metals Bulletin
  • Kingsgate (KCN): Thailand says prepared to talk to company under FTA
  • Qantas (QAN): Profit margin growth widest among Top 20 carriers: Chart

Broker upgrades and downgrades

  • Insurance Australia (IAG): Raised to neutral at Macquarie, PT A$5.95
  • MACA (MLD): Initiated hold at Moelis & Co.
  • NRW (NWH): Initiated hold at Moelis & Co.
  • OZ Minerals (OZL): Cut to sell at Morningstar
  • Rio Tinto (RIO): Asked to pay A$447mln more in Australian taxes; Raised to hold at Morningstar

GDX  and AUDUSD

VanEck Vectors Gold Miners ETF (GDX) has been trading in a tight range between 22.50-23.50 in the last two weeks, however it seems to be breaking out above the key resistance level 23.43, which corresponds to a 50% retracement between the 2017 high of 25.71 and the 2017 low of 21.14. Another daily settlement above 23.43 could signal a further upside move towards the next resistance level of 24 but the downtrend (from Aug 16 high 31.79) needs to be broken to confirm a valid breakout.
 
GDX monthly
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Price actions of AUDUSD remained choppy and muted despite massive rallies from iron ore and copper. The US dollar also has been weak but AUDUSD continues to struggle to recover and the downtrend from the recent swing high 0.7679 appears to be acting as a valid resistance. Selling pressure should continue to exist unless the base metals extend their rally.

AUDUSD monthly
Source: SaxoTrader. 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. Follow the team on Twitter at: twitter.com/SaxoAustralia.

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