Article / 15 February 2018 at 23:33 GMT

Today's Trade: Financials give ASX a boost

Trading Desk / Saxo Capital Markets
Australia
  • The ASX rose at the start of trading with financials doing the lifting
  • The US dollar slid toward a three-year low
  •  Crude climbed to a one-week high on the falling greenback 

By Saxo Capital Markets (Australia)

Overnight

  • US stocks capped their best five-day run since 2011, extending a global rally as equities rebounded from the worst of this month’s correction. The dollar slumped to a three-year low and oil rallied.
  • US stocks extended their rebound Thursday in a broad rally as 10 of the S&P 500’s 11 sectors recorded gains.
  • The S&P 500 and the Dow Jones Industrial Average have rallied for five consecutive sessions since falling last week into correction territory – a 10% drop their January 26 highs. The indices have notched their largest five-day percentage increases since December 2011, up 5.8% and 5.6%, respectively, over that period.
  • Many investors and analysts have pointed to strengthening fundamentals – such as corporate earnings and economic growth – as reasons for the rebound. But they also express concerns about stocks racing back to record highs.
  • The Dow Jones Industrial Average rose 306.88 points, or 1.2%, to 25200.37. The S&P 500 added 32.57 points, or 1.2%, to 2731.20, and the Nasdaq Composite gained 112.81 points, or 1.6%, got 7256.43.
  • Among the best performers were large tech companies, a group that led the stock market rally last year as investors poured money into firms that reliably posted strong earnings growth.
  • Cisco Systems added $1.99, or 4.7%, to $44.08 after strong quarterly earnings, and Apple gained 5.62, or 3.4%, to 172.99. Together, the two companies added more than 50 points to the Dow industrials. The S&P 500 tech sector rose 1.9%, putting its year-to-date climb at 5.7%.
  • Tech's increases remain far above the broader index’s 2.2% rise in 2018, a gain that was only retraced in recent trading sessions after sharp declines in early February.
  • The only S&P 500 sector falling Thursday was energy, which was under pressure from volatile crude oil prices. US-traded crude oil for March delivery fell in early trading, though it ended the day up 1.2% at $61.34.
  • Data on Thursday offered new signs inflation is firming, with US producer prices rising in January. That followed consumer price data on Wednesday, which came in above expectations.
  • The global stock swoon earlier this month was prompted by concerns that the era of low inflation is coming to an end and related fears that the Federal Reserve will pick up the pace of interest-rate increases in 2018. Treasury yields climbed to four-year highs, and the Dow industrials and S&P 500 slumped into correction territory last week.
  • Market participants see higher inflation readings pushing the Fed to raise rates faster. Fed-fund futures, used by traders to place bets on the course of interest rates, showed a 21% chance of at least four interest-rate increases by year-end, according to data from CME Group, compared with 17% earlier this week.
  • In other markets, the Stoxx Europe 600 added 0.5%.

Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

International earnings

  • Friday: Coca-Cola, Kraft Heinz, Campbell Soup, Deere, Och-Ziff Capital Management, Ryder System, Vulcan Materials, VF Corp, JM Smuckers

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 RBA's Philip Lowe delivered an upbeat assessment of the global and domestic economy while reiterating that his next rate move was more likely to be up. Photo: Shutterstock

Local markets and commodities

  • Bank of New York Australia ADR Index is up 0.7% to 292.6, BHP Billiton ADRs are up 1.4% to A$31.48 equivalent, a 0.3% premium to last Sydney close, Rio Tinto ADRs are up 1.6% to A$74.35 equivalent, a 9.4% discount to last Sydney close
  • Gold was on track for its fourth straight session of gains on Thursday as the dollar skidded to its lowest in two weeks on concerns about the impact of high levels of US debt and tax cuts. 
  • Spot gold added 0.22% to $1,353.6/ounce after earlier hitting its highest since January 25 at $1,357.08. It had increased 1.6% on Wednesday, its biggest one-day gain since May 2017. US gold futures for April delivery were down 0.15% at $1,356/ounce. Gold stocks in Toronto edged lower by 0.85% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Crude climbed to a one-week high as the slumping greenback increased the appeal of dollar-priced commodities and rebounding stock markets signalled robust economic growth. Futures in New York rose 1.2% on Thursday. The outlook for economic growth – and the fuel demand it stokes – brightened as the S&P 500 advanced for a fifth straight day. 
  • The US currency slid toward a three-year low, making it cheaper for overseas buyers to acquire oil. Investors spooked by recent volatility across global markets are emerging from the shadows and embracing riskier assets once again. 
  • Oil in New York has been fluctuating around the $60/barrel level for most of the past week after surging to a three-year high above $66 in late January. OPEC achieved record compliance with self-imposed supply caps in January and shipments from the group are seen declining, even as US shale explorers escalated production. 
  • West Texas Intermediate for March delivery added 74 cents to settle at $61.34/barrel on the New York Mercantile Exchange. Brent for April settlement fell 3 cents to end the session at $64.33 on the London-based ICE Futures Europe exchange and traded at a $3.16 premium to WTI for the same month. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Despite limited liquidity, bulks managed to push higher over the session. Iron ore futures in Singapore ended slightly higher, as traders packed up and headed away on holiday for the Chinese New Year. Spot iron ore was added 0.3% or $0.21 closing at $77.2. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper rose as the US dollar fell and concerns over inflation prompted a move into hard assets, sparking an early rally across base metals that also saw zinc hit its highest in more than a decade and nickel a near three-year peak. 
  • Copper is on track for its biggest weekly gain since November 2016, up 6.3% so far on the back of optimism over global growth and weakness in the dollar, which benefits assets priced in the US currency. London Metal Exchange copper closed up 0.3% at $7182/tonne, reversing earlier losses that took the metal to a session low of $7125.50. 
  • Zinc ended the day up 0.1% at $3570/tonne, having earlier hit its highest since July 2007 at $3595.50/tonne. The premium for cash over three-month zinc slipped to $23.50/tonne from a three-month high of $55.50 at the end of January, suggesting near-term tightness in the market is easing. 
  • Nickel finished at $14,150/tonne, up 0.4% but off an earlier peak of $14,420/tonne, its highest since May 2015. The metal, used in stainless steel, is set to be supported by strong Chinese demand and supply tightness. LME aluminium stocks rose by 31,275 tonnes, adding to Tuesday's 158,925-tonne increase. Stocks have climbed 187,250 tonnes so far this week, on track for their biggest weekly gain since May 2009. 
  • Aluminium closed down 0.6% at $2165/tonne. The Shanghai Futures Exchange is closed from the evening session on Wednesday until February 22 reducing trading activity and increasing price volatility. 
  • LME lead finished the day up 1.5% at $2618/tonne, while tin ended 0.1% higher at $21,570/tonne. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Coking coal found some support after this week’s news that Aurizon may reduce the capacity on its coal rail system in Queensland. While the threat of lower exports is some way off, traders remain nervous amid general tightness in the market. Coal stocks: WHC, YAL, ATU
  • Auckland International Airport (AIA) said its first-half profit rose 17 per cent to $NZ165.9 million, while underlying profit rose 7.8 per ent to $NZ133.1 million. New Zealand's biggest airport said revenue in the six months ended December 31 rose 6.9% to $NZ332.4 million.
  • (Note: Following prices are in Australian dollars unless otherwise stated) Diversified wealth management company IOOF said its net flows rose 15% in the six months ended December 31 to $1.6 billion. It reported net profit fell 39% to $45.22 million. Underlying net profit climbed 19% to $94.84 million, the company said in a statement to the Australian stock exchange. 
  • The strength of net flows have taken IOOF's fund under administration and advice (FUMA) to $120 billion for the six months in the first half year, up 15% from the year-earlier period. Half-year revenue was flat at $456.2 million and IOOF said it would pay a fully franked 27¢ dividend on March 14 to shareholders of record on February 21.
  • Casino and resorts operator The Star Entertainment Group said its underlying net profit rose 12.4% to $120 million in the six months ended December 31. Statutory net profit fell 76.8% to $33 million because of $32 million of significant items and debt restructuring costs. Revenue climbed 15.9% to $1.36 billion. Star will pay a fully franked 7.5¢ per-share dividend. 
  • Medibank Private (MPL) said its half-year profit rose 5.9% to $245.6 million, with solid gains from its health insurance businesses more than offsetting lower earnings from investments. Health insurance premium revenue rose 1.8% to $3.18 billion in the six months ended December 31, while revenue from ordinary activities rose 2.1% to $3.47 billion. 
  • Primary Health Care (PRY) reported this morning revenue for 1H 2018 was up 5.9% and Underlying NPAT was up 5.0%. Pathology’s revenue was up 5.8% and EBIT 3.1%, with its Approved Collection Centre (ACC) costs increasing at a lower rate than revenue as a result of disciplined rental negotiations. 
  • Imaging’s revenue was up 10.1% and EBIT 14.7%, underpinned by its strategy to focus on the hospital sector, Primary medical centres and high-end specialised imaging sites. Free cash flow was nearly double 1H 2017. An interim dividend of 5.1 cps, 100% franked, has been approved, representing a payout ratio of 60% of Underlying NPAT. 
  • IPH reported revenue for the first half of $101.2 million. 1H net income $19.7 million. 
  • Ex-dividend: Ansell, Argo Investments
  • AP Eagers (APE AU): Non-Deal Roadshow Scheduled By Morgans for Feb. 22
  • BHP (BHP AU): Peer Vale Set for Another Iron Record as China Keeps Eye on Quality
  • Beacon Lighting (BLX AU): Non-Deal Roadshow Set By Morgans for Feb. 23
  • Corporate Travel (CTD AU): Non-Deal Roadshow Set By Morgans for Feb. 23
  • IPH (IPH AU): Non-Deal Roadshow Scheduled By Morgans for Feb. 16
  • IOOF (IFL AU): First Half Net Income $45.2mln
  • Rio Tinto (RIO LN): Rio Tinto Appoints Royal Mail CEO Moya Greene to Board
  • SmartGroup (SIQ AU): Non-Deal Roadshow Scheduled By Morgans for Feb. 22
  • Sydney Airport (SYD AU): Non-Deal Roadshow Set By Morgans for Feb. 23
  • Tawana Resources NL (TAW AU): MD Says First Lithium Exports on Track for April Delivery
  • Wagners Holding (WGN AU): Non-Deal Roadshow Set By Morgans for Feb. 23
  • Wesfarmers (WES AU): Norman Is Said to Have Warned Wesfarmers Not to Buy Homebase: FT

Broker upgrades and dowgrades

  • Breville (BRG AU): Upgraded to Overweight at JPMorgan; PT A$15.60; Upgraded to Outperform at Credit Suisse; PT A$13.50
  • CBA (CBA AU): Upgraded to Buy at Morningstar
  • Capitol Health (CAJ AU): Rated New Buy at Shaw and Partners; PT A$0.35
  • Dexus (DXS AU): Upgraded to Hold at Shaw and Partners; PT A$9.46
  • Evolution Mining (EVN AU): Downgraded to Neutral at JPMorgan; PT A$2.90
  • GrainCorp (GNC AU): Downgraded to Neutral at Goldman; PT A$7.87
  • Telstra (TLS AU): Downgraded to Hold at HSBC; PT A$3.90
  • South32 (S32 AU): Downgraded to Reduce at Morgans Financial; PT A$2.97; Downgraded to Underperform at Macquarie
  • Stanmore Coal (SMR AU): Rated New Buy at Argonaut Securities; PT A$1.15
  • Suncorp (SUN AU): Upgraded to Outperform at Credit Suisse; PT A$14.50; Upgraded to Add at Morgans Financial; PT A$14.31
  • Integrated Research (IRI AU): Cut to Sector Perform at RBC; PT A$3.75
  • Origin Energy (ORG AU): Upgraded to Overweight at JPMorgan; PT A$9.65

Australian releases

  • Friday: IAG, Medibank Private, Origin, Primary Healthcare, Whitehaven Coal

Australian stock to watch: Brambles (BXB)

Brambles Ltd (BXB:xasx) firmly remains above the subprime uptrend as it heads into earnings due on Monday where the market estimates EPS to come in at 0.418, and for revenue to print $5.523bn. Any negative price action following its reporting is expected to find first support at the 2009 –12 uptrend and below that, the $9.00 handle is the next excuse for Bramble’s bears to find an excuse to support the stock. We highlight that at 2017 lows at 8.90 lies a key head and shoulder neckline, which if violated, opens aggressive losses ahead for the stock. The topside test is to break above $10.43, which was the lower 2017 swing high on the weekly chart, which already sets up a negative tone on a longer term scale. The market has three buys, five holds and one sell.

Brambles weekly
1
Source: SaxoTrader

Dow Transport and US Dollar Index

In a similar fashion to S&P500, the Transport index appears to have bounced off the two-year uptrend that coincided with 200 DMA. This could be seen as another sign of improving sentiments in the overall market conditions.

Dow Transport Index monthly
2
Source: Bloomberg

Downward momentum continues to exist on the US dollar index (DX) as it is approaching the key support level of 88 where the uptrend (from 2011) connects to the 50% retracement from the 2017 top of 103.78. Thus we look to go long at 88.

US Dollar Index 
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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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