Oil has hit a 15-month high on the back of optimism over the Opec deal which needs to be sorted out by November 30. But, with a record long position building across the combined benchmarks, a disappointment could leave some exposed. Full report to come within the hour....
Article / 05 October 2016 at 0:29 GMT

Today's Trade: Gold selloff takes shine off market

Trading Desk / Saxo Capital Markets
  • Gold plunged the most in almost three years, falling below $1,300/ounce 
  • This led the local market lower at the open; the ASX200 was down 0.6%
  • AUDUSD was one of the few pairs that maintained strength against the USD

By Saxo Capital Markets (Australia)

Local shares opened lower, led down by a savage selloff in goldminers on concerns of a US interest rate rise and a potential tapering of the European Central Bank's stimulus. At 1110 AEDT (0010 GMT), the ASX200 was down 0.6% at 5449. Most sectors were in the red, with the big banks mixed.

Not so glittery ... gold plunged the most in almost three years overnight. Photo: iStock

Overnight and early trading

Fresh reminders that central banks may be starting to map their retreat from extraordinary stimulus measures sent a shockwave through markets, roiling bonds, currencies and equities.
Global bonds declined, the euro rebounded from its lows of the day and equities came under renewed pressure after Bloomberg News reported the European Central Bank will likely gradually taper asset purchases as it ends quantitative easing. Officials who asked not to be identified didn’t exclude that such a program could still be extended past the current end-date of March 2017 at the full pace of €80 billion ($90 billion) a month.
Traders have been watching signs from major central banks on the willingness to remove some of their stimulus measures. Bets on a rate increase by December climbed after the Fed Bank of Richmond President Jeffrey Lacker urged tighter policy, while his Cleveland counterpart Loretta Mester said the economy is ripe for a hike. The ECB will probably wind down bond purchases in steps of €10 billion a month, according to Eurozone central bank officials.
Treasuries fell as German 10-year bund yields rose by the most in almost a month, and those on similar-maturity Italian debt reversed an earlier drop. The euro rose 0.5% against a basket of developed-market peers. The euro lost less than 0.1% to $1.1206, after falling as much as 0.7% against the greenback.
The Bloomberg Dollar Spot Index, a gauge of the US currency against 10 major peers, rose 0.6%, increasing for the second day. It advanced 1.2% to ¥102.85, extending its rally to six days, the longest winning streak since August.
The pound tumbled to its lowest level in three decades amid mounting concern the UK is heading for a so-called hard Brexit that would restrict access to the European Union’s single market. The slide extended as Prime Minister Theresa May was said to take the view that financial services would get no special favours in EU exit talks.
Most emerging-market currencies retreated, led by losses in South Africa’s rand. India’s rupee gained as the central bank cut interest rates in its first policy meeting since a leadership change.
The S&P 500 Index retreated 0.5% to 2,150.49. Industries with high dividend yields led declines, with utilities and phone shares falling more than 1.6%. The groups lose lustre as interest rates rise. Banks advanced on the prospect for higher profits related to an increase in lending spreads.
The Stoxx Europe 600 Index added 0.8%, while the UK’s FTSE 100 Index jumped 1.3% to the highest since April 2015 after touching a record high. British exporters rallied amid a slump in the pound.
Benchmark US 10-year yields rose six basis points, or 0.06%, to 1.69%, according to Bloomberg Bond Trader data. The yield rose to as high as 3.05% in 2014, and reached a record low 1.318% in July.
The bond selloff shows investors are starting to doubt the resolve of central banks from Europe to Japan to maintain accommodative policies, after negative interest rates and aggressive bond-buying helped push yields on almost $12 trillion of sovereign debt below zero. The lack of commitment from Japan and Europe to extend or increase their asset-purchase targets threatens bond bulls who also face the possibility of higher interest rates in the US this year.
Germany’s 10-year bund yield jumped four basis points, or 0.04%, to minus 0.054%. Italy’s 10-year yield increased four basis points to 1.31%, having been as low as 1.23%.     
Oil slipped from a three-month high before a government report that’s projected to show that US crude stockpiles grew for the first time since August. This retracement was short-lived.
West Texas Intermediate for November delivery fell 12 cents to settle at $48.69 before rebounding this morning, reaching the highest intraday level since July 5.

Source: Bloomberg,

Local markets and commodities

  • Bank of New York Australia ADR Index -0.8%, BHP Billiton ADR -0.6% to $A22.73 equivalent, 0.8% discount to last Sydney close, Rio Tinto ADR -1.4% to $A43.41 equivalent, ~17% discount to last Sydney close
  • Gold plunged the most in almost three years, falling below $1,300/ounce for the first time since June amid mounting concern that an improving US economy will push the Federal Reserve to boost interest rates soon. 
  • The odds of tightening at the next central bank meeting on November 1-2, the week before Americans head to the polls in the presidential election, is just 19.3%. Still, the probability of a move in December is now 61.8%, up from less than 40% two months ago. 
  • Gold futures for December delivery dropped 3.3% to settle at $1,269.70, the biggest decline for a most-active contract since December 2013. Gold miners had their largest one-day drop since July 2015 on Tuesday. Gold stocks plummeted 9.42% in Toronto on Tuesday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • WTI crude rises above $49/barrel, its highest since the first week of July. Brent moved above $51. Oil prices were higher in choppy trade on Tuesday, with Brent hitting four-month highs on a rally inspired by Opec plans to tighten output before a surging dollar pared gains. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore’s 2016 rally may be doomed, according to UBS Group. The period from November to December may mark a “death knell” for the commodity as a recent spike in coking-coal prices has eroded steelmakers’ margins. Australia’s biggest iron-ore producers shipped less than expected in the past three months, jeopardising their ability to meet full-year guidance, according to Macquarie Group Ltd. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper concluded at $4,805/ tonne, down $14 on Monday's close. It dipped below the $4,800 level earlier in Tuesday’s session. 
  • Nickel posted the biggest loss in three weeks as supply concerns eased amid speculation that Philippine mines could avoid shutdowns after a government audit of producers. The audit that’s threatened mass closures may see producers prevail, with companies signalling their confidence shutdowns can be avoided as they race to remedy problems flagged in the nationwide Philippine checkup. 
  • The aluminium price ended $9 lower at $1,669/tonne after 6,550-tonne falls in stocks and cancelled warrants to 2,148,275 tonnes and 865,025 tonnes, respectively. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • ANZ Bank (ANZ): CEO Shayne Elliott is fronting the Australian parliamentary inquiry; Note: Bank bosses face Australia parliament grilling on rates
  • BHP (BHP), RIO (RIO): West Australia says it is looking at BHP, Rio’s iron ore charges; BHP hosts petroleum investor day on London
  • CBA (CBA): Says about “15 or so” employees interviewed by ASIC on BBSW
  • Fonterra (FSF): Whole milk powder average price falls to $2,681/t
  • Fortescue (FMG): Vale goes down market in China in bid to beat Australian rivals
  • National Australia Bank (NAB): Has had some service outages affecting call centres, mobile internet banking, according to media release on website
  • Newcrest (NCM), Northern Star (NST), Saracen (SAR), Evolution (EVN): Gold drops below $1,300 to lowest since June on Fed rate concern
  • PSivida (PVA): Second Phase 3 study meets enrolment target; Note: US traded shares down 3.7% to lowest since June 30
  • Ramsay Health (RHC): Ramsay Générale de Santé rtg to positive vs stable by Moody’s
  • Santos (STO) Progressing With Gladstone LNG train 1 planned shutdown
  • Summerset Group (SNZ): nine-month sales up 16% y/y
  • Veda Group (VED): Australia govt considering 2 bids for ASIC registry: AFR
  • Woodside (WPL): Considering whether to persist in hunt for oil & gas in S.Korea: AFR

Stock to watch: Northern Star (NST) 

Northern Star (NST) rebounded off $4 which coincided with its 200DMA but it is expected to return towards the support level $4 today as gold prices plunged more than 3% overnight. Unless we see a daily close below $4, we would look to buy at this level.

 Source: Saxo Bank

AUS200 briefly broke above the psychological level 5,500 in the early SYCOM session, but it erased all of yesterday’s afternoon gains as the US market opened. Although the major US equity indices are looking weak, the VIX showed little movements while the crude oil (CL) extended the gains to push above the August high. The previous resistance level 5,435 should now act as a support level.
AUS200 monthly

Source: Saxo Bank 

The precious metals (both silver and gold) sold off heavily as the US dollar and treasury yields strengthened. The magnitude of the declines seems quite surprising considering the November rate hike is still an unlikely scenario. 

AUDUSD was one of the few pairs that maintained strength against the USD on the back of the European Central Bank's intention on tapering of the bond purchases. The resistance level 0.77 handle continues to remain as a key resistance level and proper break out below 0.76 could signal further weakness. 

AUDUSD monthly
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more 

– Edited by Gayle Bryant

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


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