- The ASX200 opened higher, benefiting from the rise in iron ore and oil prices
- Copper and crude oil rallies fed into commodity currencies
- AUDUSD support level now at 0.76
By Saxo Capital Markets (Australia)
Overnight and early trading
The local market opened higher buoyed by gains overnight in iron ore and oil prices. Most sectors were in the green; utilities and healthcare were lower. At the open, the ASX200 was up 0.6% to 5384.
Global stocks erased losses sparked by the Brexit vote and the Dow Jones Industrial Average reached its first record in 13 months as the prospect of ongoing global stimulus spurred demand for commodities and other risk assets. Treasuries tumbled.
Powering on ... iron ore rose $3.70, or 6.7%, to $59.38/tonne on Tuesday. Photo: iStock
The MSCI All-Country World Index climbed a fourth day, capping a 7.9% advance from a nadir reached in the days after the UK referendum on its membership of the European Union. US crude oil surged the most in three months, jumping with nickel as the pound rose the most since before the vote. Haven assets were shunned, with Treasuries capping their biggest two-day selloff
this year amid waning demand at a second bond auction. The yen had its biggest two-day slide since 2014 as gold slumped the most in seven weeks.
Stocks globally have regained almost all of the more than $3.5 trillion in value lost in the days following the UK’s vote to leave the EU, as investors bet central banks and lawmakers in the world’s major economies will work to stem any fallout. Economists expect the Bank of England to ease policy this week, while Japan’s Prime Minister Shinzo Abe said he would order fresh fiscal stimulus after victory in a key election at the weekend. Traders are pricing in less than 50% odds of the Federal Reserve raising interest rates this year, even after last week’s better-than-forecast payrolls data.
The S&P 500 Index extended its record high
, adding 0.7% to 2,152.14. The US benchmark has climbed 7.6% in the 10 days since June 27, pushing its average valuation above that of global shares and its own three-year average. The index had gone 285 days without setting a fresh record, the longest stretch outside a bear market since 1985. The Dow Average rose 0.7% to 18,347.60, closing at a record high for the first time since May 19, 2015. The index has gained 5.3% this year, led by advances of at least 20% in shares of Exxon Mobil and Verizon Communications.
Alcoa jumped by the most since April on Tuesday, after the company reported profit for the second quarter that topped analysts’ estimates. Analysts predict S&P 500 members will report a fifth straight quarter of shrinking earnings, with BlackRock, JPMorgan Chase & Co and Citigroup among companies set to release results this week.
Commodity and transportation stocks were among the biggest gainers Tuesday, with American Airlines rallying 11%, a record climb, after Deutsche Bank recommended buying shares in the three largest US air carriers.
In Europe, the Stoxx 600 gauge rose 1.1%
, adding to its 4.4% surge over the past three trading days. Japan’s Topix index jumped 2.4% to its highest level since June 23 – the day of the UK referendum – while the MSCI Asia Pacific Index gained 1.2% to an almost five-week high.
The MSCI Emerging Markets Index rose a fourth day, adding 0.9% to its highest level on a closing basis since November. China’s benchmark equity gauge rallied to a three-month high amid speculation state-backed institutions intervened in both the stock and currency markets. Thailand followed India into a bull market this week.
Futures signalled further gains for Asian shares, with contracts on equity benchmarks from Australia to Hong Kong rising at least 0.3% in most recent trade. Futures on Japan’s Nikkei 225 Stock Average advanced 2.3% in Osaka, while yen-denominated contracts on the gauge were up 2.8% in Chicago.
The yen extended its steepest decline
since 2014 as investors awaited details of Abe’s promised stimulus package. Japan’s currency fell 1.8% to 104.69 per dollar on Tuesday, following a 2.3% decline from the day before. Sterling strengthened 1.9% to $1.3247 as Theresa May’s confirmation as the only remaining candidate to replace David Cameron as prime minister removed a layer of political uncertainty in post-Brexit decision Britain.
Yields on Treasuries due in a decade jumped eight basis points, or 0.08 percentage point, to 1.51%, touching their highest level this month after a gauge of demand at a $20 billion auction of the securities fell to the least since 2009. It was the second of three note and bond sales this week, after an auction of three-year notes on Monday also attracted the weakest demand in seven years, sparking a selloff across maturities. Gains last week week pushed 10- and 30-year yields to record lows.
Benchmark German 10-year bonds
, perceived as among the safest debt securities in the euro area, declined for a second day, pushing the yield up by eight basis points to minus 0.09%. Deutsche Bahn became the first non-financial company to sell negative-yielding bonds in euros, as quantitative easing increasingly distorts European credit markets. Yields on $3.3 trillion of sovereign securities in Europe have fallen below zero.
West Texas Intermediate crude climbed 4.6% to settle at $46.80 a barrel in New York amid the equity rally. Prices rose as weakness in the dollar boosted the appeal of commodities and as further disruptions worsened supply problems in Nigeria. Nickel rallied 4.4% to an eight-month high amid expectations top miner the Philippines will cut supply.
Zinc rose to the highest level in more than a year, while shares of copper producers including Freeport-McMoRan advanced. Gold futures for August delivery slid 1.6% to settle at $1,335.30/ounce on the Comex in New York as the equity rally dimmed the appeal of the haven metal.
Source: Bloomberg, TradingFloor.com
- Wednesday: CSX, Yum Brands
- Thursday: JPMorgan Chase, BlackRock, Delta Air Lines, Taiwan Semiconductor, Progressive, First Republic Bank
- Friday: Earnings: Citigroup, Wells Fargo, US Bancorp, PNC, Shaw Communications
Local markets and commodities
- Bank of New York Australia ADR Index +2.5%, BHP Billiton ADR +3.3% to ~A$20.23 equivalent, 1.5% premium to last Sydney close, Rio Tinto ADR +3.3 to A$43.53 equivalent, 12% discount to last Sydney close
- Gold dropped the most in seven weeks as stock markets climbed on speculation that policymakers will act to spur growth, easing concerns on the global economy after the UK’s vote to leave the European Union. Gold futures for August delivery slid 1.6% to settle at $1,335.30/ounce on the Comex in New York (at 1347), the biggest decline since May 24. The decline was the fourth straight, the longest stretch in two weeks.
- Silver futures for September delivery slid 0.7% to $20.171/oz on the Comex. The gold sector was smashed 4.69% overnight in Toronto and we expect our gold stocks to match this performance. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Oil surged the most in three months as global equities erased losses sparked by the UK’s secession vote and a weaker dollar bolstered the appeal of commodities. US crude supplies probably slipped 3 million barrels last week, according to a Bloomberg survey before government data Wednesday.
- Royal Dutch Shell said the Trans Niger pipeline in Nigeria, capable of shipping 180,000 barrels a day, was halted after the discovery of a leak. Futures retreated from the settlement after the industry-funded American Petroleum Institute was said to report US crude supplies rose 2.2 million barrels last week.
- WTI rallied 4.6% in New York. Brent advanced $2.22, or 4.8%, to $48.47/barrel on the London-based ICE Futures Europe exchange. It’s also the biggest gain since April 8. The global benchmark closed at a 90-cent premium to WTI for September delivery. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore rose $3.70, or 6.7%, to $59.38/tonne, according to a price index compiled by Metal Bulletin. Steel prices in Shanghai rallied after a local government in China’s top-producing province ordered mills to restrict output at a time when inventories have shrunk to at least a six-year low.
- Steel reinforcement-bar, a benchmark product in construction, for October delivery climbed as much as 5.5% to 2,563 yuan ($383) a tonne on the Shanghai Futures Exchange, and closed at 2,558 yuan, the highest since April 29. The surge helped to lift iron ore, with futures in Dalian rising 5.6%, and the Metal Bulletin price rising to the highest since May.
- Steel and iron ore have advanced in 2016 after policymakers in China bolstered growth and the property sector rebounded, aiding demand. As mills have increased supply in response to the spurt in prices, stockpiles of rebar have dwindled. The steel-making hub of Tangshan city in Hebei province plans to restrict output through July to ensure clean air for memorial activity marking the anniversary of the Great Tangshan earthquake of July 28, 1976.
- Stockpiles of rebar have declined to the lowest since at least March 2010, according to Shanghai Steelhome Information Technology. The holdings fell 5.2% to 3.47 million tons last week, the seventh drop in eight weeks. Prices have risen every month this year apart from in May. As holdings of rebar have been falling, more iron ore is being shipped. Data on Monday showed ore shipments from the world’s biggest bulk-export terminal in Australia surged to a record in June, buttressing a flurry of predictions that prices may decline.
- The higher steel prices have boosted mills’ profit margins, helping to support iron ore, Marex Spectron analysts including Hui Heng Tan said in a note received on Tuesday. Still, “iron ore supply, which is anticipated to increase in the coming months, could create downward pressure on iron ore prices.”
- Iron ore will probably moderate over the rest of 2016 as the market remains well-supplied, Australia’s Department of Industry, Innovation and Science said last week. That view is similar to bearish forecasts from Goldman Sachs Group and Clarksons Platou Securities, who’ve said that iron ore will probably decline this half. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Copper futures for September delivery rose 3.1% to $2.213 a pound on the Comex in New York. Copper inventories in LME warehouses climbed to the highest since February as stockpiles in Singapore jumped 11% to highest since 1999. The increase in Asian inventories has led to speculation that some metal has left Chinese warehouses and entered those registered with the LME. Nickel rallied to an eight-month high amid expectations for supply cuts in the Philippines, the top miner, and as the outlook for more economic stimulus buoyed metals.
- Zinc rose to the highest in more than a year, while copper producers including Freeport-McMoRan advanced. Nickel climbed as much as 4.7% to $10,515/tonne before settling 4.4% higher at $10,490/tonne on the London Metal Exchange. It will touch $12,000 in six months, according to a new baseline scenario from Goldman Sachs Group that assumes a quarter of Philippine output is lost over the period. The new government has said mines falling short of environmental and welfare standards will be shuttered, and has ordered an audit of operations.
- Copper, lead, aluminum and zinc all rose more than 1% on the LME. Tin gained 0.6%. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- ANZ (ANZ): Says former trader withdrew legal action
- Computershare (CPU): Georgeson unit’s staff accused of fraud in US, WSJ says
- Henderson Group (HGG): Frozen property fund said to plan second London office sale
- KTL Technologies (KTL): Prepares bid for Priority One Network Group
AUDUSD and XAUUSD
It looks like AUDUSD
made a false break above the June high 0.7648, which is the resistance level. Copper made a huge rally along with crude oil, therefore commodity currencies were the major beneficiaries of these moves. The support level is now expected to be the 0.76 handle and the double top looks to have formed at 0.7650 which needs to hold to avoid any further rallies.
The US dollar index (DX) is resilient but still yet to push higher. Gold (XAUUSD) is looking weak as it fell below the nonfarm payroll low of 1,335, although silver (XAGUSD) is still maintaining its strength above 20. This means the selling pressure on the gold-silver ratio remains strong. The downside momentum is currently building but we would look to buy if gold continues to fall towards the next support levels 1,320-1,300.
Source: Saxo Bank
Source: Saxo Bank
AUS200.i and US500.i
The cash XJO failed to test the psychological level 5,400 yesterday, but AUS200
touched 5,400 in the SYCOM session following the strong leads from US markets. The next resistance level is 5,430, which would be a good opportunity to sell. The big mining stocks are expected to support the AUS200 and the focus will be on the Chinese trade balance.
It is interesting to note that there is a divergence between the recent rally in the US500
and the RSI which has been making lower highs. The upside momentum seems potentially unlimited as it continues to make a fresh record high but at the same time it is also looking dangerously overbought, therefore we are still patiently waiting for a reversal daily candlestick pattern in order to avoid getting squeezed.
Source: Saxo Bank
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more
Today's information 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.