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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 17 August 2017 at 0:33 GMT

Today's Trade: Jump in metals prices boosts miners

Trading Desk / Saxo Capital Markets
Australia
  • Zinc has surged above $3,000 a tonne for the first time in almost a decade
  • Oil has hit its lowest level in more than three weeks following a rise in US output
  • Gold prices extended gains and USD fell after the release of the Fed minutes
  • Some FOMC members think weak inflation should mean a delay in raising rates
By Saxo Capital Markets

Overnight and early trading

  • The S&P/ASX200 crept higher in early trading; it was up 0.13% to 5,792.80 at 1031 AEST (0031 GMT). 
  • The US dollar dropped and Treasuries climbed after the odds of another U.S. interest-rate hike this year declined with Federal Reserve meeting minutes showing concern about inflation remaining persistently low.
  • Stock-index futures point to a mixed start for Asian trading. A majority of Fed officials stuck with a forecast that inflation would gradually rise to a 2 percent target over the medium term, according to minutes from the July meeting.

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Spot iron ore prices fell as traders remained on the sidelines following recent gains; the demand that’s supported gains may fade as steel mills start to dial back output. Photo: Shutterstock


  • U.S. stocks climbed overnight, supported by a bounceback in shares of retailers.
  • The moves extended a volatile stretch for the companies, many of which have been grappling with e-commerce competition and mixed earnings. Brick-and-mortar stores were among the worst performers in the S&P 500 a day earlier.
  • The Dow Jones Industrial Average rose 25.88 points, or 0.1%, to 22024.87 in its fourth straight session of gains. The S&P 500 gained 3.50 points, or 0.1%, to 2468.11 and the Nasdaq Co mposite advanced 12.10 points, or 0.2%, to 6345.11.
  • Target rose $1.96, or 3.6%, to $56.31, helping to lead retail shares higher after the company raised its full-year earnings outlook and reported same-store sales growth that outpaced analyst expectations in the most recent quarter. Gap, Best Buy and Dollar Tree were also among the S&P 500’s best performers.
  • Urban Outfitters shares jumped 2.94, or 17%, to 19.76—their largest advance in almost five years—after the retailer beat Wall Street’s quarterly earnings and sales projections.
  • Home Depot propelled the Dow industrials higher, after the stock fell Tuesday even as the company raised its outlook for the second time this year. Shares rose 2.08, or 1.4%, to 152.25, adding roughly 14 points to the blue-chip index. Wal-Mart is scheduled to report earnings before the market opens Thursday.
  • Stocks were relatively steady after minutes from the Federal Reserve’s latest meeting showed officials were split about the timing of future interest-rate increases, and two of President Donald Trump’s councils of top business leaders disbanded.
  • Gold prices extended gains and the dollar fell after the Fed minutes showed some officials argued that weak inflation meant the central bank should hold off on raising rates.
  • The yield on the 10-year U.S. Treasury note fell to 2.224% from 2.264% Tuesday. Yields fall as bond prices rise.
  • Gold for August delivery gained 0.3% to $1,276.90 an ounce. The WSJ Dollar Index, which tracks the U.S. currency against 16 others, fell 0.4%.
  • Elsewhere, the Stoxx Europe 600 rose 0.7% in its third straight session of gains.
  • Source: Bloomberg, TradingFloor.com, WSJ.com
US earnings
  • Wednesday: Target, Cisco Systems, Tencent, Pershing Square Holdings, L Brands, Vipshop, NetApp, Performance Foods
  • Thursday: Wal-Mart, Alibaba, Madison Square Garden, Ross Stores, Applied Materials, Gap, Buckle
  • Friday: Deere, Estee Lauder, Foot Locker
Local markets
  • Bank of New York Australia ADR Index +3.3%, most since Nov. 7, BHP Billiton ADR +2.8% to $A25.95 equivalent, 1.1% premium to last Sydney close, Rio Tinto ADR +2.3% to $A57.04 equivalent, 9.1% discount to last Sydney close
  • Gold recovered early losses Wednesday after President Donald Trump disbanded two of his White House initiatives. In a private phone call Wednesday afternoon, CEOs who were part of a strategic council to Trump agreed to disband the group and condemn Trump's confrontational response to a violent white supremacist rally in Charlottesville, Virginia. "There really was nothing to debate," said one member of the forum, who described the president's fiery Tuesday news conference as a "tripwire."
  • Spot gold rose 0.57% to $1,278.67/oz, below a two-month peak of $1,289.73/oz touched on Monday. US gold futures for December delivery settled at $1,282.90/oz, up $3.20. Gold extended gains after the Federal Reserve released the minutes from its July 26 meeting in New York. The minutes showed Fed officials were split over the path of future monetary policy. Some officials preached caution while another raised concern over delaying the normalization process. Investors largely expect the central bank to start unwinding its massive $4.5 trillion bonds portfolio — which it accrued trying to stem the economic downturn from the financial crisis — in September. Gold stocks in Toronto saw a recovery rally with a rise of 1.52% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil declined to the lowest level in more than three weeks as investors focused in on a rise in U.S. crude production, even as stockpiles slipped by the most since September. Futures fell for a third day, dropping 1.6% in New York. While crude inventories continued to decline, losing 8.95 million barrels last week, U.S. output gained the most since June to drive prices for West Texas Intermediate below $47/barrel. Gasoline stockpiles climbed for a second week, data from the Energy Information Administration showed on Wednesday. Oil in New York has lingered below $50/b this month as investors weigh rising global supply against output cuts by Opec and its allies.
  • Opec won’t clear the global glut any time soon since any increase in price continues to bolster rival production from U.S. shale, according to the International Energy Agency. WTI for September delivery fell 77 cents to settle at $46.78/barrel on the New York Mercantile Exchange. Total volume traded was about 32% above the 100-day average. America’s benchmark has dropped about 6.6% in August, putting it on track to become the largest monthly decline since July 2016. Brent for October settlement lost 53 cents to end the session at $50.27/b on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $3.33 to October WTI. U.S. crude inventories slipped to 466.5 million barrels last week, the lowest level since January 2016. At the same time, gasoline inventories rose by 22,000 barrels to 231.1 million and Cushing, Oklahoma crude supplies climbed by 678,000 barrels, the biggest increase since March, EIA data showed. Crude production jumped by 79,000 barrels a day to 9.5 million a day. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Spot iron ore prices fell as traders remained on the sidelines following the strong gains over the past couple of weeks. Spot iron ore dropped by 1% or $0.71 to close at $72.97. Anecdotal evidence suggests steel mills are relatively well stocked, which gives them freedom not to chase the market higher from here. The data remained mildly positive, with China’s iron ore output fell 0.2% y/y to 114.7 million tonnes in July. However, with spot prices now $10/t higher than the average for the month, the test will be whether further supply is not induced back into the market due to higher prices. Iron ore in the $70s a tonne may be as good as it gets for some time. After rallying hard in June and July, the commodity may see its gains unravel over the second half as steel production in China eases back from a record pace just as global miners pump up volumes. The robust demand that’s supported gains may fade as steelmakers start to dial back output, according to Capital Economics Ltd., which came out first among forecasters in the second quarter, according to data compiled by Bloomberg. Others expecting a drop include Citigroup Inc., Sucden Financial Ltd., Axiom Capital Management Inc. and hedge fund Academia Capital. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Zinc surged above $3,000 a tonne for the first time in almost a decade while aluminum approached a three-year high, adding momentum to a metals rally fueled by bets on tightening supplies and robust demand. Zinc jumped as much as 5.8% to $3,132.50 a ton on the London Metal Exchange, the highest since 2007, before settling at $3,119 in London. Zinc rallied 60% last year as worldwide demand topped supply after producers including Glencore Plc suspended some output. In the first five months of 2017, there was a global deficit of 181,000 tons, according to the World Bureau of Metal Statistics. The metal is also gaining from a favorable import arbitrage for Chinese buyers, and rising premiums in the physical market, analysts at Macquarie Group Ltd. said in a note on August 15.
  • Aluminum rose as much as 2.7% to the highest since September 2014, while nickel, copper and lead also advanced. Three-month LME aluminium ended up 2.2% at $2094 a tonne after hitting $2104.50, the highest since September 2014. Aluminium output in China fell 8.2% in July as capacity cuts started to take their toll. China makes more than half the world's aluminium. Benchmark copper finished 2.4% higher at $6532 having touched $US6576.50, the highest since November 2014. Nickel ended 4% higher at $US10,760, lead ended up 5.8% at an 8-1/2-month high of $2517 and tin closed down 0.4% at $20,025 a tonne. The rally boosted mining shares, with Freeport-McMoRan Inc. among the biggest gainers. An index of base metals has climbed to a more-than two-year high amid better-than-expected demand in China and a weakening dollar. The Asian nation is stepping up efforts to shut illegal aluminum and steel plants to cut emissions and excess capacity. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Trading ex-div.; GUD, IOOF, Janus Henderson.
  • Computershare (CPU): Canadian Western Trust Co. to exit exempt market securities.
  • Energy Resources (ERA): In revised sales & marketing pact With Rio.
  • Iress (IRE): H1 results expected.
  • Origin Energy (ORG): Looks to U.S. shale for lessons after LNG writedowns
  • Scentre Group (SCG): May be among bidders for $A1bn Queensland mall: AFR
  • Yancoal (YAL): Yancoal Australia holder challenges panel ruling on rights issue In early reporting: Wesfarmers said its full year profit rose to $2.873 bn from the year-earlier $407 million. Revenue in the six months ended June 30 climbed 3.7% to $68.444 bn from $65.981 bn a year earlier. The owner of Coles supermarkets and Bunnings Warehouse said it will pay a franked final dividend of $1.20, taking the full-year payout to $2.23. That compares with a full fiscal 2016 dividend of $1.86. The dividend will be paid on September 28 to shareholders of record on August 23.
  • Treasury Wine Estates said its full-year net profit rose 55 per cent to $269.1 mln, while revenue increased 8.1%t to $2.53 bn. It also announced a $300 mln share buyback and company lifted its final dividend to 13¢ per share, taking the full-year payout to 26¢, which was up 30 per cent on the previous year. The on-market share buyback of up to $300 mln will be held in the year ending June 2018. Profits from the Americas rose 44 per cent to $189 mln for the year ended June 30, while profits from Asia climbed 47 per cent to $150.1 mln. The Australasian operations delivered a robust 24% rise in profits to $11 mln. Overall, Treasury generated a 36% rise in earnings before interest, tax and the SGARA agricultural accounting standard to $455.1 mln for the 2016-17. But stockbroking house Citi had been predicting EBITS would reach $464 mln.
  • Australia's biggest telco, Telstra, said its full-year net income rose 1.1 per cent to $3.89 bin, slightly better than analysts' expectations of $3.82 bn. Net profit after tax from continuing and discontinuing operations fell 33.8% to $3.9 bn because of the $1.8 bn from the sale of Autohome shares included in the fiscal 2016 net profit report, the company said in a statement to the ASX. Telstra is paying a 15.5c final dividend, taking the full-year dividend to 31c a share. Chief executive Andy Penn said the telecommunications giant would move away from a payout ratio of 100% to a range of between 70% and 90%, in line with global peers and large local companies. Penn said the readjusting of the dividend policy was about balancing consistent returns for shareholders with long-term sustainability of returns and the strategic direction of the company.
  • Whitehaven Coal increased its earnings almost twentyfold thanks to surging coal prices and higher production. Net profit for the year ended June 30 jumped to $405.4 mln from $20.5 mln a year ago, well ahead of analyst forecasts for a profit of $376 mln. Revenue rose 52.3% to $1.77 bn from the year-earlier $1.164 billion. But the company has not resumed dividends, which were suspended back in late 2012. Whitehaven shares have risen 64 per cent in the last 12 months.
  • Mirvac Group said its full-year profit rose 13 per cent to $1.164 billion from the year-earlier $1.03 bn. Operating profit after tax rose 11 per cent to $534 mln from the year-earlier $482 mln, representing 14.4c per stapled security, which was at the top end of guidance. Chief executive Susan Lloyd-Hurwitz said the results "are a testament to the strength of our urban focus and our commitment to creating, owning and managing high-quality urban assets, while ensuring long-term value to our shareholders". Revenue slipped 1 per cent to $3.02 billion from $3.05 bn, the property giant said in a statement to the stock exchange. It will pay a final distribution on August 31 of 5.5c, taking the full-year distribution to 10.4c.
  • QBE said its half-year net profit jumped 30 per cent to $345 million from $265 million on further improvement in the Australia and New Zealand market. Adjusted net profit after tax increased by 76% to $464 mln on the one-off pretax charge coming from the UK Ogden price charge. On the same adjusted basis the Group's combined operating ratio increased slightly to 95.3% from the year-earlier 94.5%, consistent with revised guidance provided to the market in June. Revenue in the six months ended June 30 climbed 5% to $8.253 bn from $7.89 bn, the company said in a statement to the ASX. Cash profit after tax rose to $374.5 mln from $287 mln, while the return on equity rose 3.7 percentage points to 8.8 from 5.1, the insurer said. QBE has declared a 22c interim dividend to be paid on September 29.
Broker upgrades, downgrades
  • CSL (CSL): Raised to add at Morgans Financial, price target $A138.40.
  • Fairfax Media (FXJ): Cut to neutral at Credit Suisse, PT $A1.06.
  • Seek (SEK): Cut to underperform at Credit Suisse, PT $A15.80.
  • Sonic Healthcare (SHL): Cut to underperform at Credit Suisse.
  • Westfield (WFD): Raised to outperform at Credit Suisse, PT $A8.95.
  • Villa World (VLW): New buy at APP Securities, PT $A4.42.
Australian earnings results
  • Thursday: Telstra Corp Ltd, Viva Energy REIT, QBE Insurance Group Ltd, IPH Ltd, IRESS Ltd, Wesfarmers Ltd, Evolution Mining Ltd, Adelaide Brighton Ltd, Tatts Group Ltd, Treasury Wine Estates Ltd, Mirvac Group, Whitehaven Coal Ltd, ASX Ltd, Nanosonics Ltd, ARB Corp Ltd.
  • Friday: Mantra Group Ltd, Sydney Airport, Mineral Resources Ltd, Charter Hall Retail REIT, Primary Health Care Ltd, Spark New Zealand Ltd.
USDCHF meets resistance

USDCHF again found strong resistance level at 0.9770 that corresponds to 50% retracement (from the May high of 1.01 and the July low of 0.9438).

So the near-term outlook still indicates upside would be limited to 0.9770.

USDCHF chart1


























GBPJPY weakness

GBPJPY failed to push above ¥143.22 (50% retracement of June low of ¥138.66 and the July high of ¥147.77), and a daily close was printed below the intersection of 200 day moving average and the uptrend (from April low of ¥135.18).

We expect GBPJPY to remain weak if it continues to trade below the ¥143 handle.

GBPJPY chart

























Create your own charts with SaxoTrader; click here to learn more.

Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

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

For more on forex, click here.
 
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