Article / 06 July 2017 at 0:34 GMT

Today's Trade: Listed energy sector in spotlight as crude retreats

Trading Desk / Saxo Capital Markets
Australia
  • Gold rose after the Fed's minutes showed a readinesss to unwind the balance sheet
  • Energy shares have taken a tumble on a fall in oil prices
  • Spot iron ore prices headed lower overall, despite gains in China
By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX 200 lost ground at the start of trading; it was down 0.23% to 5,749.90 at 1032 AEST (0032 GMT).
  • Stocks in Asia are headed for a mixed start as investors digested details from the Federal Reserve’s most recent meeting. Equity index futures in Japan and Hong Kong were flat, while contracts signalled gains for Australian shares.
  • In the US a rebound in technology shares boosted the S&P500 overnight. The tech sector ended a three-session streak of declines and remains the best performer out of the 11 major groupings in the S&P 500 so far this year. The gains helped the Nasdaq Composite outperform its peers Wednesday.
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 Copper prices have eased on a surge in inventories but the threat of strike action in Chile has curbed losses. Photo: Shuttterstock

  • The Nasdaq rose 40.80 points, or 0.7%, to 6150.86 after falling for three- straight trading days. The S&P 500 rose 3.53 points, or 0.1%, to 2432.54 and the Dow Jones Industrial Average declined 1.10 points, or less than 0.1%, to 21478.17. The VIX dropped 1.34% to 11.07.
  • Semiconductor stocks were some of the day’s biggest gainers after chip maker Nvidia announced an artificial-intelligence technology partnership with Chinese internet giant Baidu. On Monday, the Semiconductor Industry Association said world-wide chip sales grew 22.6% in May compared with the same month a year prior, the largest such increase since September 2010.
  • Advanced Micro Devices and Micron Technology were the S&P 500’s two best performers by percentage increase Wednesday. Advanced Micro Devices rose $1.04, or 8.6%, to $13.19, while Micron gained 1.37, or 4.7%, to 30.51. Nvidia was among the 10 biggest gainers, adding 3.72, or 2.7%, to 143.05.
  • The tech sector is expected to help lead second-quarter earnings growth in the S&P 500, according to FactSet, but some investors and analysts are concerned that the group’s outperformance has left it susceptible to a selloff.
  • Meanwhile, energy shares slid as oil prices tumbled anew. The energy sector was the S&P500’s worst performer, falling 1.3%. US crude for August delivery fell 4.1% to $45.13/barrel to end an eight-session winning streak—its longest since 2010. Oil entered into a bear market June 20 amid oversupply concerns, before prices rallied at the end of the month.
  • Falling oil prices helped support bonds and other haven assets, with the yield on the benchmark 10-year US Treasury note falling to 2.334% from 2.352% Monday.
  • Market reaction was muted to the Federal Reserve’s minutes from its June meeting, which showed officials readying plans to start gradually shrinking the central bank’s balance sheet in coming months. Some investors and analysts said the minutes weren’t surprising after a number of global central banks struck a more hawkish tone last week.
  • Source: Bloomberg, TradingFloor.com, WSJ.com
Local markets
  • Bank of New York Australia ADR Index +0.8%, ANZADR +0.63%, NAB ADR + 1.32%, BHP Billiton ADR +0.6% to A$23.94 equivalent, 0.9% discount to last Sydney close, Rio Tinto ADR -0.7% to A$56.93 equivalent, ~13% discount to last Sydney close
  • Gold rose after minutes from the Federal Reserve's June meeting showed officials are ready to unwind its balance sheet. The Fed outlined a plan to reduce its $4.5 bn balance sheet of bond holdings it accrued while trying to stimulate the economy during and after financial crisis. However, officials were divided on when to start and did not release a timetable. Spot gold rose 0.15% to $1,225.41/oz after initially falling 0.21% after the announcement. Futures for August delivery settled at $1,221.70/oz, up $2.50. A stronger dollar makes gold more expensive for holders of other currencies and higher bond yields raise the opportunity cost of holding non-yielding bullion. Interest rate rises meanwhile lead to higher bond yields and tend to boost the dollar. Gold stocks fell 2.97% overnight in the week’s first day of trading after Monday’s holiday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil prices fell more than 3% on Wednesday, sharply pulling back from their longest bull-run in more than five years, as climbing Opec exports turned sentiment more bearish. Brent crude futures, the international benchmark for oil prices, were at $48.23/barrel, down $1.38, or 2.8%, from their last close. West Texas Intermediate crude futures were at $45.49/bl, down $1.58, or 3.4%. Despite the dips, both markets have recovered more than 10% from recent intraday lows on June 21, although crude prices seem locked below $50/b. Oil exports from Opec nations climbed for a second month in June, Thomson Reuters Oil Research data showed. The cartel exported 25.92 million barrels per day (bpd) in June, up 450,000 bpd from May and 1.9 million bpd more than a year earlier. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Spot iron ore prices were weaker, despite gains in China. The physical prices fell as traders remained on the sidelines. However futures on the Dalian Exchange rose more than 1% to 2% as sentiment picked up. With margins still relatively higher, investors are guessing that mills are likely to continue to restock on raw materials. Futures were also supported by another fall in inventories, with port stocks down 0.8% to 140mt, according to SteelHome data. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper prices eased for a fourth straight session on a surge in warehouse stocks but the threat of strike action at two Chilean mines curbed losses. Benchmark copper on the London Metal Exchange slipped 0.9% to a one-week low of $5,841 per tonne in official trade. Prices, which failed near resistance at $6,000 a tonne, are now easing to support at the 100-day moving average of $5,774. Meanwhile BHP’s Escondida mine reaches agreement with union on shifts as an the union signed an accord after three weeks of talks. The deal covers conditions for “exceptional shift” as part of Chile’s new labour code. This shift agreement follows unsuccessful collective-bargaining process that led to 44-day strike earlier this year at world’s biggest copper mine.
  • Nickel ended 0.2% lower at $9,160 after touching a one-week low of $9,070. The metal fell 2.2% in the previous session on plentiful supply from Indonesia and the Philippines. Aluminium ended slightly firmer at $1,929, lead fell 1.5% to $2,265, tin lost 1.4% to $US19,675 while zinc eased 0.4% to $2,781.50. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Programmed Maintenance (PRG), Metcash (MTS): Trades ex-div.
  • Arrium (ARI): S. Korean group said to be still interested in Arrium: Reuters.
  • ANZ Bank (ANZ): Said to narrow bidders in $3b sale of wealth unit.
  • Computershare (CPU): Pairing with UniSuper for South Australia land titles bid: AFR.
  • Fortescue (FMG): Iron’s going back down to $50 on supply, top forecaster says.
  • Monash IVF (MVF): Report on problems between co., doctors is false.
  • Seek (SEK): May be among potential bidders for Open Universities Australia: AFR.
Broker upgrades, downgrades

  • BHP Billiton (BHP): New chairman to drive ‘radical shift’ at world’s top miner; Raised to buy at Deutsche Bank; Escondida reaches pact with union on worker shifts.
  • Santos (STO): Cut to market perform at Bernstein, price target $A3.40.
  • Magellan Financial (MFG): Cut to neutral at Credit Suisse, PT $A27.
  • Flight Centre (FLT): Short sellers burnt again at travel agency punishing naysayers; Cut to underperform at Credit Suisse, PT $A37.41.
Stock to watch: Qantas Airways

After bottoming out in 2013, Qantas (QAN.xasx) has enjoyed a phenomenal recovery and has gone onto enjoy a multiyear bull market. The monthly chart shows the velocity of Qantas’ gains and soon comes up to pre-subprime levels on the backdrop of a declining RSI.

Whilst it’s still early to call a reversal in the share price, we exercise caution at these elevated levels.

Cautious about high flyer
1


















 
QBE stuck in consolidation
 
Following the shock earnings guidance from QBE Insurance, the recent slide was arrested just above the 50% retracement level, between the November 2016 low and the May 2017 high.

For now, it appears as if QBE is stuck in a bear flag consolidation and only a break above the upper flag trendline will discount this theory. We are monitoring closely for any signs of a pullback today, with a violation of the lower flag trendline to validate the next wave losses. NOTE: QBE reports on August 17.
 
QBE trend
2
 
Cautious about AUDUSD

Since the Reserve Bank of Australia's less hawkish statement earlier this week, AUDUSD has been under selling pressure.

We are closely monitoring two key support levels: 0.7559 (the last weekly low) and 0.7535 (another swing low, from two weeks ago). As long as these levels hold, we still cautiously maintain our long bias.
 
AUDUSD trend
3
























Possible gold/silver breakout

We flagged a potential breakout of the ascending triangle on gold silver ratio (XAUXAG) on Tuesday, and the key resistance level of 75.70 seems to have been clearly breached, as we already witnessed two daily closes above it.

Momentum is expected to remain strong to the topside while 75.70 should continue to be tested as a support level.

XAUXAG chart
























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

– Edited by Robert Ryan

For more on forex, click here.

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

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