Today's Trade: Market flat as commodities remain weak
- The S&P/ASX200 headed for an early decline, following Friday's sharp drop
- Iron ore pared its weekly gain in China, which may hit the top miners
- Gold, copper price moves will be key indicators for the direction of the AUDUSD
By Saxo Capital Markets Australia
Overnight and early trading
Australian shares opened slightly lower, taking their cue from the US. The S&P/ASX200 headed for an early decline, following its 4% decline last week. The miner will be under pressure following iron ore price falls and slowing growth in China.
Expectations of additional bank capital raisings are likely to drag on the sharemarket this week, after the ANZ raising announcement weighed on the market at the end of last week.
- Germany’s DAX index ended Friday 0.8% lower. France’s CAC 40 index lost 0.7%, while outside the currency bloc the UK's FTSE 100 index declined 0.4%. The region’s benchmark Stoxx Europe 600 ended the session down 0.9%.
- Poor corporate earnings across the Eurozone also dragged down on the stockmarket
- Shares in the UK's William Hill dropped 6.5%, making the company one of the biggest decliners for the day. While shares in Danish telecommunications company TDC A/S fell 5%, as the company had earlier reported net profit had more than halved.
- Greek stocks bucked a losing trend on Friday, gaining 1.5% on the day. However the slight gain did little to resurrect what was a horrid first week back for the Athens Composite, which ended the week down more than 15%.
- The EUR ended the session 0.2% higher against the USD, after what was a choppy session, at $1.0944.
- The Dow was pushed to a six-month low after a solid US jobs growth report was released, the Dow is now down 2.5% for the year. Investors are now geared up for a September rate hike. The Dow fell for the seventh session in a row, the longest losing streak since August 2011.
- The Fed has signaled that its eventual increases in rates would be gradual, however there is still some uncertainty to how the global economy, and local US stocks, will react to higher interest rates in the US.
- The S&P 500 fell 5.99, or 0.3%, to 2077.57, and the Nasdaq Composite declined 12.90, or 0.3%, to 5043.54. However, unlike the Dow, both remain in positive territory for the year.
- The energy sector was the worst performing sector on Friday, as oil prices fell, energy stocks in the S&P dropped 1.9%.
- Light, sweet crude for September delivery dropped 79 cents, or 1.8%, to $43.87 a barrel, the lowest settlement since March 17. Oil fell 6.9% for the week.
- The declines in oil came about as oil-field-services firm Baker Hughes reported the number of oil rigs drilling for oil in the US rose for the third consecutive week.
- US nonfarm payrolls added 215,000 jobs in July. The unemployment rate, was reported at a secure 5.3%, and both figures were in line with expectations.
- Disappointing earnings for Viacom has resulted in the stock losing 19% for the week, while Walt Disney dropped 8.9% on the week.
- Based on trading federal-fund futures, the odds of a rate increase at the September meeting were 54% on Friday, compared with 46% before the jobs report. There is a strong indication that the July jobs report has shown the continued improvement in the labor market the Fed was looking for.
- Recent declines in the US have left the S&P with just a gain of 0.9% for the year, after being up as much as 3.5% in May. With financial turmoil abroad, most major indices have struggled to maintain steady gains this year, and as a rate hike looms trading ranges are expected to stay tight.
- In commodity markets, gold futures added 0.4$ to $1,094.10 an ounce.
- Earnings: Kraft Heinz, Dean Foods, Sysco, International Flavors and Fragrances, Ambac Financial, Shake Shack, Rackspace, Pershing Square Holdings
- Earnings: Cree, Computer Sciences, Symantec, Towers Watson, Red Robin Gourmet Burgers, Cyber Ark Software, JA Solar, Silver Wheaton
- Earnings: Cisco, Macy's, News Corp., Alibaba, NetEase, Markit, Wayfair
- Earnings: Nestle, Kohl's, Nordstrom, Applied Materials, Flowers Foods, El Pollo Loco, King Digital, Party City
- No earnings
- Gold rose a second day on Friday shaking off earlier losses after traders judged the recent US jobs report was unlikely to lead the Federal Reserve to raise interest rates multiple times. Gold for December delivery, rose $4.00, or 0.4%, to settle at $1,094.10 a troy ounce, which saw gold stocks advance an average of 1.13% in the Toronto Stock Exchange. Gains were also helped by talk that a single buyer was looking to scoop up 100,000 ounces of metal, worth almost $110 million in the futures market. That is equivalent to 1,000 contracts or 1,000 gold bars. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SLR
- Oil prices fell to new multi-month lows Friday as US drilling continued to increase despite a persistent oversupply of crude. Prices have now slid for weeks toward six-year lows on concerns about rampant global production and potential weaker Chinese demand. Light, sweet crude for September delivery settled down 79 cents, or 1.8%, to $43.87 a barrel on the New York Mercantile Exchange, the lowest settlement since March 17, when prices hit a six-year low of $43.46 a barrel. The contract fell 6.9% on the week. Brent, the global benchmark, fell 91 cents, or 1.8%, to $48.61/barrel on ICE Futures Europe, the lowest level since January 28. Prices also registered a 6.9% weekly loss, the largest one-week percentage decline since March. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore pared its weekly gain in Dalian to close at $US56.40/tonne as recent gains were seen as unsustainable. The cost of hiring a ship to haul iron ore more than doubled in the last month amid speculation that China is adding to stockpiles while the global vessel fleet shrinks. Rates for Capesizes, the vessels that dominate the ore trade, were at $US18,250 a day as of Friday, compared with just $US8369 a month ago, according to the Baltic Exchange in London. The cost advanced to $US19,499 on August 5, the highest in eight months. "The recent spike is predominantly driven by more iron ore going from Brazil to China," Eirik Haavaldsen, a shipping analyst at Pareto Securities AS in Oslo, said. "There's been a restocking of Chinese iron ore inventories which absorbs a lot of vessels." Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Copper declined to a six-year low as an unexpected drop in German industrial production spurred concern that economic growth is slowing in Europe’s largest economy. Manufacturers in Germany, the third-largest copper consumer, may have been hurt by a prolonged Greek debt crisis and a slowdown in China, a report showed Friday. All six main industrial metals are in bear markets as slowing global growth is threatening demand at a time when supplies are plentiful. Copper for delivery in three months fell 0.2% to settle at $5,173 a tonne ($2.35 a pound) at 5:50 p.m. on the London Metal Exchange. Prices touched $5,121 a tonne, the lowest since July 2009. In New York, copper futures for September delivery slid 0.4% to $2.3325 a pound on the Comex. Stockpiles tracked by the LME rose for a sixth week, to 352,325 tons, the highest since January 2014. In warehouses monitored by the Shanghai Futures Exchange, inventories climbed 11% to 114,000 tonnes this week, the biggest gain since February 26. Nickel, zinc, tin and aluminum also fell, while lead rose. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
- Commonwealth Bank (CBA): Plans to curb loans to new housing developments. CBA is also rumored to be working with UBS and Goldman Sachs on a raising over the weekend and that brokers had even spoken to some Hong Kong and domestic hedge funds and long-only investors about the mooted deal. Note: CBA Reports on August 12
- JB Hi-Fi net profit rises 6.3% to $136.5m, announces $15.2 million share buyback
- National Australia Bank's third quarter profits rose 9% to $1.75 billion, as the bank reported lower bad debt charges in its domestic arm. A trading update from NAB on Monday said its revenue had risen 4% in its third quarter, a 4% lift on a year earlier, while expenses grew by a similar amount. It said charges for bad and doubtful debts in its core Australian business fell 15% to $193 million
- Ansell (ANN): FY results expected
- Orica (ORI): CEO Calderon says market knew China slowdown was coming
- Qantas (QAN): Unsecured rating upgraded by Moody’s to top junk level
- Bendigo & Adelaide (BEN): FY results expected
- ANZ Bank (ANZ): To start sale process for Panin stake this week: Australian SEE AUSSIE EARNINGS CALENDER ATTACHED
- July 24: Entered short position on NCM at AUD11.50. Stop loss set at AUS12.50, first profit target is AUD9.11 and second profit target at AUD $8.68 (see Newcrest set for more downside on bearish gold move)
- July 24: Entered short position on CBA at AUD85.81. Stop loss set at AUD90.57, first profit target at AUD80.00 and second profit target at AUD73.17 (see CBA breaks support, set to slide further)
- August 5: Entered long position on USDJPY at 124.29. Stop loss set at 122.90, profit target at 125.85. (See Today's Trade: Miners resilient as bank continues to splutter)
- Spark NZ (SPK): Raised to buy vs hold at Morningstar
- Fletcher Building (FBU): Raised to neutral vs underweight at JPMorgan
- Whitehaven (WHC): Raised to buy vs neutral at UBS
- Southern Cross (SXL): raised to buy vs hold at Morningstar
- Investa Office (IOF): Cut to underweight vs neutral at JPMorgan
- Northern Star (NST): Cut to hold vs buy at Pareto Securities
- JPN: Current Account, Bank Lending y/y, BOJ Monthly Report, Consumer Confidence, Economy Watchers Sentiment
- EUR: Sentix Investor Confidence
- US: FOMC Member Fischer speaks; -Atlanta Fed President Dennis Lockhart speaks: Due to deliver opening remarks at the Federal Reserve Bank of Atlanta's conference
- JPN: M2 Money Stock y/y
- AUS: NAB Business Confidence (11:30am)
- CNY: New Loans & M2 Money Supply y/y (11th ~ 14th)
- EUR: German ZEW Economic Sentiment
- US: NFIB small business survey, Productivity and costs, Wholesale trade, $24 billion 3-year auction
- JPN: Monetary Policy Meeting Minutes & PPI y/y
- AUS: - Westpac Consumer Sentiment (1030); Wage Price Index q/q (1130)
- JPN: Revised Industrial Production m/m & Tertiary Industry Activity m/m
- CNY: Industrial Production y/y, Fixed Asset Investment ytd/y & Retail Sales y/y (3:30pm)
- GBP: Average Earnings Index 3m/y, Claimant Count Change & Unemployment Rate
- US: New York Fed President William Dudley speaks in New York on work force development; JOLTs, $24 billion 10-year auction, Federal budget
- JPN: Core Machinery Orders m/m
- AUS: MI Inflation Expectations (1100); - RBA Assist Gov Kent Speaks (1215): Due to deliver a speech titled "Recent Labour Market Developments" at the Economic Society of Australia's 2015 Business Lunch, in Brisbane
- EUR: ECB Monetary Policy Meeting Accounts
- US: Initial claims, retail sales, import prices, Business inventories, $16 billion 30-year auction
- CNY: Foreign Direct Investment ytd/y (14th ~18th)
- EUR: French / German Prelim GDP q/q, Final CPI y/y, Flash GDP q/q & Final Core CPI y/y
- US: PPI, Industrial production, Consumer sentiment
Gold, copper show AUDUSD direction
AUDUSD ran up towards 0.74 handle prior to the US nonfarm payroll numbers, then it reversed when US dollar spiked on the back of the decent NFP data (215,000 vs 222,000) which was a lot more promising than the earlier ADP employment figures, but the pullback did not last long as it rallied back up to break 0.7400.
There are two technical patterns – head and shoulder and falling wedge that we observe. While the head and shoulder reversal already tested 61.8% extension since the breakout below the neck line at 0.7590, the resistance line of the falling wedge was broken last Friday. Therefore we would not be surprised if the AUDUSD extends is current upside momentum towards the next resistance level at 0.7450 in the near term. Price moves for gold and copper remain as key indicators for the direction of the AUDUSD.
AUDUSD monthly chart
AUS200 has been sold off heavily in the last two trading sessions (more than 250 points) mainly driven by the financial sectors and the copper (HG) fell to a six-year low on the back of the unexpected drop in German industrial production (-1.4% vs 0.3%).
So it is difficult to find any positive sentiments for now, but considering AUS200 is trading at an oversold area, we expect a retracement when AUS200 approaches the previous support level 5,400.
AUS200.I monthly chart
Chart: Saxo Bank - Create your own charts with SaxoTrader; click here to learn more.
– Edited by Robert Ryan
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Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.