Article / 10 January 2018 at 23:54 GMT

Today's Trade: Market wobbles over China Treasuries move

Trading Desk / Saxo Capital Markets
Australia
  • The S&P/ASX 200 index declined 15 points to 6081 in early trading 
  • US stocks little changed, but USD suffered swings and roundabouts
  • Banks slight weaker overall, with CBA down 0.3% and ANZ down 0.4% 

By Saxo Capital Markets

Overnight and early trading

The Australian share market was down slightly after weak trading in the US and Europe overnight. The banks were affected, but there was a big exception in the form of JB Hi-Fi benefiting from a broker upgrade.

Higher US government bond yields drove gains for banks and other financial stocks, which helped Britain’s FTSE100 lift to a record close. 

The USD remained lower and oil topped $63/barrel.

Declines in shares of real-estate and utility companies pushed the S&P 500 lower overnight as Treasury yields continued to rise.

Real estate and utility stocks are considered by many investors to be bond-like because their regular dividend payouts make them attractive as income-bearing substitutes for bonds.

Wednesday’s drop extended recent losses for the sectors as the yield on the benchmark 10-year US Treasury note moves closer to their dividend yields.

The S&P 500 declined 0.1% following its longest winning streak to start a year since 1964. The Dow Jones Industrial Average closed down 17 points, or less than 0.1%, at 25,369 after shedding as many as 129 points earlier in the session. 

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 Gold has benefited from worries over China selling off US Treasuries. Photo: Shutterstock

The tech-heavy Nasdaq Composite shed 0.1%.

The yield on the 10-year US Treasury note briefly eclipsed 2.590% and closed at 2.551% - its highest close since March and up from 2.542% Tuesday. 

Yields rise as bond prices fall. Some analysts attributed Wednesday’s climb in bond yields to a Bloomberg report that Chinese officials have recommended slowing or halting purchases of US Treasuries.

Bank stocks rose, as higher bond yields tend to boost lending profitability. The S&P 500 financial sector added 0.8%. Two of the nation’s biggest banks, JPMorgan Chase and Wells Fargo, are scheduled to report fourth-quarter earnings on Friday.

Corporate news drove swings in individual stocks.

Berkshire Hathaway shares moved between small gains and losses and closed up 1.3% after Chairman Warren Buffett elevated Gregory Abel and Ajit Jain, two longtime lieutenants, to vice chairman roles at the company, all but confirming years of speculation that one of them is in line to replace him.

Shares of Sears rose 5.1% after the troubled department store chain said it had raised $100 million in new financing and is pursuing an additional $200 million from other parties as it looks to strengthen its balance sheet.

Elsewhere, the Stoxx Europe 600 declined 0.4%, as losses in health-care, real-estate and utility stocks outweighed gains in bank shares.

Sources: Bloomberg, TradingFloor.com, WSJ.com, CNBC

Local markets and commodities

  • S&P/ASX 200 Index futures are down 0.2% to 6031 as of 7:00 a.m. Futures relative to fair value suggest early decline of 0.3%.
  • Bank of New York Australia ADR Index is down 0.3% to 291.6, BHP Billiton ADRs are down 0.1% to A$31.13 equivalent, a 0.6% premium to last Sydney close, Rio Tinto ADRs are up 0.6% to A$71.53 equivalent, a 9.7% discount to last Sydney close.
  • Gold jumped to its highest in nearly four months on Wednesday as a report that Chinese officials had recommended slowing or halting US Treasury purchases sparked a broad-based sell-off of the dollar, lifting assets priced in the US currency. Spot gold was up 0.41% at $1,317.91/oz, having earlier touched its highest since September 15 at $1,326.56/oz. US gold futures for February delivery were up 0.4% at $1,318.90/oz. Gold stocks in Toronto added 0.91% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil closed above $63/b for the first time in over three years as crude stockpiles stowed in American tanks and terminals dwindled for an eighth straight week. Futures rose 1% in New York after the U.S. government said refiners and exporters withdrew almost 5 million barrels from storage last week. While the draw was smaller than the 11.2 million barrels reported in an industry tally on Tuesday, it still was the largest for this time of year since 2014. The last time winter stockpiles shrank at this pace was a decade ago. Prices have surged amid renewed optimism that cutbacks by Opecand its partners are helping to drain a global glut. Tempering the rally is the concern that shale producers will boost US output, which the EIA expects to top 11 million barrels a day in November 2019.
  • West Texas Intermediate for February delivery advanced 61 cents to settle at $63.57/b on the New York Mercantile Exchange. Total volume traded was about 23% above the 100-day average. Brent for March settlement climbed 38 cents to end the session at $69.20 on the London-based ICE Futures Europe exchange, the highest level since December 2014. The global benchmark crude was at a premium of $5.78 to March WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Chinese iron ore futures continue to tread water, consolidating upon the gains achieved in the first week of the year. Even with the modest reversal, the contract is still up over 32% from early October. The lacklustre session came despite modest strength in rebar futures traded on the Shanghai Futures Exchange. Despite the strength in steel prices, like iron ore, coking coal and coke contracts also reversed on Wednesday, finishing trade nursing losses of over 2%. Spot iron ore fell 0.5% or $0.39 to close at $77.60. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Industrial metals jumped on the LME, with nickel reaching the highest since 2015, as the dollar weakened and Citigroup said Chinese regulation could support prices. Nickel rose to its highest since 2015 on Wednesday and other industrial metals gained after the dollar weakened by the most in a month, making metals cheaper for users of other currencies.
  • Benchmark nickel on the London Metal Exchange traded up 1.9% at $12,940/tonne in official rings after touching $13,200/t, the highest since June 2015. Zinc added as much 0.9% after data showing bullish speculative positioning rose to highest since Feb. on LME last week. Copper rose 0.7% at $7,153/t. Tin added 0.6% Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news:  BHP Billiton (BHP AU): World’s No.1 Miner Is Building an EV Hub It Doesn’t Want to Keep; Miners Seeking Third Year of Gains Hope This Time It’s Different; Beach Energy (BPT AU): Beach Energy Downgraded to Sell at Morningstar; Charter Hall (CHC AU): Gets Development Approval for Melbourne Tower: AFR; Macquarie Group (MQG AU): Macquarie Capital, Citi Hired to Help With IPO of Quadrant Energy: AFR; Rio Tinto (RIO LN): Rio Tinto Receives $500m Offer for Aluminum Dunkerque Smelter; Sonic Healthcare (SHL AU): Thyroseq Says Aetna Issued Positive Coverage Decision; Virgin Australia (VAH AU): HNA Group Has So Many Companies It’s Running Out of Names

Broker re-gradings

- Austin Engineering (ANG AU): Cut to Hold at Argonaut Securities; PT A$0.27
- Carsales.com (CAR AU): Cut to Underperform at Credit Suisse; PT A$13.50
- JB Hi-Fi (JBH AU): Upgraded to Overweight at Morgan Stanley; PT A$32
- Saracen Mineral (SAR AU): Cut to Sell at Argonaut Securities; PT A$1.50
- OZ Minerals (OZL AU): Downgraded to Neutral at UBS; PT A$9.30
- Primary Health (PRY AU): Upgraded to Buy at Morningstar

NZDUSD

The Kiwi dollar (NZDUSD) continues to show resilience and maintain the solid rally that has begun at the beginning of December 2017. 

It has already enjoyed four consecutive weekly gains. Outside day candlestick indicates the strength of the currency and downtrend (from 2017 high 0.7558) appears to be clearly broken.

NZDUSD is currently trading at the highest level since September last year and it is unlikely to see any reversal any time soon. Weekly close above 72 handle should confirm further upside moves ahead.

NZDUSD monthly chart
Source: Saxo Bank 

Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters


-- Edited by Adam Courtenay

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

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