Today's Trade: Materials, energy take ASX higher
- Share market buoyed by Friday's 2.5-year high for iron ore price
- Materials sector is spearheading the ASX's 0.25% rise to 5735 points
- US share rally pushes Apple within a dollar of its record close of $133
Overnight and early trading
This morning's trading has been dominated by miners and energy stocks - BHP, Rio and Fortescue have all reaped the high iron ore price, but the week ahead will be more interesting for the ASX/S&P 200, as many companies report their earnings.
Overseas, the major US stock indices ended the week at fresh records, buoyed by corporate earnings and the prospect of tax cuts.
Gains picked up Thursday after Trump said his goal of lowering taxes for businesses was moving “ahead of schedule”. He plans to send Congress an outline for a tax code overhaul for individuals and businesses by the end of the month.
The Nasdaq Composite added 18.95 points, or 0.3%, to 5734.13 - adding 1.2% during the week. All three closed at record levels on Friday.
The rally in stocks pushed Apple within a dollar of its record close of $133 this week. Apple shares slipped 30 cents, or 0.2%, to $132.12 Friday but posted a weekly gain of 2.4%.
Tensions between the US and Japan had risen recently over currency and trade issues.
The USD fell less than 0.1% against the Japanese yen to ¥113.20, coming off gains of around 0.5% earlier in the day. The US Dollar Index, which measures the US currency against 16 others, was little changed.
As investors favored riskier assets like stocks on Friday, US government bonds came under modest pressure.
Local markets and commodities
- The S&P/ASX 200 Index futures contract rose 0.2%; futures relative to estimated fair value suggest an early gain of 0.2%.
- Bank of New York Australia ADR Index +1.7%, BHP Billiton ADR +2.2% to A$26.11 equivalent, 0.9% premium to last Sydney close, Rio Tinto ADR +5.3%, most since January 10, to A$59.16 equivalent, ~10% discount to last Sydney close.
- Gold futures fell on Friday, retreating further from this week's three-month high, as Trump's promise of a major tax announcement boosted the dollar and upbeat data fuelled talk of a near-term rise in US interest rates. Initial jobless claims dropped unexpectedly last week to the lowest in nearly 43 years. Spot gold was up 0.22% to $1,233.20/oz, while US gold futures for April delivery dropped by 90 cents to settle at $1,235.90. On Wednesday, it touched its highest since November 11 at $1,244.67. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil prices rose on Friday after reports that Opec members delivered more than 90% of the output cuts they pledged in a landmark deal that took effect in January. West Texas Intermediate for March delivery rose 86 cents to settle at $53.86/barrel. Brent for April settlement climbed $1.07, or 1.9%, to $56.70/b. In the first month of the Opec agreement, key member Saudi Arabia reduced production by even more than it had committed, while higher demand is aiding the group’s bid to re-balance world markets, the IEA said. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore keeps getting told the end is nigh: So far in 2017, the response has been the end’s just another high. The rally has been powerful enough to push futures in China back to $100/tonne as spot prices trade at levels last seen in 2014, boosting miners’ shares. Spot prices advanced 3.3% to $86.62/t, the highest since September 2014. Miners’ shares are benefiting from the rally. Rio Tinto Group, which last week reported its first profit gain since 2013, jumped as much as 3.5% in London, while Vale has climbed 26% in 2017. In the US, Cliffs Natural Resources surged 19% on Thursday, the most since May. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Copper posted the biggest gain in almost four years, leading a surge in metals, as exports from China jumped and BHP Billiton signalled a halt in shipments from the world’s largest copper mine. BHP declared force majeure on shipments from the Escondida mine in Chile after workers began a strike on Thursday, two customers notified by the company said. While the strike’s start on Thursday was well telegraphed and copper didn’t react, a prolonged shutdown would support price gains. Copper for delivery in three months climbed 4.6% to settle at $6,090/t. In other metals, LME zinc climbed 3.3% to finish at $2,924, the highest since November 28. Zinc, mainly used in galvanised steel, was also boosted after Chinese iron ore futures jumped and Chinese steel rebar futures also gained. Aluminium closed 1.4% firmer at $1875/t, the highest since January 24, lead gained 2.8% at $2,400/t, and nickel jumped 3.7% to end at $10,660/t, the strongest since December 23.Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- In other news: AGL Energy (AGL): Cuts power to NSW smelter to avoid blackouts in heat: ABC; Amcor (AMC): 1H results expected; NOTE: 2-analyst adj. net income est. A$305m; Ansell (ANN): 1H results expected; NOTE: In Oct. co. forecast FY EPS $1-$1.12; Arrium (ARI): Liberty House may list assets in London if bid successful: AFR; Aurizon (AZJ): 1H results expected; NOTE: 2-analyst rev. est. A$1.74bn; Bellamy’s (BAL): Chairman says co. has “turned the corner”: Australian; Bendigo & Adelaide Bank (BEN): 1H results expected; NOTE: Adj. net income est. A$219.2m (5 analysts, range A$215m-A$223m); Contact Energy (CEN): Earnings, profit increased in 1H.
- Domino’s Pizza Enterprises (DMP): “Zero tolerance” for franchisees who break law; Fortescue (FMG): Iron ore 65% powers back to $100 in world’s top user as miners surge; Hunter Hall Intl (HHL): Rejects revised takeover bids by WHSP, Pinnacle; JB Hi-Fi (JBH): 1H results expected; NOTE: Adj. net income est. A$110.3m (3 analysts, range A$107m-A$114m); Macquarie (MQG), Cimic (CIM), Spotless (SPO): Adelaide Hospital Group calls in insolvency firm: Australian; Newcrest (NCM): 1H results expected; NOTE: Adj. net income est. $267.3m (3 analysts, range $255m-$280m); Rio Tinto (RIO): Former Areva CEO to leave board a year After French charges; Telstra (TLS): Fitch Affirms Australia’s Telstra At ’A’; Withdraws Ratings.
The AUS200 already moved higher following strong leads from US major equity indices therefore we expect to see positive price actions on the open this morning as JBH also reported a 16% rise in net profits for second half 2016.
The technical picture looks quite promising as the uptrend (from November 16 low) has been maintained above 200 Day Moving Average but we would like to see a clear break out above the recent downtrend (from the September 16 high) as a confirmation of a further rally.
JB Hi Fi monthly chart
Similar to JBH, AZJ also has been forming a solid uptrend since the February 16 low 3.35 and we are anticipating a breakout today above the key resistance level of $A5.30 which has been restricting further gains in the last 13 months.
Aurizon monthly chart
USD Index quarterly chart
USD Index monthly chart
USD Index - potential head and shoulder formation
However, the current technical picture shows a case for the Aussie to potentially strengthen beyond those final 2016 reistance levels: The AUD currently trades in an inverse head and shoulder pattern which is a bullish set up.
It's noticeable that the recent 2017 high was a 23.6% extension of this head to shoulder range, with a small pullback receiving support at the neckline.
The next resistance from here is the 38.2% extension level at 0.7751 however, the AUD now makes its fourth attempt at these levels and the probability is heightened for the Aussie to break through these levels , grabbing all those buy stops to drive the Aussie close to the 80 handle.
AUD monthly chart
Immediate resistance can be found at 5,741 and above here at 5,774. The January 2016 highs at 5,826 would be the ultimate test for our index throughout our reporting season and a break above here gives us the roadmap to 6000 - the post subprime peak we saw in early 2015 where, we may see aggressive profit taking.
AUS 200 monthly chart
Around $56.79 or the 23.6% inverse head and shoulder extension level is the target in the near term.
Crude oil futures, monthly chart
Near-term target and next point of resistance is at the 38.2% retracement level between the 2011 highs to 2016 lows and this level at $297 also happens to be quite a significant technical level - so we should exercise long caution here.
Support for the week is obvious: the 200 weekly moving average is to hold losses for the week.
Copper quarterly chart
-- Edited by Adam Courtenay
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets