The ASX200 was down at the start of trading, led lower by mining and energy stocks. At the open the benchmark index was down by 0.7% at 5444, while the All Ords had lost 0.65% at 5527. The big miners BHP, Rio and South32 were all down by more than 2.2%.
- Fresh concerns over faster inflation, US interest-rate hikes, lacklustre corporate earnings and the stability of the pound combined to rock markets last night. Treasuries sank as investors demanded the highest yields since June to compensate for signs that consumer prices may be on the rise.
- US stocks fell the most in a month after disappointing earnings from Alcoa and emerging-market shares also slumped. Sterling’s losses accelerated as strategists revised down their longer-term forecasts for the currency amid anxiety over a potential hard Brexit.
- One of the few winners was the dollar, which benefited as bets on a Federal Reserve rate hike this year mounted.
- The Dow Jones Industrial Average fell 200.38 points, or about 1.1%, to 18128.66. The S&P 500 lost 26.93 points, or 1.2%, to 2136.73, and the Nasdaq Composite fell 81.89, or 1.5%, to 5246.79. The VIX lifted close to 15% to 15.36.
- Healthcare shares were among the biggest losers, led lower by Illumina after the company said sales were lower than anticipated. Apple rose for a sixth straight session as Samsung Electronics ended production of a troubled smartphone that was supposed to compete with Apple’s iPhone.
- Alcoa tumbled the most since 2009 after its earnings trailed analysts’ estimates and the aluminium maker cut forecasts for its jet-part business.
- While analysts forecast a 1.6% contraction in third-quarter profits for S&P 500 members, US firms have beaten projections by an average margin of 3.6 percentage points over the past five years.
- Corporate earnings are also in focus in Europe, with LVMH among the biggest gainers after posting sales that topped analysts’ estimates. Still, the Stoxx Europe 600 Index fell 0.5%, joining a global slide.
- Emerging-market stocks dropped the most in a month on Tuesday as increased bets for a Fed hike drove investors away from riskier assets. London’s FTSE 100 index touched its highest level in at least 20 years Tuesday as the falling currency lifted the export-heavy index.
- Odds on the Fed boosting rates before the year is out rose to 67%, up 7% from a month ago, amid speculation the recent surge in oil will fuel inflation. Earlier this year, angst over a slowdown in China deterred the US central bank from hiking, while the UK’s vote to exit the European Union weighed on the Fed’s June and July meetings. Minutes of the Fed’s latest decision due Wednesday may provide clues as to the outlook for the rest of 2016.
- Meanwhile, the health of corporate America is coming into focus with Alcoa’s results getting the earnings season off to a weak start.
- Benchmark 10-year Treasury yields climbed five basis points, or 0.05 of a percentage point, to 1.76% as of 1700 New York time.
- The cost of insuring against non-payment of debt for five years in South Africa using credit-default swaps rose to the highest level since the end of August as fraud charges against Finance Minister Pravin Gordhan moved the country a step closer to a junk rating. The rand weakened the most since June and forward-rate agreements, used to speculate on borrowing costs, surged Tuesday.
- The US dollar index rose 0.5% as the dollar added 0.1% to 103.51 yen, and strengthened 0.8% to $1.1054 per euro. The pound fell for a fourth day, sinking almost 2% as British politicians, led by Prime Minister Theresa May, failed to offer any clarity on how the government proposes to steer the nation through tough negotiations on leaving the EU.
- The New Zealand dollar dropped for a seventh day, its longest losing streak since July 2015, after Reserve Bank of New Zealand Assistant Governor John McDermott said the central bank still expects to cut interest rates to revive inflation.
- In Asia, futures on equity indexes foreshadowed losses for Wednesday, with contracts on Japan’s Nikkei 225 Stock Average down 0.8% in Osaka. Futures on benchmarks in Sydney, Seoul and Hong Kong dropped at least 0.5%.
- Russia’s biggest oil producer, Rosneft PJSC, said that it won’t cut output, according to Reuters. The report came after President Vladimir Putin said at a conference in Istanbul that his nation is willing to join efforts by Opec to stabilise the market through a production freeze or cut.
- Supply and demand will come back into balance earlier than expected should Opec's accord to trim output be implemented, the International Energy Agency said. Oil’s decline also accelerated as the dollar climbed, curbing the appeal of commodities.
- Brent for December settlement dropped 1.4% to $52.41/barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.17 premium to December WTI.
- Industrial metals also dropped, with zinc down more than 3%, and gold for immediate delivery slipped 0.5%, retreating for the ninth time in 11 days. The Bloomberg Commodity Index decreased 0.7%, snapping a two-day climb.
Source: Bloomberg, TradingFloor.com
Miners led the move lower on the local market this morning. Photo: iStock
Local markets and commodities
- Bank of New York Australia ADR Index -2.5%, most since September 13, BHP Billiton ADR -2.6% to $A23.20 equivalent, 2.5% discount to last Sydney close, Rio Tinto ADR -3.4% to $A43.21 equivalent, ~19% discount to last Sydney close
- Gold prices fell on Tuesday, as a stronger dollar and expectations for a US rate increase in coming months put pressure on the precious metal. Gold for December delivery closed down 0.4% at $1,255.90. Prices for the metal are down nearly 5% this month.
- Gold’s open interest, a tally of outstanding contracts, hovered near a four-month low after investors cut their bullish bets last week. Gold stocks in Toronto fell by 1.26% on Tuesday. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil slipped from a 15-month high amid uncertainty over whether Russia would join an Opec deal to curb supply. Rosneft PJSC said it won’t cut output, according to Reuters. West Texas Intermediate oil for November delivery fell 56 cents to $50.79/barrel Total volume traded was 71% above the 100-day average.
- Brent for December settlement dropped 73 cents, or 1.4%, to $52.41. The global benchmark crude closed at a $1.17 premium to December WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- Iron ore added 1.3% to $56.50 overnight, according to The Steel Index, from $55.80 the previous day. It jumped for the second straight day as traders come back to their desks after last week’s public holiday in China but still remaining well below the August peak above $60. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
- Copper ended down 0.7% at $4812/tonne. Aluminium prices hit two-month highs before retreating on profit-taking as the spotlight returned to oversupply and expectations of rising output in China, ending down 0.7% at $1679/tonne.
- Zinc declined the most in 10 months, tumbling 3.4% to end at $2250, having earlier touched its lowest since September 26. Traders attributed zinc's fall to news that the Antamina mine in Peru was planning to double output to between 340,000 and 360,000 tonnes.
- Lead ended 2.5% down at $2047.50, while tin lost 1.3% to close at $19,825 and nickel finished with a 1% decline at $10,430. Alcoa shed more than 11% after the 128-year-old aluminium maker's last earnings before splitting into two companies missed estimates and it cut forecasts for prized parts businesses. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Alumina (AWC): Alcoa Street Wrap: Tumbles on Upstream Result; Split Still Focus
- Commonwealth Bank (CBA): Hires managers for tier 2 US bond
- Crown Resorts (CWN): Macau Oct. gaming rev. seen above consensus: Wells Fargo
- CSL (CSL): Annual meeting scheduled; Note: Co. in Aug. forecast FY17 NPAT +11% in constant FX terms ex-Novartis
- Fortescue (FMG), Rio Tinto (RIO): Iron ore rise 1.8%, most in two months, according to prices delivered to Qingdao
- MG Unit Trust (MGC): Australia milk output seen dropping 5% in 2016-17: Group
- Origin Energy (ORG): $A4.488bn loan draws 28 banks
- Prairie (PDZ): Buys NWR’s Polish Debiensko mine project
- Woodside (WPL), Worleyparsons (WOR), Oil Search (OSH), Beach Energy (BPT), Karoon (KAR), Santos (STO): Oil falls from 15-month high amid questions on Russian stance
Broker upgrades and downgrades
- BHP Billiton (BHP): Cut to neutral at UBS
- Money3 (MNY): Rated new buy at Bell Potter
- OZ Minerals (OZL): Raised to neutral at UBS
- Pacific Energy (PEA): Raised to buy from hold at Argonaut Securities
- Sandfire Resources (SFR): Raised to buy vs hold at Shaw & Partners
- Qube Holdings (QUB): Rated new overweight at JPMorgan
- SCA Property (SCP): Raised to overweight at JPMorgan
- South32 (S32): Cut to neutral at Exane BNP Paribas
- Tabcorp (TAH): Raised to outperform at Credit Suisse
- Whitehaven (WHC): Cut to sell vs neutral at UBS
Stocks to watch: Duet Group (DUE.xasx) and APA Group (APA)
Duet Group currently trades at a breakout of a head and shoulder formation with the most recent low coming in slightly above the 61.8% head and shoulder extension. After a clear break on September 9, the stock made a classical retracement up to the neckline that was met with a failure to push back above the neckline.
The final downside target comes in at the 100% head and shoulder extension, which coincides with a 76.4% retracement between the 2015 low to the 2016 high. This level also happens to be the March–April 2016 lows so we expect the stock to be supported down at these levels however for now, we look to sell the rallies.
Duet Group monthly
Source: Saxo Trader
APA Group (APA) has gone through almost two years of consolidation period between $8 and $9.85. The recent strength in the bond yields seems to have put downward pressure on this stock and now it is trading near the key support level of $8 where we see a buying opportunity in the anticipation of potential retracement towards $8.44 and $8.75.
APA Group monthly
Source: Saxo Trader
AUS200 and AUDUSD
The US dollar index (DX) rallied to break the July high of 97.62 so the precious metal continues to struggle while both EUR and GBP sold off hard against the greenback. AUDUSD
is now approaching the uptrend (from the January 16 low) which intersects the 38.2% retracement between the May low and August high. Therefore we see support levels at 0.75-0.7520. The Federal Open Market Committee meeting minutes could be interesting as it is released tomorrow morning at 0500.
Source: Saxo Trader
The VIX spiked up and on the US cash open equity indices made a sharp reversal of the European session rally. Technology, healthcare and materials sectors weighed down the most. US500
now appears to have broken out of the triangle pattern while AUS200
once again found a strong resistance level at 5,500. AUS200 also briefly broke the support level of 5,436 earlier this morning and further weakness below this level would be needed to confirm more downside momentum.
Source: Saxo Trader.
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Today's information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Gayle Bryant
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