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Article / 17 March 2016 at 23:34 GMT

Today's Trade: Miners, energy stocks drive S&P/ASX200 higher

Trading Desk / Saxo Capital Markets
Australia
  • The S&P/ASX200 opened sharply higher, adding to Thursday's strong gains
  • US crude settled above $40/barrel for the first time since last year
  • Base metals rose across the board, with copper close to a new high for 2016
  • The rapid rise of the AUDUSD could lead to profit taking
  • Rising steel rebar prices are behind the rally in iron ore prices
By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 surged higher at the start of trading. The benchmark index was up 0.85% to 5,212.10 at 1013 AEST (2313 GMT).
  • US stocks continued their strong week overnight as gains in materials and industrials led stocks higher. US crude settled above $40/barrel for the first time since last year also helping stocks.
nnn The rising price of reinforcing steel is driving up iron ore prices, and giving top ore miners a boost. Photo: iStock


  • The Dow industrials rose 156 points, or 0.9%, to 17481—a gain of 0.3% so far this year. The S&P 500 climbed 0.7% and briefly touched positive territory for the year before slipping back. The Nasdaq Composite rose 0.2% but is still down 4.6% so far this year. The intraday low for the Dow occurred on the 20th of January, where the Dow was down 11.33% nearly 2,000 points.
  • Dow transports closed up 2.98%, topping its 200 day moving average for the first time in over year.
  • US crude settled at its highest price since December 3 last year, the rise of 4.5% to $40.20/barrel was spurred by the US dollar continuing to weaken and as major oil producers suggested increased enthusiasm to freeze output. Energy stocks in the S&P 500 rose 1.4%..
  • FedEx Corp. (FDX) and Chesapeake Energy Corp. (CHK) were the biggest gainers overnight gaining 11.83% and 9.11% respectively.
  • Jobless data points released overnight have suggested an improving US labour market, with initial jobless claims remaining below 300,000 for a 54th week in a row.
  • The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held above 14. Earlier, the VIX fell below 14 to hit its lowest since November.
  • Gold continued sharp gains settling at $1,265/ounce.
  • European equities finished mixed overnight, ignoring a rally in the mining sector and the dovish comments from the FOMC.
  • The Stoxx 600 bounced off session lows but could not quite turn green closing down 0.1%, the German DAX dropped 0.91%, the French CAC dropped 0.45% while outside the currency bloc the FTSE rose 0.42%.
  • The Bank of England voted 9-0 to have the main interest unchanged at 0.5%, this is the seventh straight year of record-low interest rates.
  • ArcelorMittal led the way in the Stoxx 600, finishing up 10%.
Local markets
  • Bank of New York Australia ADR Index +2.8%. BHP Billiton ADR +5%. Rio Tinto ADR +3.8%.
  • Spot gold only gave up some of yesterday’s gains, falling 0.4% to $1,256. Gold stocks yesterday helped drive our market higher, up 5.5% during trading. Northern Star had formed a technical island but closed near its daily lows. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil stepped higher with both traded futures contracts above $40/barrel for the first time since December. WTI and Brent were up 2.8% and $1.8% to $40.14 and $41.40 respectfully. A weaker USD and risk-on appetite is helping drive the asset class. Both the API and EIA have reported oil production for the month of February was down circa 3.5% yoy. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore’s rally of 4.7% to $56.09 has been driven by a boost in steel rebar prices. Steel's fresh yearly high was on stronger volumes indicating genuine long contract positions. Vale stated yesterday it could lose as much as 100mtpa of annual output over the next three years due to pending environment licences in Minas Gerais, Brazil. One of the first cuts could come in the next few months from the Brucutu mine which has current supply of 30m/t a year. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Base metals were up across the board with copper being the most noteworthy. Copper lifted 1.6% to $5,068, breaking its 200 day moving average for the first time since May 2015. Copper touched the 200DMA two weeks ago before retracing. Copper is now above its August and October 2015 floor of support and close to setting a new 2016 high. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • The 500% darlings of Sydney’s stock mkt now face record short.
  • WiseTech Global said worth at least A$700m at IPO: Australian.
  • Yellen reignites commodities rebound from gold to copper
  • Aconex (ACX): Buys Conject for ~$A96mln.
  • AGL Energy (AGL): Most logical Australian buy for Alinta retail gas network: AFR.
  • Macquarie (MQG), Southern Cross (SXL), Nine Entertainment (NEC): Said to sell 15.7% stake in Southern Cross: AFR; Nine said to buy 9.9% stake: AFR.
  • Premier Investments (PMV): Scheduled to release 1H results.
  • Rio Tinto (RIO): Rio’s CEO ‘surprise’ signals pivot from cost-cutting to growth.

Stock-to-Watch: Myer (MYR.xasx)

The ASX-listed retail chain Myers reported its 1H16 results yesterday and the results were viewed upon favourably, with the stock rallying 13%. It seems the five-year plan new CEO Umbers has started to implement is cautiously showing signs of taking effect. It is this very change in sentiment and market strategy which we are identifying as a pivot point to MYR’s prior horrible share price performance.

Since 2013, the retailer has been making lower highs and lower lows. There have been multiple gaps in its daily chart as the market sold off from poor announcement after poor announcement. Yesterday on a technical level showed potential early signs of a reversal. Firstly it has set a higher high following a higher low. It also broke the June – August 2015 floor of support and November to January’s ceiling of resistance.

MYR is nowtruly above the 200 day moving average or the first time since March 2014. Lastly MYR is the third most shorted stock on the ASX. If these shorts only begin to believe the fortunes are turning they will look to exit and naturally add more buyers than sellers into the market place.

Myer moves above 200 day moving average1





















Long-term trend, Myer
2




















Broker upgrades, downgrades
  • Bank of Qld (BOQ): Cut to hold vs buy at Saw & Partners
  • BHP Billiton (BHP): Cut to neutral vs buy at Nomura
  • Myer (MYR): Cut to equalweight vs overweight at Morgan Stanley
  • MYOB (MYO): Cut to hold vs buy at Morningstar
  • Northern Star (NST): Raised to buy vs hold at Baillieu Holst
  • Treasury Wine (TWE): Cut to neutral vs outperform at Credit Suisse

Performance3
 
AUDUSD hits a high

The US dollar continued its slide overnight which took the major currencies higher along with the AUDUSD. Strengthening commodity prices also aided AUDUSD to reach an overnight high of 0.7655 which coincides with a 61.8% fibonacci retracement from the May 2015 high to the January 2016 low. Whilst continued pressure on the US dollar index is expected, the AUDUSD has run up fast and profit taking should start to occur soon.

Our Iimit sell was filled yesterday at 0.7600 following Australia's strong unemployment print and the stop loss has been set at 0.7670.

US dollar index future
4
 AUDUSD moves above 0.76
5
 
S&P/ASX200 to meet resistance

Whilst Europe took a hit overnight on the strengthening EURUSD, US equities closed with decent gains which led the Dow Jones Industrial Average to reclaim all of its 2016 losses. Our AUS200.i index followed this US lead and the spot market is expected to open with gains of over 0.5% at the market open.

The S&P/ASX200 (AUS200.I) is likely to meet resistance at 5215 which is where our 200 day moving average sits. The XJO made a decent reversal earlier this week at this level and given it’s a Friday, profit taking is expected to take place so perhaps this area is where the market will limit its buying.

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

For more on forex, click here.

– Edited by Robert Ryan

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945 AEST: #SaxoAPAC





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