- Local shares opened cautiously after previous session's near two-month high
- USD weakened, longer-maturity US debt gained and US stocks hit records overnight
- Traders interpreted the FOMC minutes as slightly dovish
- Iron ore prices sank below $60 a tonne
- Spain’s IBEX rose 1.3% after Catalan leader stopped short of declaring independence
By Saxo Capital Markets (Australia)
The local market opened weaker. The ASX200 was down 0.08% in early trade.
The dollar weakened, longer-maturity US debt gained and US stocks hit record highs after traders interpreted the minutes from the last Federal Reserve meeting as slightly dovish even though policy makers are expected to raise rates again this year.
US stocks rose to fresh records on Wednesday, with gains accelerating towards the end of an otherwise quiet trading session.
Robust earnings growth has buoyed major stock indices this year, even in the face of recent geopolitical risks. Economic data also have been generally positive, with the Federal Reserve
signaling its confidence that the US economy was strong enough to support further rate increases. Growth in other parts of the world also has given investors confidence.
Wal-Mart Stores shares rose to their highest level since February 2015. Photo: Shutterstock
The Dow Jones Industrial Average
added 42.21 points, or 0.2%, to 22872.89. The S&P 500 climbed 4.60 points, or 0.2%, to 2555.24 and the Nasdaq Composite advanced 16.30 points, or 0.2%, to 6603.55. All three indices set new all-time highs.
Shares of consumer-goods companies helped lift indices for a second straight day. Kroger shares rose 25 cents, or 1.2%, to $20.78 after the grocer reaffirmed its sales outlook for the year, a day after Wal-Mart Stores shares rose to their highest level since February 2015. Wal-Mart shares added 1.60, or 1.9%, to 85.73 Wednesday.
Corporate earnings also drove some of the day’s biggest moves. Shares of Delta Air Lines rose 37 cents, or 0.7%, to 53.07 following the airline operator’s upbeat guidance for the fourth quarter, though earnings fell in the most recent quarter. Fastenal fell 35 cents, or 0.8%, to 44.51 after the maker of fasteners, tools and supplies reported earnings that were in line with analyst projections.
The biggest banks begin reporting earnings this week, with J.P. Morgan Chase and Citigroup on tap for Thursday.
Market reaction to minutes from the Fed’s latest meeting was muted. The release showed most officials believed at their meeting last month that they would likely raise short-term interest rates again this year, though some said their decision would hinge on whether inflation picks up in coming months.
Although inflation has remained below the Fed’s 2% target this year, some consumers are starting to believe that it will rise, according to a September survey by the Federal Reserve Bank of New York. Some investors have said strong September wage growth could lead to higher inflation.
Treasury yields and the dollar were little changed on Wednesday. The yield on the 10-year US Treasury
note rose to 2.346% from 2.343% on Tuesday. Yields rise as prices fall. The WSJ Dollar Index, which tracks the US currency against 16 others, was down 0.2%.
Elsewhere, the Stoxx Europe 600 index was little changed, but Spain’s IBEX index surged 1.3%, after Catalonia’s president stopped short of unilaterally declaring independence from Spain immediately. Spanish Prime Minister Mariano Rajoy asked the Catalan government on Wednesday for clarity over whether it was declaring independence.
Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
- Bank of New York Australia ADR Index is down 0.5% to 271.2, BHP Billiton ADRs are down 1.5% to A$26.25 equivalent, a 1.4% discount to last Sydney close, Rio Tinto ADRs are down 1.1% to A$61.22 equivalent, a 11.0% discount to last Sydney close
- Gold prices pared losses on Wednesday, after minutes from the Federal Reserve’s most recent meeting showed officials remained divided on whether a recent soft patch in consumer prices will last. Gold for December delivery was recently down 0.1% at $1,292.30 a troy ounce in electronic trading. Prices closed at $1,288.90 a troy ounce in regular trading on the Comex division of the New York Mercantile Exchange. Several officials said their decision on another rate move this year would depend on whether the economic data in coming months showed that inflation was set to move higher. Others worried holding off on raising interest rates too long could lead to a surge in inflation that would be difficult to control. Expectations for a more hawkish Fed have pressured gold prices over the last several weeks, as the metal struggles to compete with yield-bearing investments when rates rise. Gold stocks in Toronto rallied overnight by 0.55%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
- Oil pared gains after an industry report was said to show a surprise increase in US crude inventories. Prices pulled back in after-market trading following the release of data from the American Petroleum Institute on Wednesday, which was said to show crude stockpiles increased by 3.1 million barrels last week. A Bloomberg survey estimated that US crude stockpiles slid by 2.4m barrels last week. Crude supplies in Cushing, Oklahoma, the biggest US oil-storage hub, climbed by 1.22m barrels, the API data showed. That would be a seventh straight increase, if Energy Information Administration data released on Thursday confirms it.
- On Wednesday, Opec said in its monthly report that 2018 demand will be about 200,000 barrels higher than previously predicted, and that output caps adopted by most producers are trimming a global glut. Yet at the same time, the EIA raised its forecast for US crude production in 2018. Oil has advanced more than 4% this week on speculation the Organization of Petroleum Exporting Countries, Russia and other parties to the historic 2016 production accord may extend the deal beyond its March expiration. Saudi Arabia warned it will cut the amount of crude available for sale next month, while Opec Secretary-General Mohammad Barkindo signaled the group is looking to expand the number of nations participating in the deal.
- West Texas Intermediate for November delivery traded at $51.03 a barrel after settling at $51.30 a barrel on the New York Mercantile Exchange, the highest level in more than a week. Total volume traded was about 15% below the 100-day average. Brent for December settlement rose 33 cents to end the session at $56.94 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.34 to December WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- Iron ore prices sank below $60 a tonne as traders become increasingly concerned about the impact of closing steel mills over the upcoming National Congress in China. Spot iron ore slumped 2.2% or $1.36 to close at $59.65. Rising iron ore inventories also appear to be weighing on the market. Stockpiles at Chinese ports increased by 0.5% last week to 133.9mt, according to SteelHome. This builds on the previous week’s gain of 1.8%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Base metals were rather mixed, with the weaker USD providing some support to copper. However, the gains elsewhere were relatively small. Benchmark copper on the London Metal Exchange was closed up 0.6% at $US6801 a tonne, after touching $US6817.50, the highest since September 8. Copper and other metals have been driven higher by expectations of solid demand and a crackdown on polluting mines and smelters in China, the world's biggest consumer. Aluminium was the big loser, as the Kobe Steel crisis seems to have rattled investors. The company is under fire for allegedly falsifying data on its steel and aluminium products. Aluminium fell 1.5% to $US2130. Nickel has continued to push higher since the Chinese market reopened after the Golden Week holidays. With nickel pig iron furnaces being targeted for shutdown over the upcoming winter, demand for refined nickel from the international market looks strong. Nickel ended 0.7% higher at $US11,135. Zinc closed down 1.8% at $US3219 a tonne. Lead finished up 0.3% at $US2565 and tin closed 0.7% higher at $US20,870. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- Companies trading ex-dividend today: Nufarm
- Bank of Qld (BOQ AU): FY results expected; NOTE: FY17 adj. net income est. A$358.8m (12 analysts)
- BHP Billiton (BHP AU), Rio Tinto (RIO LN), Fortescue (FMG AU): Iron Ore Suffers Double Whammy as Steel Curbs, Supply Land Blows
- Breville (BRG AU): CFO Mervyn Cohen Resigns After Over 10 Years in Role
- Domino’s Pizza Enterprises (DMP AU): Short Sellers Have a Taste for Domino’s: Chart
- Magellan Financial (MFG AU): Annual meeting scheduled
- Regis Resources (RRL AU): 1Q output report expected; NOTE: Co. forecast FY18 gold output 335k-265k ozs
- Transurban (TCL AU): Annual meeting scheduled; NOTE: Co. in August forecast FY18 distribution A$0.56
- Whitehaven Coal (WHC AU): 1Q output report expected; NOTE: Co. in August forecast FY18 total saleable coal output 22mt-23mt
Broker upgrades and downgrades
- South32 (S32 AU): Cut to Neutral at Credit Suisse; PT Raised to A$3.20
- CML Group (CGR AU): CML Group New Add at Morgans Financial, PT A$0.48
- APN Outdoor (APO AU): Cut to Hold at Morningstar
- Ansell (ANN AU): Raised to Overweight at JPMorgan, PT A$25.50
- Ardent (AAD AU): Cut to Hold at Morningstar
- Ausdrill (ASL AU): Raised to BB- From B+ at S&P, Outlook Revised to Stable
- Automotive Holdings (AHG AU): Raised to Buy at Morningstar
EURAUD & EURNZD
Ever since clearing above the 2015/2016/early 2017 resistance trendline the EURAUD has enjoyed gains which saw prices recover over 50% of losses from 2015's high. The pair currently trades against the 2017 peak seen in June of this year with a potential break to open further gains with 1.5450 the next topside focus, should we be able to see a clear cut break and settlement of two or more sessions above here.
EURAUD daily chart
The EURNZD, on the other hand, has already seen new 2017 highs, with this week’s high achieving its 61.8% retracement between the 2015 high to 2017 low. The weekly close is key as a failure to settle above here for the week could see a consolidation in prices. However, the trend is healthy: we mark strong support upon prices retesting the Jun/July/Sept uptrend – see daily chart below.
EURNZD weekly chart
EURNZD daily chart
Charts: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more
Information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
-- Edited by Susan McDonald
Today’s Trade is compiled by the Sydney trading desk at Saxo Capital Markets.
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