Article / 25 January 2017 at 0:49 GMT

Today's Trade: Miners lead as ASX breaks higher

Trading Desk / Saxo Capital Markets
  • In opening trading, Rio breaks 2.3% higher for two-year high of $A66.28
  • The miner announced the sale of its NSW coal mines to Chinese government
  • S&P500 and the Nasdaq hit new record highs overnight
  • Moody's has confirmed Australia's triple-A rating

By Saxo Capital Markets

Overnight and early trading

The ASX/S&P 200 has risen higher this morning, built on big rises from the big miners after commodity prices jumped overnight and BHP posted a solid production update.

The ASX rose 0.5% to 5677.9, with the materials sector leading the rise.

Overseas, US stocks rose the most in three weeks, sending the S&P 500 Index to an all-time high, while Treasuries tumbled as investors resumed bets that growth in the world’s largest economy is set to accelerate.

The Nasdaq Composite Index also climbed to a record, with materials producers leading gains as copper and aluminium advanced.

Housing stocks surged after the largest US builder delivered earnings, while engineering firms gained as President Donald Trump took steps to advance construction of oil pipelines.

Banks jumped as the yield on the 10-year Treasury note climbed back above 2.45%.
Politics continued to sway financial markets as a UK court ruled parliament must vote on any Brexit plan.

Moody’s says Australia has stronger potential economic growth than most AAA rated sovereign nations and greater scope for conventional policy stimulus. Photo: iStock

Donald Trump sought to cajole US automakers to build plants in America and vowed to renegotiate the Keystone XL and Dakota Access pipelines.

Investors also turned to a slate of corporate earnings that began to show signs that the economy was on firm footing at the end of 2016.

DR Horton’s results come amid data showing rising home construction and a pickup in demand as mortgage rates start to climb.

The first reading on last quarter’s U.S. economic output is due Friday.

The S&P 500 Index rose 0.7% to 2,280.04, topping its January 6 high. The measure rose the most since January 3, snapping a streak of 13 sessions without a move greater than 0.35%.

The small cap Russell 2000 Index had its best day in three weeks with a 1.6% advance. It’s still 1.4% below a record set December 9.

Materials producers in the index surged 2.5%, the most since March.

DuPont rose 4.5% after its results topped estimates and the company said it would delay its expected closing of a merger with Dow Chemical.

DR Horton and Lennar jumped at least 6% to lead homebuilders higher. Johnson & Johnson and Verizon Communications slumped more than 1.8% to lead losses in the Dow Jones Industrial Average, which topped 19,900 for the first time since January 12.

The yield on the 10-year Treasury rose six basis points to 2.46%, reversing a seven basis point drop on Monday. Tuesday’s $26 billion two-year US note sale drew a yield of 1.21%, above the level indicated before the auction.

The US dollar has fallen for four straight weeks, the longest retreat since February. The British pound slipped 0.2% to $1.2505 as investors bet a Supreme Court loss for UK Prime Minister Theresa May won’t derail the start of a process to exit the European Union.

International earnings

Boeing, United Technologies, Abbott Labs, Freeport McMorRan, Hess, Illinois Tool Works, Textron, AT&T, eBay, Qualcomm, Citrix, WW Grainger, Las Vegas Sands, Cullen/Frost Bankers, Murphy Oil, McKesson, Norfolk Southern

Intel, Microsoft, Alphabet, Caterpillar, Comcast, Dow Chemical, Ford, Fiat Chrysler, Unilever, Biogen, Northrop Grumman, Blackstone, Praxair, Potash, Alaska Air, PulteGroup, LM Ericsson, LVMH, Raytheon, Southwest Air, Stanley Black & Decker

Chevron, Colgate-Palmolive, Honeywell, American Airlines, General Dynamics, Air Products

Local and markets and commodities

  •  S&P/ASX 200 Index futures up 0.7%; futures relative to estimated fair value suggest an early gain of 0.6%.
  • Bank of New York Australia ADR Index +1.3%, BHP Billiton ADR +3.3% to A$27.46 equivalent, 1.7% premium to last Sydney close, Rio Tinto ADR 4.5% to A$60.41 equivalent, a 6.7% discount to last Sydney close.
  • Gold retreated from a two-month high as US Treasury yields rose, this outweighed the benefit of the weaker USD and curbed demand for the alternative asset. Gold futures for February delivery lost 0.4% to settle at $1,210.80/oz. The price climbed to $1,220.10/oz earlier, the highest since November 22. Gold stocks in Toronto edged 0.38% lower overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Crude oil prices were higher as more participants to the recent production agreement said they were close to implementing their share of the reduction. Iraq’s oil minister, Jabbar Al-Luaibi, said the country had trimmed supply by 180kb/d and will cut a further 30kb/d by the end of the month. WTI for March delivery rose 43 cents to settle at $53.18/b. It’s the highest close for a front-month contract since Jan. 6. Brent for March settlement climbed 21 cents, or 0.4%, to $55.44/b. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore spot prices advanced once again amid signs that demand remained strong in early 2017. Data from the China Iron and Steel Association (CISA) showed that its members’ output reached 1.7092 million tonnes per day, up from 1.6mt/d in late December. Spot iron ore rose 1.56% to $82.69. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper hit its highest in nearly seven weeks, climbing 2.6% to end at $US5943, its highest since December 7. Aluminum for 3-month delivery climbed as much as 1.8% as Chinese government said to be drawing up plans that would halt about 3.3m tons of operational capacity during winter to fight air pollution. Miners performed extremely well overnight with Freeport surging, taking the Stoxx basic resources sector index SXPP to the highest level since Aug. 2014. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: BHP (BHP): Escondida union says offer pushes workers toward strike; set to release production data; Evolution Mining (EVN), Northern Star (NST), Resolute Mining (RSG), Independence Group (IGO): Scheduled to announce production data; Origin (ORG): Rejects claim of cover-up, vows to defend court action; Rio Tinto (RIO): Agrees to sell Australia coal unit to Yancoal for $2.45 billion; Ten Network (TEN): James Packer looking to sell stake, the Australian newspaper reports.

Broker gradings

- BlueScope Steel (BSL): Raised to overweight from neutral at JPMorgan; cut to neutral from outperform at Credit Suisse
- Western Areas (WSA): Upgraded to buy from hold at Argonaut

Australian results due this week 

AGM: Australian Pharmaceutical Industries Ltd
Quarterly Report: Independence Group


US dollar and US major equity indices once again showed positive correlations last night but despite the strength from US dollar (DX), the price actions of AUDUSD looked mixed as copper (HG) rallied to reach the key resistance level 270.

AUDUSD appears to have formed a triangle and today we expect a break out depending on AU quarterly CPI which is released at 1130 AEDT. The interim resistance level remains at 0.76 and the support would be at 0.7550.

AUDUSD weekly chart

As the US 10-Year Treasury yield jumped, gold (XAUUSD) retreated and we now see a double top at $1,220/oz which is likely to remain as a solid resistance level for now, although upward momentum still exists.

US dollar index (DX) is now hovering at the psychological level of 100 and we would continue to monitor the price actions of DX that has an inverse relationship to gold.
XAUUSD monthly chart

Source, both charts: Saxo Bank - create charts with SaxoTrader. Click here to learn more 

Today's trade 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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