Today's Trade: Miners push S&P/ASX200 into opening slump
- US stocks edged lower, with the S&P 500 Index slipping from a 10-month high
- Resources stocks are weighing heavily on the S&P/ASX200 today
- Crude oil dropped for the first time in four days as the USD bounced off a low
- Gold has risen, edging close to a three-week high
- Iron ore trading is subdued with the Dragon Boat holiday underway in China
By Saxo Capital Markets Australia
- The S&P/ASX200 slumped heavily at the open; it was down 1.09% to 5,303.40 at 1044 AEST (0044 GMT).
- US stocks edged lower, with the S&P500 Index slipping from a 10-month high, as investors evaluated the gauge’s run toward a record amid lingering concerns about the impact of lackluster global growth. Equities staged an afternoon rebound as raw-material producers and banks trimmed losses, while defensive shares including utilities and phone companies rallied to offset those declines. Lenders and commodity shares closed above their worst levels, even as Treasury yields fell to the lowest since February and the dollar rebounded. Gains in Apple Inc. and Johnson & Johnson’s 1% climb to a record also contributed to the late-day recovery.
- The S&P 500 retreated 0.2% to 2,115.48, after losing as much as 0.5%. The gauge closed 0.7% from a record. The Dow Jones Industrial Average lost 19.86 points, or 0.1%, to 17,985.19. The Nasdaq Composite Index declined 0.3%. About 6.1 billion shares traded hands on U.S. exchanges, 13% below the three-month average.
- Crude oil dropped for the first time in four days as the dollar bounced from a one-month low, weighing on energy producers. Raw-material and energy shares have paced equity gains this week amid the currency’s post-payrolls selloff, and the two groups have been pillars in a rebound that’s lifted the S&P500 more than 15% from an almost two-year low in February.
- A stock rally picked up pace in the past few weeks after losing momentum following a four-month high on April 20. The S&P500 declined Thursday after three days of gains, the longest in a month, and had climbed in eight of the 11 prior sessions. Still, the index has struggled to hold onto advances beyond the 2,100 level in prior rallies during the past year.
- The benchmark has failed to move more than 0.5% up or down for 10 consecutive sessions, the longest such streak since September 2014. That’s come amid lighter-than-average volume. Through Thursday, the period of tepid gains and declines saw daily trading average 6.5 billion shares, 12% lower than the one-year average and almost 30% below the average during a six-week rout that started the year.
- While equities fell last Friday after a disappointing jobs report, support this week has come from Federal Reserve chair Janet Yellen’s remarks that the US economy is making progress and indications that policy makers won’t rush to raise interest rates. Traders have cut back their bets for a Fed rate hike, now pricing in no chance of a boost in June and only 20% probability in July. December is the first month with at least even odds of a rate increase.
- Bolstering Janet Yellen’s belief that the economy will continue to improve, a report today showed first-time jobless claims unexpectedly fell last week and the number of Americans already receiving benefits tumbled to an almost 16-year low, consistent with a healthy labor market.
- The CBOE Volatility Index rose 4% to 14.64, a two-week high. The measure of market turbulence known as the VIX is headed toward a second straight weekly climb and the fourth in the last five.
- Last night, seven of the S&P500’s 10 main industries fell. Financial and raw-materials shares lost more than 0.6%, trimming early declines of at least 1.1%. Utilities rose the most, followed by phone companies and consumer staples, which were buoyed by J.M. Smucker Co.’s 7.9% rally to a record. The company’s quarterly results topped analysts’ estimates, helped by pet food and Dunkin’ Donuts-branded coffee pods. Banks in the benchmark were the biggest drag on financial stocks as the group alternated between daily gains and losses for the sixth session. Lenders fell to a two-week low, with KeyCorp and Comerica Inc. among the biggest decliners, losing more than 1.9%. Elsewhere in financials, asset managers Legg Mason Inc. and Affiliated Managers Group Inc. slid at least 2.5%.
- Raw-materials producers fell from an almost 11-month high, halting the group’s longest winning streak since October. Freeport-McMoRan Inc. slid 5.9%, while fertilizer makers CF Industries Holdings Inc. and Mosaic Co. dropped 4.2% and 1.8%, respectively.
- Utilities advanced 0.9%, extending an all-time high as falling Treasury yields made the group’s relatively generous dividend payout more attractive. Ameren Corporation added 2.4% while Consolidated Edison Inc. and PG&E Corp. gained 1.5%. Utilities have the best year-to-date performance among the S&P500’s main industries, rising 16%.
- While most of the benchmark’s energy companies retreated, some natural gas producers rallied to help trim the group’s losses as the commodity surged to a nine-month high after a smaller-than-estimated supply gain signalled production declines. Cabot Oil & Gas Corp., Southwestern Energy Co. and Range Resources Corp. all gained at least 3.4%. Among shares moving on corporate news, Restoration Hardware Holdings Inc. tumbled 21% to an all-time low after the upscale furniture chain posted a surprise loss and cut its annual forecast.
- Sources: Bloomberg, TradingFloor.com
- Bank of New York Australia ADR Index -3.1%, most in about 3 months.
- Spot gold moved 0.6% higher to $1,270/oz, nearing its three week high. A recovery in the dollar prompted some buyers to cash in gains after the previous day's sharp rally, though the outlook for US interest rates offered support. The metal surged 1.5% on Wednesday after below-consensus US payrolls data and dovish comments from Fed chair Yellen dampened expectations of an imminent rate hike. Meanwhile, billionaire George Soros told the Wall Street Journal that he had bought gold and gold miners, on sentiments echoed by fellow billionaire investor Carl Icahn. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Crude oil broke its rally with WTI and Brent down 2.2% and 1.7% to $50.46 and $51.85 respectfully. US oil prices fell on Thursday, snapping a three-day rally after notching another 2016 high, as a strong dollar sparked profit-taking in crude futures by investors. Note that threats from militants against Nigeria's oil industry and fears of more insecurity that could hit supplies worldwide has limited losses in crude. But analysts also anticipate headwinds for oil in coming weeks as Canadian supplies return after last month's wildfires in Alberta's oil sands region and other oil imports grow as well to slow use in US crude stockpiles. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore remained flat at $52.56/tonne as the Chinese market remains subdued with the Dragon Boat holiday underway in China. BHP Billiton is studying an option to develop a massive iron ore deposit in Australia to replace lost tonnes as operations age and reserves decline, according to the company and documents filed with environmental regulators. It is too early to place a cost on a new iron ore mine, which would be designed to help replace almost a third of BHP's current production, coming from its Yandi mine.
- Rio Tinto is expected to decide this year to whether to develop its own Silvergrass iron ore deposit in Australia, which analysts estimate could cost $1 billion. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Base metals have retraced after a strong rally the prior day. Aluminium lost 1.1% and Copper was down 0.9%. A stronger US dollar and a rise in LME inventories contributed to copper's fall. Oz Minerals (OZL) is looking bullish despite coppers fall. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
- Commonwealth Bank (CBA): To cut interest rates to lure property investors, which risks sparking a mortgage lending war among the banks.
- Collier (CIG): Entering private mediation on sexual harassment allegations agains CFO.
- Woolworths (WOW): $A200 million IT disaster, six-year implementation of SAP .merchandising systems at supermarket and liquor group.
Selling pressure leading in to the long weekend (to be enjoyed in Australia this weekend) as well as a bearish lead on today will need to be watched. Should CHC look to close above $A2.29 it will be a bullish signal in light of these headwinds and a new run could be planned with sights of $5.61 in the near future possible.
Charter Hall Office Property (CHC) trend
- Amcor (AMC): Cut to reduce vs add at Morgans Financial
- Seven West (SWM): Raised to outperform vs neutral at Credit Suisse
AUDUSD loses ground
After testing key resistance level 0.75 handle which is the 50% retracement level between the April high 0.7834 and the May low 0.7145, AUDUSD had an outside day reversal as it closed below the previous day’s low 0.7430.
Copper (HG) made a fresh low below the May low 203.80 and if we continue to see further decline, then AUDUSD is expected to touch the previous resistance level 0.7380 in the near term.
EURUSD under pressure
The US dollar index (DX) bounced off the support level 93.44 to close above 93.92 which is the 50% retracement level between the May low 91.88 and the May high 95.96.
The strong US dollar caused the EURUSD to plunge to the 1.13 handle and EURUSD is expected to be under further selling pressure. The resistance levels would be 1.1356 and 1.1417 while the support levels are at 1.13 and 1.1219.
The materials and the energy sectors are expected to weigh heavily on the AUS200 today.
S&P500 forms a rising wedge
The S&P500 (US500.i) continues to trade within the rising wedge and its price actions have been narrow. The break out below the interim support level 2,107.50 may trigger a material selloff while the resistance level stays at 2,120.50.
Crude oil (CL) showed weakness last night but we need to see a further decline to confirm the reversal.
Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Robert Ryan
Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Join us for the Weekly Macro Call each Monday at 1030 AEST: https://saxobank.adobeconnect.com/morning-call/
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