Article / 06 December 2017 at 0:22 GMT

Today's Trade: Miners send ASX200 lower ahead of data

Trading Desk / Saxo Capital Markets
Australia

  • The ASX200 fell 0.5% in early trade ahead of release of GDP data
  • Gold dropped 1% to a two-month low on Tuesday as the dollar rose
  • Copper prices had their worst day since January 2015


By Saxo Capital Markets (Australia)


Overnight and early trade

The local market started the day lower after a negative lead from Wall St and a fall in commodities. The ASX200 fell 0.5% in early trade.

Asian equity markets looked set for a mixed start to Wednesday trading following an afternoon selloff in US equities as traders await catalysts that would provide reason to add to risk assets before the year draws to a close. Equity-index futures in Japan and Australia fell, while contracts tracking Hong Kong stocks climbed.

Investors in the US were cautious as Republicans were set to try to reconcile the Senate’s version of the tax bill with the House’s — a task lawmakers hope to complete by Christmas. The end of the third-quarter earnings season, along with few new developments on the legislative front, has left money managers with little else to act on, some analysts and investors said.

The S&P 500 declined 9.87 points, or 0.4%, to 2629.57, while the Dow Jones Industrial Average shed 109.41 points, or 0.5%, to 24180.64. The tech-heavy Nasdaq Composite slipped 13.15 points, or 0.2%, to 6762.21. Both the S&P 500 and Nasdaq Composite have fallen three consecutive sessions. The VIX fell 3% to 11.33.

Most S&P 500 sectors declined on Tuesday, with the exception of technology. The declines were steepest among telecommunications companies, off 1.8%, and utilities, down 1.2%.

Shares of financial firms in the S&P 500 declined as bond yields slid, which tends to crimp lenders’ profits. The yield on the benchmark 10-year Treasury note fell to 2.356% from 2.379% on Monday. Yields move inversely to prices.

Consumer-discretionary stocks in the S&P 500 were also trading lower after 12 consecutive sessions of gains. Analysts partly attributed the recent rally to prospects of a lower corporate tax rate for retailers that tend to pay a relatively high tax bill.

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 Copper prices had their worst day since January 2015 on Tuesday. Photo: Shutterstock

Kohl’s declined $1.34, or 2.7%, to $48.26, paring its one-week gain to 4.9%. Macy’s was off 58 cents, or 2.2%, at $25.22 and remained up 14% over the past week.

Those declines offset gains among technology firms. Shares of tech companies in the S&P 500 rose 0.2% on Tuesday, recouping some of the losses suffered on Monday. Investors had been selling tech stocks — major contributors to this year’s rally — in recent sessions, while scooping up shares of companies expected to benefit from a proposed cut in the corporate tax rate, analysts said.

Shares of Facebook gained 1.36, or 0.8%, to 172.83 but are down 5.3% over the past week. Nvidia rose 1.08, or 0.6%, to 187.74, paring its one-week decline to 11%.

Elsewhere, the Stoxx Europe 600 fell 0.2%.

Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC

Local markets

  • Bank of New York Australia ADR Index is down 1.4% to 262.3, BHP Billiton ADRs are down 1.6% to A$27.22 equivalent, a 1.9% discount to last Sydney close ,Rio Tinto ADRs are down 2.5% to A$61.88 equivalent, a 12.3% discount to last Sydney close
  • Gold dropped 1% to a two-month low on Tuesday as the dollar rose against a basket of currencies and US stocks rebounded as investors assessed details of the US tax overhaul legislation. US gold futures for February delivery settled down $12.80, or 1%, at $1,264.90 per ounce. Despite the moves overnight which drove gold to October levels, price action for gold hasn’t been this quiet since 2005: gold has stayed in a $34.50 trading range in November, the lowest gap between its high and low in any month since October 2005. A unique set of circumstances has conspired to keep gold in its narrow range, stuck in a band roughly between $1,265 and $1,300, analysts say. 
  • Typically an asset that investors favour when markets turn rocky, gold also struggles to compete with yield-bearing assets like Treasuries when interest rates rise. And gold faces a number of other headwinds with US stocks surging, the Federal Reserve set to gradually raise interest rates and the dollar rebounding. Like many other commodities, gold is priced in dollars, making it more expensive for overseas buyers when the dollar grows stronger. Yet at the same time, investors say there is enough market uncertainty to keep a floor on prices. Tensions between the US and North Korea have raised concerns among traders throughout the year. Uncertainty about persistently low inflation has stoked doubts about the Fed’s plans moving forward. Another factor that helps explain the narrow trading range: less investor interest in gold in general. With Bitcoin and other cryptocurrencies becoming more mainstream and surging in price, many investors who would previously buy gold have turned to cryptocurrencies. Goldies in Toronto dropped 1.24% Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Crude rose as lower Opec production and signs of shrinking US oil inventories bolstered expectations for an end to the global surplus. West Texas Intermediate for January delivery increased 15 cents to settle at $57.62 a barrel on the New York Mercantile Exchange. Total volume traded was about 31% below the 100-day average. Brent for February settlement added 41 cents to end the session at $62.86 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.19 to February WTI. Oil has advanced the last three months as Opec and allied producers curbed output and last week pledged to extend supply limits through all of 2018 to whittle down global inventory levels. Goldman Sachs Group Inc. forecasts oil prices will retain strength at least through next year. Bank of America Merrill Lynch sees Brent crude rising to $70 a barrel by the middle of 2018. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Spot iron ore prices continued their march higher, despite loses in futures markets in China. Premiums for index-linked seaborne cargoes of 62% Fe, Australian iron ore fines went up on Tuesday despite thin trading, Metal Bulletin reported. An index-linked shipment of Pilbara Blend fines changed hands at a premium of $US1.70 per tonne, higher than last week's traded levels of $US1.30-1.50 per tonne. Sellers are no longer willing to let go of such cargoes at a premium below $US1.50 per tonne amid bullish sentiment sparked by price surges in the steel market, participants said. Rebar prices in east China continued to advance by 30-40 yuan ($US4.50-6) per tonne during the day, while hot rolled coil was also traded 30-50 yuan per tonne higher in the country. Traders continue to snap up any available cargoes, with particular interest in high grade iron ore. Investors in China were a little bit more circumspect, with losses in the base metals sector curbing their enthusiasm for the steelmaking raw material. A Bloomberg survey showed that investors and traders expect growth in fixed asset investment in China to fall to around 12% in 2018. This is down from current levels around 19-20%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Copper prices had their worst day since January 2015 on Tuesday, as some investors took profits after data showed an inflow into London Metal Exchange warehouses. Copper for March delivery fell 3.5% to $2.9805 a pound on the Comex division of the New York Mercantile Exchange, its lowest close since late September. The industrial metal fell back below $3 for the first time since early October and was more than 7% off its three-year highs from that same month. Tuesday’s declines came even after a private gauge showed activity in China’s service sector expanded at a faster pace in November, the latest indication of strength in the sector following official data released last week. Almost all the main metals traded on the LME, including copper, aluminum and zinc, also declined on a rising US Dollar. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Companies trading ex-dividend today: Collins Foods
  • Latitude Financial Advisers Said to Seek IPO Proposals By End of Week; Latitude May Be Worth ~A$5bn, IPO Might Top A$2bn, Largest in Australia Since Medibank in 2014: AFR
  • Decmil (DCG AU): Australia Plans Largest Solar and Battery Power Plant: SMH
  • Fonterra (FSF AU): Whole Milk Powder Average Price Rises to $2,830/Ton
  • GrainCorp (GNC AU): Crop Quality Lowered by Rain on East Coast Australia: GrainCorp
  • Macquarie Group (MQG AU): Macquarie European Infrastructure Fund to Buy Majority Stake in Polish Cable Operator Inea
  • Qantas (QAN AU): Global Airline Earnings to Jump 11% as Fares Rise and Cargo Rebounds
  • Tegel (TGH AU): First-Half Net Falls 2.3% on Market Development Spending

Broker upgrades and downgrades

  • Appen (APX AU): Upgraded to Buy at Bell Potter; PT A$9
  • Cochlear (COH AU): Downgraded to Underweight at JPMorgan; PT A$162
  • Galaxy Resources (GXY AU): Upgraded to Buy at Bell Potter; PT A$4.57
  • Insurance Australia (IAG AU): Downgraded to Hold at Bell Potter; PT A$6.90
  • Suncorp (SUN AU): Upgraded to Buy at Bell Potter; PT A$15.50
  • Virgin Australia (VAH AU): Downgraded to Sell at Goldman; PT A$0.21
  • BHP Billiton (BHP AU), Rio Tinto (RIO AU), South32 (S32 AU): Citi Upgrades UK Miners Amid Improving Commodity Price Outlook

Aussie events

Wednesday: TPM AGM
Thursday: NUF AGM
Friday: WBC AGM

USDJPY & USDCHF

Safe haven currencies (JPY and CHF) are showing resilience despite strength in the US dollar. The highly correlated asset – gold (XAUUSD) sold off yesterday, while USDCHF rallied to break the downtrend (from the recent swing high of 1.0037). In contrast, price actions of USDJPY have been subdued and it continues to hover near 112.50 without giving too much indication of near-term directions. Although USDJPY has been failing to impress this week, we would look to buy any pullbacks.

USDJPY chart
1
 
USDCHF chart
2
Source all charts: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more.


– Edited by Susan McDonald


For more on forex, click here.

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

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.


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