Article / 15 September 2016 at 1:00 GMT

Today's Trade: Miners up but ASX feels the weight

Trading Desk / Saxo Capital Markets
  • Local shares open lower with miners making waves but other sectors flailing
  • The ASX is down 0.4% at 5206.2 at 1024 AEST (0024 GMT)
  • BHP rose 0.4% following rises in the sector overnight, and Fortescue added 0.3%

By Saxo Capital Markets

Overnight and early trading

ASX/S&P 200 investors are expected to tread warily again today, although the recovery in late trading yesterday proves that plenty feel capable of stepping in if bargains come to the fore.

The expiry of the quarterly share price index (SPI) futures contract this morning is another unknown quantity - it could see a large number of shares changing hands.

Overnight, US stocks erased gains as a slump in oil sank energy shares, overshadowing a rally in Apple amid concern the rout that’s wiped out $2 trillion in global equity value the past week isn’t over. Treasuries advanced, while the dollar retreated.

The S&P 500 Index turned lower in afternoon trading Wednesday as selling spread from oil and gas producers to the broader market, even as Apple climbed to a five-month high. US crude slid to a two-week low while copper jumped.

Treasury yields retreated with rates on most European sovereign debt after surging on concern central banks are turning less accommodative.
Volatility has roared back into financial markets over the past week as the Federal Reserve Bank weighed the case for an interest-rate increase, European Central Bank chief Mario Draghi refrained from adding to stimulus and the Bank of Japan continued to review the costs and benefits of its own policies.
The S&P 500 fell 0.1% to 2,125.77, erasing an advance of as much as 0.7% during the session. Energy companies were the worst performers, falling for a second day.  Apple jumped 3.5% amid positive sentiment around the latest version of its iPhone.
The S&P 500 has dropped almost 3% from a record set on August 15. Nearly all of the decline has come in the past week, led by raw-materials producers, consumer-staples companies and phone stocks. The measure has pared its gain this year to 4% after rising as much as 7.2%.
The Stoxx Europe 600 Index slipped 0.1%, retreating for a fifth straight day. Bayer jumped 2.4% after agreeing to buy Monsanto in a deal valued at $66 billion, winding up four months of talks to create the world’s biggest supplier of seeds and pesticides.
Developing nation stocks extended their longest selloff since June, with the MSCI Emerging Markets Index down 0.1%, paring its 2016 gain to 12%. The Shanghai Composite Index dropped 0.7% and has shed 2.5% this week, the most since May.
Asian index futures signalled a mixed picture for Thursday, with markets in South Korea and mainland China closed for the rest of the week.

Nikkei 225 Stock Average contracts were down 1% on the Chicago Mercantile Exchange, while futures on Australia’s benchmark slipped 0.4%. Futures on Hong Kong’s Hang Seng Index rose by 0.1%.
Yields on 10-year Treasuries fell three basis points, or 0.03%, to 1.70%, following a six basis point gain on Tuesday. Rates on similar-maturity German notes declined five basis points to 0.02% as sovereign debt in France, Italy and Spain advanced.
Japan’s yield curve steepened amid speculation the Bank of Japan will concentrate its bond-buying program more heavily on short-term securities. Five-year yields decreased two basis points to -0.20%, while the 30-year rate jumped six basis points to 0.57%.
The Bloomberg Commodity Index fell 0.4% after dropping 1.3% on Tuesday. Gold reversed earlier losses to trade 0.3% higher, its first advance in six days.
West Texas Intermediate crude fell 2.9% to $43.58/barrel in New York. That followed a 3% tumble in the previous session and left prices at their lowest level since September 1.
Data on US government stockpiles Wednesday showed a surprise drop in inventories, though data for distillates and other products raised concern that demand is weakening.

Money managers have been slashing bets on falling oil prices at the fastest pace in five months before major producers meet this month in Algiers to discuss output constraints.
Copper posted its biggest gain in almost three months, jumping 2.6% in London as strong economic data out of China fueled speculation that demand from the world’s largest metals consumer will increase.

Copper has been the big hit lately in commodities with Chinese demand expected to
rise, but aluminium, zinc, lead and tin also enjoyed rises overnight. Photo: iStock

An index of global mining stocks advanced for the first time in six days. Aluminum, zinc, lead and tin also rose, while nickel dropped.
The USD weakened 0.1% to 102.43 yen and slipped 0.2% to $1.1250 per euro. The CBOE Volatility Index rose 17.74% to 17.85 on Tuesday, but traded 1.18% lower on Wednesday.

Information sources: Source: Bloomberg,

Local markets and commodities

  • The S&P/ASX 200 Index futures -0.4%; futures relative to estimated fair value suggest an early decline of 0.2%.
  • Bank of New York Australia ADR Index +1.7%, BHP Billiton ADR +2.1% to A$20.07 equivalent, 1.4% premium to last Sydney close, Rio Tinto ADR +1.7% to A$40.60 equivalent, 15% discount to last Sydney close.
  • Gold prices closed higher on Wednesday, boosted by a weaker USD and diminished expectations for an interest-rate increase at the Federal Reserve’s policy meeting this month. Gold for December delivery settled up 0.2% at $1,326.10/oz  on the Comex division of the New York Mercantile Exchange, breaking a five-day losing streak. The precious metal has been largely influenced by dollar moves and comments from Fed officials in recent weeks, as investors contemplate the likelihood of a rate increase before the end of the year. Higher rates tend to weigh on gold, which pays its holders nothing and struggles to compete with yield-bearing assets when borrowing costs rise.
  • Holdings in the world’s largest exchange-traded product backed by gold fell to the lowest since June as investors pulled back before a Federal Reserve meeting next week. Assets in SPDR Gold Shares dropped 0.5% on Tuesday to 935.49 tonnes, the lowest since June 24. Holdings have dropped from a three-year high reached in July as comments from some officials fueled speculation that the Fed will tighten US monetary policy this year, making gold less competitive against interest-bearing assets. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil prices slid Wednesday on rising US stockpiles of refined products and news Libya plans to resume oil shipments from a long-closed port. US crude for October delivery settled down $1.32, or 2.9%, at $43.58/b on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.25, or 2.7%, to $45.85/b on ICE Futures Europe. Oil prices have held roughly between $40 and $50 a barrel for months on continued uncertainty about how long the global glut of crude is set to persist. Production from Opec remains high and inventories in the US and elsewhere stand near record levels.
  • US crude inventories fell by 600,000 barrels in the week ended September 9, the Energy Information Administration said Wednesday. However, stockpiles of gasoline and distillates, including heating oil and diesel fuel, rose. Total supplies of crude oil and refined products rose by six million barrels in the week to 1.4 billion barrels, near the record high reached a few weeks ago, the EIA said.
  • Libyan officials said they plan on Wednesday to load the first crude oil cargo in nearly two years from Ras Lanuf. Libyan production has been limited in recent years by political unrest and violence, and an increase in Libyan exports would be a major oil-market development ahead of talks in Algeria in September among OPEC members to cap output. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore lost 0.2% to $55.97/tonne. BHP Billiton said a proposed tax on producing iron ore in Australia would risk the development of a new project in the Pilbara region that may account for about a quarter of its iron output from the country. Brendon Grylls, the leader of Western Australia’s Nationals party, has proposed a production-rental cost on BHP and rival Rio Tinto Group of A$5/t, up from 25 cents currently.
  • Both companies have rejected the A$7.2 billion levy increase, saying it would put jobs and competitiveness at risk. BHP’s South Flank operation could produce as much as 80 million tons a year if approved, said Andrew Buckley, a mine manager at the company’s Jimblebar project in Western Australia. BHP is targeting output of 290 million tons a year from the Pilbara region and South Flank’s output would replace the aging Yandi mine, once it’s depleted. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper posted the biggest gain in almost three months as strong economic data from China fueled speculation that demand will strengthen in the Asian nation, the world’s largest metals consumer. An index of global mining stocks advanced for the first time in six days. China’s broadest measure of new credit exceeded estimates in August, rebounding from a month earlier and bolstering evidence that growth is stabilising. Chinese reports this week on factory output, investment and retail sales all exceeded economist estimates.
  • Copper for delivery in three months rose 2.6% to $4,771.50/t ($2.16/pound) at 1650 GMT on the London Metal Exchange, the biggest increase since June 15. The Bloomberg World Mining index of producers added 0.4%, heading for its first gain since September 6. Copper futures for December delivery gained 2.5% to $2.155 a pound on the Comex in New York.
  • Aluminum, zinc, lead and tin also gained on the LME, while nickel dropped. Glencore added 2.5% in London trading whilst in Canada raw material producers added 0.5%, after rising as much as 2.2%: First Quantum Minerals and Teck Resources added at least 3% as copper climbed the most in almost three months to lead gains among industrial metals. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Trades ex-dividend: AP Eagers (APE), Automotive Holdings (AHE), Breville Group (BRG), Flight Centre (FLT), Seek (SEK), South32 (S32), Virtus Health (VRT); Ansell (ANN): Reckitt-Hypermarcas condom deal approved in Brazil with restriction; Aurizon (AZJ): Coal train derailment damages Australian rail line: Co; BHP Billiton (BHP): Samarco cost set to rise as judge orders new damage review; Australia mining tax may risk major iron ore project; Challenger (CGF): Fixed-income boss Sahota quits; CSL (CSL): Shire says FDA approved Cuvitru for primary immunodeficiency; Flight Centre (FLT): Acquires 49% interest in Ignite Travel Group; Goodman Group (GMG): Goodman Australia investor meetings from September. 19; Myer (MYR): Scheduled to release FY results; NOTE: Co. in May forecast profit before items A$66m-A$72m; Seafarms (SFG): The $1.5b hunt for super shrimp.

Broker gradings

- APA Group (APA): Cut to underperform vs neutral at Credit Suisse
- Commonwealth Bank (CBA): Raised to buy vs neutral at Goldman

Stock to watch

We highlighted the expected lower moves over Bluescope Steel (BSL.xasx) on August 26 (see here) and since then the stock has since fallen just over 11% and yesterday closed below the $8 handle at $A7.99.

The selloff we have seen has been aggressive and this momentum may pause for the time being given it now approaches levels where it has experienced some traffic.

Any aggressive bounces could be taken as an opportunity to add to short positions with $A8.50-$A8.60 an attractive zone for gains (50% retracement) to be met with potential resistance.

Longer term, we aim for ultimate support at the orange trendline where all short positions would be neutralised and potentially a set up for a buy may develop.

Bluescope Steel monthly graph


Source: Saxo Bank


The US500 logged marginal losses overnight as attempted gains fizzled out with the pulldown in oil. The AUS200.i found support at the 200 Day Moving Average yesterday and managed to squeeze out a gain, but in the overnight session gave up some of those gains to close right on the 200 DMA.

Should we settle below the 200 DMA today this would be interpreted as an added negative for our index.

AUS200 monthly chart

Source: Saxo Bank

The US500.i could only retrace 50% overnight before receiving heavy rejection.

US 500 daily chart
Source: Saxo Bank

Copper's largest gain in almost three months (+2.6% on Comex) could not support our commodity currency as the sell-down in oil overrode this positive momentum.

The AUDUSD currently sits just above an interesting level and today’s employment numbers at 1130 AEST (0130 GMT) will be the core focus today.

A lower move should find support at just below the 74 handle at 0.7385 which were Q4 2015 double top levels.

AUDUSD quarterly chart 
Source: Saxo Bank - create your own charts with SaxoTrader. Click here to learn more 

Today's Trade information 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. Watch the recording of this Week’s Macro Monday Call at 1030 AEST.
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