Article / 23 February 2017 at 23:53 GMT

Today's Trade: Miners weigh heavily on ASX

Trading Desk / Saxo Capital Markets
Australia

  • The big miners have a mini meltdown as iron ore spot price drops 3% overnight
  • Markets also reacting to Fed asserting a risk of delay in US fiscal stimulus
  • Gold has been the big winner in the market's adjustment to risk aversion 
  • AUD hits a high for 2017 overnight, trading at 77.4 US cents

Overnight and early trading

Australia’s S&P/ASX 200 was down half a percent in early trading, with the ASX at a seven-day low of 5756.6 as miners took hits, with most of the other sectors following suite.

BHP Billiton, Rio Tinto, Fortescue and South 32 were down between 2.2% and 3% at around 1035 AEDT (2335 GMT) after spot iron ore fell over 3% overnight.

In the US overnight, declines in biotechnology shares dragged down the Nasdaq Composite, pressuring an index that has soared so far this year.

The Nasdaq fell 0.4% overnight but is up more than 8% in 2017, outperforming both the Dow Jones Industrial Average and the S&P 500, which are up more than 5%.

The tech-heavy index has closed at a fresh high 19 times so far this year - the highest number of records in a year since 1999, according to the WSJ Market Data Group.

The Nasdaq Biotechnology Index shed 0.3% Thursday while technology shares also slipped. Shares of Intercept Pharmaceuticals fell 5.6% and Nvidia fell 9.3%.

The S&P 500 rose less than 0.1% and the Dow industrials rose 0.2%, setting another fresh high.

Stocks have climbed since the US election, as corporate earnings have improved, data has shown growth in the US economy and investors have bet the new administration will implement tax cuts and fiscal stimulus.

Some investors remain cautious, however, noting stocks are getting expensive. Companies in the S&P 500 traded at about 22 times their past 12 months of earnings as of Wednesday, above their 10-year average of 15.8, according to FactSet.

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 Oil up, iron ore down - how will the Aussie deal with different variables? Photo: Shutterstock

Gains in oil prices helped lift shares of energy companies Thursday.

The S&P 500 energy sector rose 0.5%, with Transocean and National Oilwell Varco posting some of the biggest advances. Gains in Exxon Mobil and Chevron helped keep the Dow industrials in positive territory.

US crude oil jumped 1.6% to $54.45/barrel as data showed major oil producers have largely kept their promise to reduce output and tackle a global supply glut.

Shares of industrial companies fell 0.8% in the S&P 500, weighing on the index. United Rentals fell 5.6%.

Government bonds and their stock-market proxies gained. The yield on the 10-year US Treasury note edged lower to 2.388%, according to Tradeweb, from 2.416% Wednesday. Yields fall as bond prices rise.

Shares of utilities companies in the S&P 500, often considered bond-like stocks because of their dividends, rose 1.1%.

The dollar pulled back for a second session. The US Dollar Index, which measures the dollar against a basket of 16 currencies, was recently down 0.3%. Elsewhere, the Stoxx Europe 600 index slipped 0.1%.

Sources: Bloomberg, TradingFloor.com

Local markets and commodities

  • The S&P/ASX 200 Index futures contract -0.2%; futures relative to estimated fair value suggest little changed.
  • Gold futures rallied to the highest since November as the dollar weakened and US Treasury Secretary Steven Mnuchin said he expects low interest rates to persist. Gold futures for April delivery rose 1.5% to settle at $1,251.40/oz on the Comex in New York. Prices touched $1,252.20/oz, the highest since November 11. Gold has gained more than 8% this year as uncertainty over President Donald Trump’s policies and upcoming elections in Europe spur speculation that the Fed will move slowly. Gold miners were off 0.3% in Toronto overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil advanced to the highest close since July 2015 in New York after government data showed a smaller-than- forecast crude supply gain. Crude supplies climbed 564,000 barrels last week, the US Energy Information Administration said. While that’s the highest level in weekly data going back to 1982, it trailed a 3.25 million-barrel gain projected by analysts surveyed by Bloomberg.
  • West Texas Intermediate for April delivery rose 86 cents to $54.45/b on the New York Mercantile Exchange. It was the highest settlement since July 2, 2015. Total volume traded was about 17% below the 100-day average. Brent for April settlement advanced 74 cents, or 1.3%, to $56.58/b. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore futures fell sharply as expectations of an increase in supply from India rose. Spot iron ore lost $2.96% to $91.34. The decline comes from highest close in almost three years as top miners question extent of recent gains. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper slid 3% to settle at $5,859/tonne on London Metal Exchange in the biggest drop since September 2015. Prices are now below the 21-day moving average. Zinc was down 2.6% in the biggest loss since December. Aluminium, lead, nickel and tin also closed lower on LME. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Trading ex-div.: Amcor, Computershare, Evolution Mining; ANZ Bank (ANZ), Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC): Australia lenders risk heavy hit if Fed hurries with rate hikes; Automotive Holdings (AHG): net profit for the December half of $38.6 million, down 19.8% on a year ago. Revenue rose 7.6%to $2.96 billion; Bellamy’s (BAL): To ‘vigorously defend’ shareholder suit; Charter Hall Group (CHC): 1H results expected; NOTE: 2-analyst rev. est. A$96.3m; Coca-Cola Amatil (CCL): Set to embark on ‘transformational’ purchase: Australian; Corporate Travel Mgmt (CTD): December half net profit rose 28 per cent to $22.1 million thanks to strong organic growth. Revenue climbed 26% to $150.5 million, profit before tax rose 29% to $32 million and underlying EBITDA was up 45 pe cent to $40.4 million; Cromwell Property (CMW): 1H results expected; NOTE: 2-analyst adj. net income estimate: A$73.4m.
  • Mayne Pharma (MYX): net profit almost quadrupled in the December half to $71.3 million on revenue of $294.8 million, which is more than double the previous year; NextDC (NXT): profit for the six months ended December 31 jumped to $19.3 million from $644,000 a year ago on revenue of $58.7 million, up 39%; OceanaGold (OGC): Says FY net more than double at record of $136.5m; Platinum Asset Mgmt (PTM): 1H Revenue, profit drop as FUM declines; Reece (REH): 1H net up 6.9% to A$96.1m; Regis Healthcare (REG): 1H results expected; NOTE: Co. in August forecast FY17 Ebitda at least 15% above normalised FY16; Super Retail (SUL): net profit jumped 66 per cent to $74.4 milllion and revenue rose 6.6 per cent to $1.3 billion. Auto and sports divisions performed strongly with EBIT growth for these being 10.1% and 19.5%, respectively; Wesfarmers (WES): KKR may be among PE firms considering buying office supply operators in Australia, including Officeworks: AFR; NOTE: Feb. 15: Wesfarmers Explores Officeworks IPO; Coles 1H Profit Drops;  Westfield (WFD): Intu gains after results and Westfield raises stake in company.

Broker gradings

  • APN News (APN): Raised to buy at UBS, PT A$3.30
  • Asaleo Care (AHY): Raised to outperform at Credit Suisse, PT A$1.75
  • BHP Billiton (BHP): Cut to hold at SBG; PT lowered to 1,560p
  • Cleanaway (CWY): Cut to neutral at Macquarie, PT A$1.14; Raised to add at Morgans Financial, PT A$1.22; Cut to neutral at UBS, PT A$1.16
  • Crown Resorts (CWN): Raised to neutral at Macquarie, PT A$12.76; Cut to neutral at Credit Suisse, PT A$13
  • Flight Centre (FLT): Raised to outperform at Credit Suisse, PT A$34.90; Raised to outperform at Credit Suisse, PT A$34.90
  • Isentia (ISD): Cut to sell at Shaw and Partners, PT A$1.50
  • McGrath (MEA): Raised to buy at Bell Potter, PT A$0.80
  • McMillan Shakespeare (MMS): Cut to hold vs buy at Morningstar
  • MYOB (MYO): Majority holder Bain places 16.5% stake at A$3.55/share vs Feb. 23 close $3.69; Raised to neutral at Credit Suisse, PT A$3.50
  • OZ Minerals (OZL): Cut to sell vs hold at Wilsons
  • Perpetual (PPT): Cut to hold at Bell Potter, PT A$55; cut to hold at Shaw and Partners, PT A$53
  • Tassal Group (TGR): Raised to outperform at Credit Suisse, PT A$5.20
  • Southern Cross Media (SXL): Cut to neutral at Credit Suisse, PT A$1.40

Stock to watch

Lloyds Banking Group (LLOY:xlon), the UK’s largest retail bank, on Wednesday reported its highest annual pre-tax profit since 2006.

The UK government wants to return the bank to full private ownership after acquiring a 43% stake during the financial crisis and the bank has announced and increased its dividend along with a special dividend.

Looking at the weekly chart below we are in a clear uptrend since the start of October and with the stock jumping over 4% after the results, bias is certainly with the bulls at the moment.

That said there appears to be resistance around the 73 level which previously acted as support from mid-2013 to the end of 2015.

This coincides closely with the 200 weekly moving average and is close to the 61.80 Fibonacci retracement level from the 2015 high to the 2016 low. A break above would signal strong momentum and a potential move back towards the 2015 high in the medium-long term.

Lloyds of London quarterly chart
 
1
Source: Saxo Bank

AUDUSD and XAUUSD

Immediate reactions from AUDUSD was quite negative as private CAPEX improved compared to the previous three quarters but it was worse than expected (-2.1% against -0.4%).

Decline did not last long as the short term uptrend (from mid January 17) remains valid then AUDUSD climbed above the recent swing high 0.7731.

Copper had one of the worst declines in more than 12 months therefore upside of AUDUSD is expected to be somewhat limited.

AUDUSD monthly chart
 
2
 
Gold (XAUUSD) has broken out of the recent consolidation as the USD seemed to show broad-based weakness and US treasury yields declined.

The major resistance level $1,250/oz has been tested and this level coincides with 50% retracement between July 16 high and December 16 low.

Furthermore $1,250/oz has acted as a key support level during second half of 2016, therefore it should would be a logical resistance level and clear break above 1,250 would signal further rally towards 200 Day Moving Average.
 
XAUUSD monthly chart





















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

Today's Trade information sources: Source: 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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