Article / 23 May 2016 at 1:59 GMT

Today's Trade: Miners weigh on ASX 200, Aussie loses some ground

Trading Desk / Saxo Capital Markets
Australia
  • Aussie dollar edges closer to US72c
  • Local market is pulled down by the big miners
  • Iron ore has had its biggest rally in three weeks, rising 2.7% to $54.89
  • Gold, sensitive to interest rate moves, ended last week down 1.5%

By Saxo Capital Markets (Australia)

The ASX200 opened flat, pulled down by the miners, although Bluescope shot up 10% on improved guidance. The Australian dollar slid closer to US72c.

gold
Last week’s fall in the gold price was the biggest in two months as expectations around the next US rate hike begin to gather momentum. Photo: iStock


Overnight

  • US stocks rose, the S&P 500 rebounding from a seven-week low, led by a rally in technology shares amid ebbing anxiety over the potential for higher interest rates as early as next month.
  • Applied Materials Inc. surged 14% after forecasting sales that may beat analysts’ estimates, spurring gains among tech companies. Chip makers jumped the most since January, with Intel Corp. rising 1.8%. Apple Inc. increased 1.1% to its first weekly advance in five earlier (see Apple Call spread trade). Equities trimmed gains in afternoon trading as banks lost momentum after Treasuries erased losses, sending yields lower for second day.
  • The S&P 500 added 0.6% to 2,052.32 at 4 pm in New York, halting a weekly losing streak at three and regaining its advance for the year. 
  • The Dow Jones Industrial Average rose 65.54 points, or 0.4%, to 17,500.94. It wasn’t enough to save it from a fourth weekly loss, the longest stretch since October 2014. 
  • The tech-heavy Nasdaq Composite Index rose 1.2%. About 6.7 bn shares traded hands on US exchanges, 9% below the three-month average.
  • Minutes from the Fed’s April meeting this week signaled officials are willing to raise rates in June if the economy shows sustained improvement. Concern that the central bank would act too soon had weighed on the S&P 500, threatening to drag it towards the longest stretch of weekly losses in 19 months before being spared by today’s advance. Still, investors see plenty of obstacles to a Fed move next month. A referendum in Britain on June 23 will decide whether the country remains a member of the European Union, and growth momentum in China is fading following a credit-fueled rebound earlier this year. 
  • Traders now price in a 26% chance of higher rates in June, from 4% on Monday. The first month with at least even odds of a hike has moved to September from as late as February a week ago.
  • Fear of China’s slowdown spreading and the impact of higher interest rates have been two major sources of investor angst in the year since the S&P 500 last climbed to a record. Worries last summer over weakening in the world’s second-largest economy and looming rate increases pushed the index into its first correction in four years. Those anxieties flared again in January, with oil plunging to a 12-year nadir, as the benchmark suffered its worst-ever start to a year.
  • After rallying from a 22-month low in February to within 1.3% of the record on April 20, the S&P 500 lost momentum last month amid disappointing results from technology giants Apple Inc. and Microsoft Corp., as well as signs of a lukewarm economic pickup. The gauge closed today 3.7% from its all-time high reached on May 21, 2015.
  • In Friday’s trading, nine of the S&P 500’s 10 main industries gained, with technology shares rising 1.2%. Healthcare, raw-materials and consumer discretionary increased more than 0.6%. Consumer staples fell 0.4%, while utilities and phone companies were little changed.
  • The CBOE Volatility Index fell 6.9% to 15.20, slipping from a two-month high. The measure of market turbulence known as the VIX still capped its first back-to-back weekly gains since February. (See VIX Bull Call Spread trade idea.)
  • Applied Materials soared the most since November 2008, invigorating a wobbly tech group that has alternated between gains and losses for six sessions. The biggest maker of machinery used to manufacture semiconductors forecast better-than-expected sales amid a surge in demand from chip makers upgrading production technology. Lam Research Corp. and Micron Technology Inc. rose more than 4.5%. Tech companies remain the worst performers in the benchmark since its recent high in April.
  • Another group that has swung daily between gains and losses for the past week -- biotechnology companies -- rallied today to pace an advance in healthcare. Endo Pharmaceuticals Plc climbed for the fifth time in six days, rising 4.5% to bring its gain during the span to 15%. Amgen Inc. added 1%. Merck & Co. and Pfizer Inc. helped propel the Dow, climbing more than 0.9%.
  • A group of retailers rose to help consumer discretionary companies snap a three-day losing streak. Gap Inc. increased 4.2%, advancing for a second day after its longest sell-off in more than four years. The company is closing all of its 53 Old Navy outlets in Japan. Target Corp. rebounded 2.4% after three days of losses, and Netflix Inc. added 3.3%. 
  • McDonald’s Corp. was a drag on discretionary shares and the Dow, dropping 2.2% to a two-month low. The fast-food chain’s shares fell for a fourth day amid the longest slide since February. The stock is down nearly 7% since reaching an all-time high on May 10.
  • Consumer staples slipped for the third time in four days, as Campbell Soup Co. tumbled 6.4% after posting a sixth- straight quarter of declining sales. The shares posted the worst drop since December 2008 after surging to a record on May 12. Church & Dwight Inc. fell 2.6%. The company yesterday denied reports it’s engaged in talks with potential acquirers.
  • Among other companies moving on corporate news, Foot Locker Inc. dropped 6.5% to the lowest since Feb. 18 after its quarterly sales missed analysts’ forecasts. The results dented Nike Inc.’s shares which lost 1%. Ross Stores Inc. sank 5.5% to a four-month low after its profit trailed estimates.
  • Deere & Co. slid for a fourth day, falling the most in nine months after the world’s biggest agricultural equipment manufacturer cut its fiscal full-year earnings outlook as lower commodity prices hurt farmers’ income and a glut of unsold machinery continues to pile up at dealerships.
  • European shares rose the most in a month as investors shrugged off concerns that a Federal Reserve rate increase as early as June would derail the US economic recovery. The Stoxx 600 increased 1.2% to 338.01 at the close of trading, for a weekly gain of 1%. The DAX rallied 1.23%, the FTSE lifted 1.70% & the CAC was up 1.67%.

Source: Bloomberg, TradingFloor.com

Local markets

  • Bank of New York Australia ADR Index up 0.8%. BHP Billiton ADR down 1.8%. Rio Tinto ADR down 1.7%
  • Spot gold traded within Thursday’s range, ending Friday 0.2% lower and for the week down 1.5% to $1,252. Last week’s fall was the biggest in two months as expectations around the next US rate hike begin to gather momentum. Gold is highly sensitive to interest rates, gains in which lift the opportunity cost of holding non-yielding bullion. The metal has rallied 18% this year as investors bet the Fed would hold off from further increases. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Shares, rose by 4.5 tonnes on Thursday to their highest since November 2013. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil was soft on Friday, with WTI and Brent off 0.5% and 0.9% to $48.41 and $48.72 respectively. A stronger dollar spurred investors to cash in on a second week of gains, with the focus remaining on the rebalancing of the market as the global glut faced unplanned supply outages. On Friday, oilfield services firm Baker Hughes reported the number of oil rigs drilling in US fields remained unchanged from the previous week at a total of 318. In Nigeria, militant activity has cut oil exports to a more than 22-year low of under 1.4m bpd. In Canada, production has also been cut as wildfires forced closures of around 1m bpd, although output is gradually returning. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore had its biggest rally in three weeks, rising 2.7% to $54.89. Brazil’s Vale, the world’s largest producer, and Australia’s No. 3 shipper signed an accord in March to create joint ventures to blend their differing ores, and giving Vale the option to buy as much as 15%. Rio’s Sam Walsh this month rejected suggestions the new product would erode the producer’s market. Of the 1.7bn tons freely traded each year, Rio has an 18% share, according to the company, while Vale has the second-largest at 17% and Fortescue accounts for 10%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals lacked direction. Aluminium was flat, copper lost 0.4% and zinc gained just 0.2%. Copper's rapid sell-off from its double top in late April is tapering. The daily range is falling as it looks to drift to $4,500, now at $4,578. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • Aussie banks seem sweeter to bond investors, even as loans sour
  • Bradken (BKN): CHAMP may consider sweetening offer in bid to secure larger stake in co.: Australian; NOTE: CHAMP proposal last month was rejected
  • Mercantile Investment (MVT): Will offer notes to raise up to A$15m
  • Origin Energy (ORG): Frank Calabria, David Baldwin seen as leading internal candidates to replace CEO Grant King
  • Scentre Group (SCG): May need to raise capital to fund Sydney asset purchase: Australian
  • Seven West Media (SWM): Racing.com JV set to gain rights to HK horse racing: AFR
  • Transurban (TCL): Says Lane Cove Tunnel closes A$460m debt refinancing

Earnings this week
Monday
Ryanair, Nordson, KLX

Tuesday
Best Buy, Toll Brothers, Hewlett Packard Enterprise, Intuit,AutoZone

Wednesday
HP, Tiffany, Costco, NetApp, Bank of Montreal, Express, Lions Gate, Guess, Popeye's Louisiana Kitchen

Thursday
Canadian Imperial, Royal Bank of Canada, Toronto Dominion Bank, Signet, Abercrombie and Fitch, Seadrill, International Game Technology, GameStop

Stock to watch

Broker upgrade by UBS today - ACX is holding at a key pivot point. After forming a double bottom at $6.00, it moved down 50% on the Fibonacci extension. On Friday ACX finished up and held its 2015 high at $5.70. ACX has been one of the great IPO successes in the past 12-18 months. Only once has it touched its 200-day moving average before quickly recovering. Now we watch to see if it will extend its fall to $5.17, or if UBS fundamental assessment is correct, the market will first have $6.00 in its sights before testing this year’s highs at $6.73 and even $7.09.
 
Aconex daily chart
1
 
Broker upgrades and downgrades

Aconex (ACX): Raised to buy vs neutral at UBS

Open positions
2
 
AUDUSD

The AUDUSD closed out last week below the 200 daily moving average for the first time since late February at 0.7221, finding support at the 61.8% Fibonacci retracement level (Jan 2016 low to the April 2016 top). Looking ahead this week we have RBA Governor Stevens speaking at the Trans-Tasman Business Circle boardroom briefing, in Sydney tomorrow at 1:05pm; Construction Work Done due Wednesday and Private Capital Expenditure due on Thursday. 

There is also a speech from RBA Assistant Governor Debelle, who is due to deliver opening remarks at the launch of the Global Code of Conduct for the Foreign Exchange Market, in New York on Thursday evening at 11pm. Given iron ore’s gain of 2.7%, the risk is to the topside for the day with resistance levels at 0.7254 (200 DMA), 0.7266, 0.7304
 
AUDUSD daily chart
3
 
EURUSD

The price actions of EURUSD have been narrow and choppy since last Thursday as it continued to settle above the support level of 1.12 handle. Unless we see a clear daily close below 1.12, EURUSD is likely to retrace up to the next resistance level of 1.13. 

There are stacks of PMI data in Europe tonight from 5pm, so these figures would be the major focus for EURUSD. The upward momentum of the US dollar index appears to be fading but if 95 becomes a support level, then the US dollar index can rally further up towards 96.60 where the 200 DMA crosses.
 
EURUSD daily chart
4
 
AUS200.i

It was a quiet session for the AUS200 on Friday night, trading in a relatively tight range. The AUS200.i is called to open flat with gains in banks to offset the slide we may see in the materials sector. Resistance could be met at the high of Friday’s session at 5368 with the ultimate test this week at 5400. Support for the week would come in at the 5270-5280 area, as marked in the daily chart, should we see negative pressure on our index.
 
AUS200.i daily chart
5
 
US500

The US500 finally ended its three consecutive weekly losses as it managed to stay above the key support level of 2,040. From the monthly chart perspective, the US500 still trades below the May open 2,066 and the downtrend remains intact, therefore we focus on the next two resistance levels at 2,060.50 (recent swing high) and 2,066.  Crude oil still looks quite resilient and would continue to be a major indicator to influence the sentiments on equity indices.
 
US500 daily chart
6
Source: Saxo Bank
Today's Trade information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters


-- Edited by Susan McDonald


Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets. Watch our daily morning call on Periscope at 0945 AEST: #SaxoAPAC 

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