Article / 24 January 2018 at 23:41 GMT

Today's Trade: Mnuchin's comments throw a cat among pigeons

Trading Desk / Saxo Capital Markets
Australia
  • The S&P500 closed flat while the Dow Jones Industrial Average rose 0.2%
  • Crude popped above $65/b for the first time in more than three years
  • Iron ore prices inched higher; but traders are reluctant to chase prices higher 
  • The Stoxx Europe 600 fell 0.5%, snapping a four-session winning streak 
  • Watch the recording of this Week’s Macro Monday Call here

By Saxo Capital Markets Australia

Overnight and early trading
  • The S&P/ASX200 lost ground at the open; it was down 0.37% to 6,032.00 at 1042 AEST (2342 GMT, on Wednesday).
  • Asian shares are set to open lower Thursday after a Trump administration official’s rhetoric on trade and the dollar roiled financial markets, sending the U.S. currency to its lowest level in three years and whipsawing stocks that had been buoyed by strong earnings.
  • The S&P500 closed flat after swinging between gains and losses. The threat of tit-for-tat tariffs weighed on technology stocks and industrial shares also fell. Futures in Australia and Japan point to declines. The yen pushed through ¥109 per dollar and Treasuries dropped. Commodities surged, with West Texas Intermediate oil climbing above $65 a barrel for the first time in more than three years.
  • The Dow Jones Industrial Average rose as much as 182 points in early trading, but later fell after U.S. Commerce Secretary Wilbur Ross, while speaking in Davos, Switzerland, accused Beijing of practicing protectionism under the guise of free trade. The Dow recovered from the decline later in the day to close at a new record.


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 Iron ore prices inched higher, thanks to strong demand from steel mills, although traders are reluctant to chase prices higher, and trading is muted in China as the Lunar New Year approaches. Photo: Shutterstock


  • U.S. Treasury Secretary Steven Mnuchin said in Davos that the Trump administration supports “bilateral trade agreements” and that a weaker dollar was good for trade. The ICE U.S. Dollar Index fell below 90 for the first time since December 2014 after Mnuchin’s remarks.
  • The Dow Jones Industrial Average rose 41.31 points, or 0.2%, to 26252.12. The S&P 500 declined 1.59 points, or less than 0.1%, to 2837.54, while the Nasdaq Composite slipped 45.23 points, or 0.6%, to 7415.06—its biggest decline of the year.
  • Shares of technology companies in the S&P 500 fell 0.9%, making the sector the broad index’s worst-performing group. Chip maker Intel was down 55 cents, or 1.2%, at $45.51, while Apple shed 2.82, or 1.6%, to 174.22.
  • Changes to trade policy, such as the tariffs the Trump administration announced on imported solar panels and washing machines, could make certain goods more expensive, lead to an uptick in inflation and force the Federal Reserve to alter its glide path for interest rates, analysts said. For many investors, rising inflation is one of the biggest threats to the long-running rally.
  • Company earnings announcements also contributed to some of the biggest individual stock moves.
  • Shares of United Continental Holdings fell 11%, or 8.92, to 69.05 after investors worried that the airline’s expansion plans threatened profit margins and could spark a price war among its rivals. Shares of four other airlines due to report earnings Thursday also slipped, including Southwest Airlines and American Airlines Group.
  • Those losses offset gains among companies that posted generally positive results. Shares of W.W. Grainger added 42.52, or 19%, to 271.97 after the distributor of cleaning supplies, safety gear and other items reported better-than-expected earnings.
  • Navient shares gained 1.07, or 8%, to 14.51 after the student-loan servicer swung to a net loss due to a one-time write-down of deferred-tax assets. Excluding the write-down, Navient reported a profit slightly ahead of analysts’ projections.
  • Elsewhere, Mnuchin’s comments on the dollar contributed to modest pullbacks of shares in Europe and Japan.
  • A weaker dollar tends to be a boon for S&P 500 multinationals, with the index generating roughly 30% of revenues outside the U.S., according to FactSet. But the currency’s slide isn’t helpful for their overseas counterparts, whose revenues are worth less when translated back into stronger local currencies.
  • The Stoxx Europe 600 fell 0.5%, snapping a four-session winning streak.
US earnings announcements
  • Thursday: 3M, Caterpillar, Celgene, LVMH, Biogen, Union Pacific, Starbucks, Intel, Northrop Grumman, American Airlines, Freeport-McMoRan, Alaska Air, Fiat Chrysler, Raytheon, Southwest Air, Sherwin-Williams, JetBlue, Celanese, Intuitive Surgical, Diageo, Western Digital, KLA-Tencor.
  • Friday: Honeywell, Colgate-Palmolive, AbbVie, NextEra Energy, Air Products, Lear, Rockwell Collins, Gentex, PolyOne.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC.
Local markets
  • Bank of New York Australia ADR Index is up 1.2% to 295.9, BHP Billiton ADRs are up 1.6% to $A30.67 equivalent, a 0.0% discount to last Sydney close, Rio Tinto ADRs are up 0.9% to $A69.51 equivalent, a 11.1% discount to last Sydney close
  • Gold futures settled at the highest since August 2016, as investors got behind a rally brought on by a falling dollar. Volume soared in the futures market, with trading more than double the daily average. Gold for April delivery climbed 1.5 percent to settle at $1,361.40 an ounce at 1:37 p.m. on the Comex in New York. January is traditionally gold’s strongest month, as consumers in top buyer China snap up metal ahead of the Lunar New Year. Gold stocks in Toronto rallied 1.47% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • In early reporting, Northern Star confirms its production & costs on track to meet full year guidance. All in sustaining costs came in at A1067 oz in quarter.
  • Crude popped above $65/barrel for the first time in more than three years after U.S. crude stockpiles fell for a 10th week in the longest stretch of declines on record. Oil hit the highest levels since 2014 in New York amid shrinking supplies in the U.S. and a united front by major oil producers including Opec and Russia. Meanwhile, Russia’s second-biggest crude producer expects worldwide supply and demand to balance out by April, Lukoil PJSC billionaire CEO Vagit Alekperov said at the World Economic Forum in Davos, Switzerland. West Texas Intermediate for March delivery jumped $1.14 to settle at $65.61/b on the New York Mercantile Exchange, the highest level since December 2014. Total volume traded was about 52% above the 100-day average. Brent for March settlement rose 57 cents to end the session at $70.53 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.92 to WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore prices inched higher as traders remained reluctant to chase prices higher. With inventories high and the Spring Festival fast approaching, physical trading has been muted. Data released showed that demand remained strong. Chinese data showed rebar output rose 3.7% in 2017. December was even stronger, up 8.9% y/y. The positive environment for steel makers was highlighted by the Korean steelmaker Posco’s results, which showed its profit up by 60%. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Copper climbed by the most since October and nickel touched the highest in more than two years as the dollar dropped and a report showed a pickup in U.S. manufacturing. Copper for 3-month delivery on the London Metal Exchange +3.3% to settle at $7,150/ton in London with Nickel rising as much as 6.3%, to settle at highest since level mid-2015. Zinc was up as much as 1.3% and settled at highest since 2007. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • AWE (AWE): China Energy Reserve Seeking Approval From ASIC to Scrap Bid
  • BHP (BHP): Brazil Government Has Done What It Can to Open Samarco This Year: MME
  • Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC), AMP (AMP), ANZ Bank (ANZ): ASIC Review Over two Years to 2017 Found Financial Advisers Didn’t Act in Best Interest of Clients in 75% of Advice Files Reviewed: Australian
  • Macquarie Group (MQG): May Place Techem on Market: Frankfurter Allgemeine
  • Myer (MYR): South Africa’s Woolworths to Take $500 Million Noncash Charge on David Jones
  • Rio Tinto (RIO): Rio Says Force Majeure For Turquoise Hill’s Oyu Tolgoi in Place; Yancoal Is Said to Vie for More of Rio’s Coal Assets: Australian
Broker upgrades, downgrades
  • Bingo Industries (BIN): Rated New Buy at UBS; PT $A3.10
  • Boral (BLD): Upgraded to Overweight at JPMorgan; PT $A8.50
  • GrainCorp (GNC): Upgraded to Add at Morgans Financial; PT $A8.51; Australia 2017-18 Wheat Production Seen Falling: USDA FAS
  • Michael Hill (MHJ): Downgraded to Neutral at First NZ Capital
  • Ramelius (RMS): Upgraded to Buy at Hartleys Ltd; PT $A0.55
  • Somnomed (SOM): Downgraded to Hold at Morgans Financial; PT $A3.58
USDCHF plunges
Broad based weakness in US dollar resumed across the major currency pairs and safe havens rallied higher. Gold (XAUUSD) broke above 2017 high 1,357 while USDCHF plunged to test 2017 double bottom at 0.9440, which is expected to act as a key support level.

Selling pressure should continue to exist but short covering is also likely in the very near term.

USDCHF chart
























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– Edited by Robert Ryan

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

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