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Article / 05 May 2016 at 1:16 GMT

Today's Trade: NAB the bright spot as BHP falls further

Trading Desk / Saxo Capital Markets
Australia

  • Jump in NAB after solid earnings offset mining losses and ASX200 opened flat
  • BHP Billiton fell a further 2.3% at open, making a loss of almost 12% in two days
  • Iron ore has fallen again, losing 5.2% to $60.09
  • AUDUSD extended losses on the back of another decline in copper and iron ore 


By Saxo Capital Markets (Australia)

The ASX was flat at the open at 5267.7, the All Ords also flat at 5332.9. A jump in National Australia Bank after solid earnings results helped offset losses among the miners. BHP lost a further 2.3% to $18.35, which means its shares have lost almost 12% in two days.

nab
NAB shares were up 2.1% at the open, ANZ added 0.9%, CBA was up 0.3% and Westpac 0.1%. Photo: iStock

Overnight

  • Stocks closed lower again overnight as risk assets continued to be shun.
  • The Dow industrials fell 99.65 points, or 0.6%, to 17651.26, while the S&P 500 lost 12.25, or 0.6%, to 2051.12. It was the lowest closes for both indices since April 11. The Nasdaq Composite fell 37.58, or 0.8%, to 4725.64, its lowest level since March 10.
  • Utility companies were the biggest gainers in the S&P 500, rising 1.1% as investors bid up high-yielding stocks.
  • Treasury prices rose: The yield on the 10-year Treasury note fell to 1.786%, from 1.800% on Tuesday.
  • US crude oil settled up 0.3% at $43.78 a barrel, but pared earlier gains after data showed the glut continues to grow. The energy sector was the weakest sector in the S&P500.
  • Banks were under pressure: Goldman Sachs Group fell $3.07, or 1.9%, to $160.07, making it one of the largest decliners in the Dow.
  • The KBW Nasdaq Bank index of large US commercial lenders lost 2% and has dropped 5.1% over the past week.
  • The Nasdaq Biotechnology index, often a beneficiary of investors’ appetite for risk, sank 2.9%, bringing its losses over the past week to 7.1%.
  • The US dollar rose for a second consecutive day but has fallen against most major currencies so far this year. The dollar rose 0.4% against Japan’s yen on Wednesday to ¥107.01.
  • ISM non-manufacturing for April was 55.7, above expectations and rising from March's 54.5 print. The employment index rose to 53.0 from 50.3 the prior month. ADP employment report for April missed expectations with a decline from the prior month to 156,000.
  • The CBOE Volatility Index (VIX) traded slightly higher near 16.1.
  • Europe clocked its fourth consecutive session of losses: the Stoxx Europe 600 fell 1.1%. The DAX dropped 0.99%, the FTSE lost 1.19% & the CAC shed 1.09%.
  • Royal Dutch Shell posted a sharp fall in earnings for the first three months of 2016 on Wednesday, as the tumble in oil prices continued to take its toll. Earnings on a current cost of supplies (CCS) basis came in at $0.8 billion, versus $4.8 bn in the first quarter of 2015, sending shares to close 2.8% down.
  • Basic resources saw a second day of sharp declines as key stock news, strengthening in the US dollar and mixed prices weighed on the sector. BHP Billiton fell 5.8% after Brazilian prosecutors filed a $44 bn lawsuit against the miner and its partner Vale over the collapse of a dam that killed 17 people.
  • Randgold Resources reported a 13% rise in net profit to $54m in the first quarter of 2016, however shares slumped to close 11.7% lower, after the firm's metal production declined 11% in the quarter, compared to the previous record quarter.
  • Glencore shares sank over 3% after a production report showed a fall in production of copper, zinc, lead, coal and oil as a result of cuts due to low commodity prices.

Local markets

  • Bank of New York Australia ADR Index  down 2.7%. BHP Billiton ADR  down 6.6%. Rio Tinto ADR down 2.8%
  • Spot gold has pulled back a little, losing 0.6% to $1,279, in part from a stronger USD. Softer private sector jobs data has given the taste that Friday’s US payrolls data will fall short and speculators will start to take positions in the lead-up. Poor numbers are expected to push gold to 16-month highs. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
  • Crude oil was flat with WTI down 0.3% to $43.92 while Brent rose 0.6% to $44.79. As we’d anticipated, US inventories came in higher than analyst expectations with the EIA reporting a climb of 2.78 million barrels. Total inventories remain at record highs of 543.4mb. Selling pressure remained at bay, however, as a fire in the oil sands region of Canada is forcing a number of producers to cut output at this stage. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore has fallen again, losing 5.2% to $60.09. $60 a tonne will be a floor of support for speculators. These speculators are the same traders who traded more iron ore than actually was delivered in Chinese ports in the last month. Weakness in the Chinese steel market continued to put pressure on these speculators who enjoyed the run-up and now look to unwind. Inventories at Chinese ports climbed 2mt to 100.3mt. Vale is now at three-week lows as Brazilian prosecutors filed a $44bn law suit against the company. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were all down as the recent strong momentum appears to have been broken. Disappointing manufacturing data has taken the wind from copper's sails as it lost 1.4% to $4,841. Yesterday’s trading saw copper fall below its 200-day moving average and create a double top this year. Copper will need to hold above its upward trend in this year at $4,705 and failing to do so may see an accelerated sell-off. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC
  • BT Investment (BTT): 1H results expected; NOTE: Rev. est. A$279.7m (three analysts)
  • Caltex Australia (CTX): AGM scheduled; NOTE: In Feb. company forecast 2016 capex A$370m-A$420m
  • Cochlear (COH): Hearing-aid maker Sonova pays $950m for AudioNova
  • Crown Resorts (CWN): Billionaire Packer’s Crown cuts Melco stake as Macau slumps; Melco Crown first quarter rev. misses estimate
  • Genworth Australia (GMA): AGM scheduled; NOTE: Last month saw 2016 NEP dn ~5%; FY loss ratio 25%-35%
  • Iress (IRE): AGM scheduled; NOTE: 2016 adjusted net income est. A$72.8m (seven analysts)
  • National Australia Bank (NAB): 1H results; NOTE: Cash profit est. A$3.356b (three analysts)
  • Rio Tinto (RIO): Australia AGM scheduled; NOTE: Sees 2017 Pilbara output 330mt-340mt; 2016 mined copper output 575kt-625kt
  • Scentre Group (SCG): AGM scheduled; NOTE: Company in February saw 2016 FFO growth ~3%, distribution growth ~2%

Stock to watch

Westfield (WFD)

Following the RBA rate cut, REITs and property trusts are all moving up in a uniform fashion. Yesterday we identified CHC on a breakout and now we have WFD looking to do the same. Closing above their 18-month ceiling, on a technical analysis theory the move is looking to make a 50%-100% move on this range, with price targets of $11.40 to $12.25 in the near to mid-term.
 
Westfield (WFD) daily chart
a
 Source: Saxo Bank

US earnings this week

Thursday:
Alibaba, DreamWorks Animation, SeaWorld, Fortress Investment, Kellogg, Activision Blizzard, Time Inc, News Corp, Fiserv, Apollo, WageWorks, El Pollo Loco, FireEye, GoPro, Motorola Solutions, AMC Networks, Merck, Regeneron, Discovery Communications, Wingstop, Herbalife, Church & Dwight, News Corp
Friday:
Cigna, ArcelorMittal, Weyerhaeuser, Willis Towers Watson, Buckeye Partners, Dentsply, Exelon

Broker upgrades and downgrades

  • Cromwell Property (CMW): Cut to underperform vs neutral at Credit Suisse
  • Seven West Media (SWM): Cut to neutral vs outperform at Credit Suisse
  • Vicinity Centres (VCX): Cut to underweight vs neutral at JPMorgan; Cut to neutral vs buy at UBS


AUDUSD

On the back of yet another sharp decline in the price of the copper and iron ore, AUDUSD extended losses as it struggled to stay above the previous support level 0.75 handle. The overnight low happened to be the 38.2% Fibonacci retracement between the January low 0.6826 and the recent April high 0.7834. 

We expect AUDUSD to remain under further downward pressure towards the next key support level of 0.7380, which was the double top in October and December last year. 

The Canadian trade balance was released at a record low last night and USDCAD is looking to regather the upside momentum. Today’s focus would be on retail sales and the trade balance at 11:30am.

 AUDUSD daily chart
b
 
AUS200.I

Yesterday AUS200 erased the majority of the gains from the RBA rate cut as the mining stocks weighed down heavily. Tuesday’s high of 5,363 touched the upper uptrend of the ascending channel and the next support level is 5,200, which is expected to be tested in the near term. 

The initial focus is on the price actions of NAB, as it reports this morning. The Hang Seng index has been falling sharply lower and the break-out below the key support level of 20,000 seems inevitable as momentum looks to be accelerating.
 
AUS200.I daily 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 Susan McDonald

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

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