Article / 29 January 2016 at 0:38 GMT

Today's Trade: Oil boost takes energy stocks higher

Trading Desk / Saxo Capital Markets
Australia

  • ASX edges up in early trade, led by a buoyant energy sector
  • Woodside jumped 3.8%, Oil Search 4.1% and Origin and Santos rose 4.4%
  • The energy sector was also the strongest in the S&P500, up 3.16% in all
  • Last night was the busiest single day for US earning reports
  • At 0700 AEDT, the AUD was trading at $0.7078, up from $0.7040 yesterday

By Saxo Capital Markets

Overnight and early trading

The S&P/ASX 200 has inched higher in early trade, pulled onto firmer footing by a rally in resources stocks following a surge in oil prices.

Overnight, the Russian Energy Minister told journalists that Saudi Arabia had proposed a deal to cut global oil production by up to 5%, sparking an 8% spike in the price of crude. But scepticism later kicked in.

At the 1015 AEDT (0015 GMT) official market open, the benchmark S&P/ASX200 index was up 6 points, or 0.12% to 4982.2.

In overnight trading:

  • The markets cheered last night as US stocks added gains on rising oil and a mixed performance on earnings.
  • The Dow Jones Industrial Average rose 0.8%, while the S&P 500 added 0.6% and the Nasdaq Composite Index gained 0.9%.
  • The energy sector was the strongest in the S&P500, up 3.16% as WTI rallied 2.8%. The healthcare sector kept the index in check as it weighed heavily as the only loser, down 2.30%.
  • Weak earnings from a handful of health-care companies sent stocks in that sector sliding. Shares of Abbott Laboratories lost 9.3% after the company posted lower profits during the last three months of the year.
  • The Nasdaq Biotechnology Index lost 3.5%.
  • Stocks wavered between gains and losses throughout the trading session last night between after oil prices surged on optimism over potential production cuts. Comments from Opec tempered that optimism, causing crude to pare its gains.
  • Last night was the busiest single day of earning reports for the season, with 51 companies reporting, according to the FactSet.
  • Upbeat earnings from Facebook lifted shares 16% and propped up the broader technology sector.
  • Amazon.com gained 8.9% however following its earnings after the closing bell, the stock fell close to 15% in after hour trading as its earnings proved to be a huge miss.
  • In economic news, Durable Goods Orders fell 5.1% in December, far more than expectations of a less-than 1% decline. Ex-transportation, the figure declined 1.2%.
  • Weekly jobless claims came in at 278,000 against 281,000 estimated. Meanwhile pending home sales rose just 0.1% in December from a downwardly revised November print.
  • The Dow transports fell 0.8%, the CBOE Volatility Index (VIX) held at 22.5.
  • Losses were in over in Europe with the Stoxx Europe 600 falling 1.6% after a weak reading on eurozone consumer confidence. Losses were concentrated in the banking and healthcare sectors. The Dax was smashed 2.44% followed by the CAC which dropped 1.33%. The FTSE shed 0.98%.
  • Holding the market from further losses were oil stocks. Seadrill rocketed up 17.5%, followed by Subsea 7 (+8.68%), Statoil (+7.18%) and Tullow Oil (+6.93). Repsol closed up 5.3% despite it announcing it would take a 2.9 billion euro writedown on its 2015 results.
  • In earnings, Deutsche Bank posted a pretax loss of EUR 1.15 billion euros ($1.25 billion) in its investment bank in the fourth quarter, sending shares to close 5.4% down which weighed on the Dax.
  • Drinks giant Diageo, whose brands include Guinness and Smirnoff vodka, was off over 1% after it said organic net sales in the six months ending December 31 grew 1.8%, on 1% organic volume growth.
  • Drugmaker Roche reported full-year earnings and a dividend slightly below forecasts and said it expected sales to grow low- to mid-single digit in 2016. Shares in the firm closed sharply lower, down 3.8%.
  • Anglo American rose 8.5% after releasing a mixed fourth quarter output report with diamond production falling while iron ore increased.
  • The Eurozone's banks were under intense pressure last night. Italy and the European Union (EU) reached a deal on Wednesday to allow Italy's banks to sell their large holdings of so-called "non-performing loans". But the complex deal was not taken well by the markets as several Italian banks were suspended "limit down" in trade.
  • Banca Monte Dei Paschi Di Siena ended down - around 7.9% while Banca Popolare di Milano was off over 9.5%.

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 The market did not believe rumours Opec would be cutting production. Photo: iStock

Local markets and commodities

  • Spot gold has given up 0.15% to $1,114/oz. Profit taking seems to have taken place as the USD was down which should have added a little support to golds price, yet didn’t. Gold stocks: NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Crude oil has taken a second leg up last night with WTI and Brent rising 4% and 3.2% to $33.23/barrel and $33.93/b respectively. Initially trading higher following comments from Russia, a sell off followed when Opec stated they’d organised to speak with Russia re: output levels.
  • Opec has clearly kept production high in an effort to force our smaller players… so why they’d offer relief now in volumes just before competitors begin to fall makes little sense. Oil stocks: WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore fell 1.2% to $41.92. Fortescue Metals released their Q2 production yesterday showing shipments rose 3.8%. Their cash cost also fell to $15.8/tonne. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
  • Base metals were generally weaker with zinc giving up some of its recent gains, down 2.2%. Indonesia, Freeport’s licence to ship copper concentrates from its Grasberg mine lapsed without renewal. Copper fell to $8,605. Copper stocks: PNA, OZL, SFR; Nickel stocks: WSA, SIR; Aluminium stocks: AWC.
  • ALS (ALQ): 3Q underlying net profit after tax within guidance range.
  • Origin (ORG): Production report due
  • Suncorp (SUN): S&P affirms Suncorp group cos. at A+, holding co. at A

Stocks to watch


Qantas (QAN): We have identified threats to its 200 Day Moving Average. At the end of 2013 and early 2014 the 200 DMA was a ceiling of resistance. Since then it has been treated as a floor of support. Today we are right on the 200DMA and we raise this to our readers as a key point to watch.

Qantas - quarterly chart

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Source: Saxo Bank

Broker upgrades and downgrades

  • Carsales.com (CAR): Rated new buy at Wise-owl.com
  • Doray Minerals (DRM AU): Cut to hold from buy at Argonaut Securities
  • Fortescue Metals (FMG): Raised to hold from sell at Argonaut Securities
  • Lovisa (LOV): Cut to hold vs buy at Canaccord; PT to A$3.72
  • Peninsula Energy (PEN AU): Rated new buy at Rodman & Renshaw
  • Sandfire Resources (SFR): Raised to neutral from underweight at JPMorgan
  • Northern Star (NST) : Cut to sell at Canaccord Genuity

AUDUSD

The AUDUSD advanced overnight as the USD weakened on slumping US durable orders and as risk sentiment was high. Oil clocked its first third consecutive session gain for the year.

While the AUDUSD fell slightly short of the 61.8% fibonnaci retracement from the December 31 high to the recent January low, given the risk appetite for commodities, last night’s high of 0.7128 is likely to be tested soon and the levels to watch above that would be the 76.4% retracement at 0.7209 which would likely be key resistance.

Support for the AUDUSD intraday is 0.7076. The markets will also be looking forward to the Bank of Japan monetary policy statement today which is likely to be a major mover for all currencies.

AUDUSD monthly chart

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 Source: Saxo bank

AUS200.I

SPI futures closed the session at 4939 which indicates our XJO to open just shy of the widely watched 5000 level at 4985-4990.

The US markets added decent gains overnight however it did not push above the previous days highs which indicates for the short term that the US equity markets are still in cautious mode.

The XJO added 0.60% yesterday despite the heavy falls from US equities the night before so our markets have traded ahead of last nights US positive moves so the opening in the equity markets this morning is likely to be flat to mildly positive.

The first level of resistance on the AUS200.I would be the overnight sessions high at 5,023 and a break above this level would signal a major turn for our Aussie stocks. First level to the topside above 5,023 would be the 50% fibonacci retracement from the December high to the January low of 5,058. Buyers would be expecting the AUS200 to be supported at 4,947.

AUS 200 monthly chart

3 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 team's daily morning call on Periscope at 9:45am: #SaxoAPAC

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