- The ASX200 opened slightly higher at the start, following overseas leads
- Oil tumbled after a report showed US fuel inventories unexpectedly grew
- Copper surged to its highest level since late April, briefly topping $5,000/tonne
- AUDUSD failed to close above the resistance level 0.7650
By Saxo Capital Markets (Australia)
Overnight and early trading
The ASX200 opened slightly higher this morning led by banks and healthcare stocks. At the start, the index was 0.1% higher at 5395.
The S&P 500 Index
eked out a third straight closing record, overcoming a drop in the price of oil that dragged energy shares lower as a let-up in political turmoil in the UK kept demand for risk assets alive. Metals advanced with emerging-market equities.
Oil prices fell after a report showed US fuel inventories unexpectedly rose,
adding to concerns about oversupply. Photo: iStock
The US benchmark rose by less than half a point after gains over the past two weeks restored almost $2 trillion to the value of stocks. Energy producers snapped a three-day climb as US crude sank below $45/barrel on an unexpected increase in fuel stockpiles. Treasuries rose
following their biggest two-day decline this year, as the US auctioned 30-year bonds at the lowest yield on record. Copper rose along with precious metals.
While calm has returned to global markets amid mounting confidence, the vote for Brexit won’t significantly impede growth, rallies in stocks and some commodities lost momentum Wednesday as investors looked for fresh signs that sluggish expansion isn’t eroding corporate profits. America’s largest lenders begin reporting earnings Thursday. Riskier assets had been in demand on speculation central banks will act to safeguard the global recovery, even as the US economy shows signs of accelerating.
The S&P 500 added less than 0.1% to 2,152.43, closing at a record for a third straight day. So-called defensive groups that pay higher dividends climbed the most, with telephone, consumer-staples and utility companies rising at least 0.5%. Energy shares fell 0.7% as a group, as retailers and technology companies also retreated.
The Stoxx Europe 600
Index slipped 0.1%, also taking a breather after the gauge came within 10 points of erasing its losses from after the UK’s June 23 referendum.
The MSCI Emerging Markets Index climbed 0.3%, with Hong Kong’s Hang Seng China Enterprises Index up 0.6% in its third day of gains. China’s exports and imports slipped in dollar terms in June as soft demand continued to weigh on trade.
Futures trading signalled a potentially mixed Thursday for Asia, following a Japan-led three-day climb in the region’s equities. Contracts on the Nikkei 225 Stock Average slid 1% in Chicago, while separate futures on the Japanese stock index added 0.6% earlier in Osaka.
The yen climbed 0.2% to 104.49 per dollar, after sliding more than 4% over the previous two days. Prime Minister Shinzo Abe has ordered his economy minister to compile a package of stimulus measures this month, while the Sankei newspaper reported government officials are considering “helicopter money” as a policy option.
The pound retreated 0.8% to $1.314, halting a three-day advance. Theresa May took over as Prime Minister from David Cameron, ending a period of political instability that’s endured since the UK voted to leave the European Union. The Canadian dollar strengthened after the country’s central bank left its benchmark interest rate unchanged, downplaying the impact of the Brexit vote and weaker US demand.
The loonie rose 0.5% to C$1.2978 per dollar. The yuan added 0.1% to 6.6952 per dollar in offshore trading amid speculation Chinese policymakers are limiting the supply of the currency in Hong Kong to deter bets on its depreciation.
Silver for immediate delivery jumped 0.9%, as gold stemmed a two-day retreat to advance 0.7%.
West Texas Intermediate crude sank 4.4% to $44.75/barrel, after jumping 4.6% on Tuesday, while Brent lost 4.6% to $46.26 in London. US gasoline supplies rose by 1.21 million barrels in the week ended July 8, Energy Information Administration data released Wednesday showed. Analysts surveyed by Bloomberg had forecast a drop of 1 million barrels. Demand for the motor fuel fell during the week that included the July 4 Independence Day holiday – usually a peak consumption period – as output increased.
Yields fell across Treasury maturities as a gauge of demand at Wednesday’s auction climbed to the highest level since September. Yields on notes due in a decade fell by four basis points, or 0.04 percentage point, to 1.48%. Rates, which sank to an unprecedented 1.32% a week ago, surged 15 basis points over the prior two sessions.
Germany’s securities also halted a two-day decline, even as the nation auctioned 10-year debt with a negative yield for the first time. Yields are negative on around 38% of the $25.3 trillion of securities that comprise the Bloomberg Global Developed Sovereign Bond Index.
Source: Bloomberg, TradingFloor.com
- Thursday: JPMorgan Chase, BlackRock, Delta Air Lines, Taiwan Semiconductor, Progressive, First Republic Bank
- Friday: Earnings: Citigroup, Wells Fargo, US Bancorp, PNC, Shaw Communications
Local markets and commodities
- Bank of New York Australia ADR Index +0.1%, BHP Billiton ADR +0.2% to ~A$20.32 equivalent, 1.3% discount to last Sydney close, Rio Tinto ADR -0.2% to A$43.56 equivalent, 14% discount to last Sydney close
- Gold prices rose Wednesday, buoyed by a softer dollar. Gold for August delivery closed up 0.6%, at $1,343.60 a troy ounce on Comex. September silver was up 1.2%, at $20.413 a troy ounce; October platinum was up 0.2%, at 1,100.20 a troy ounce; and September palladium was up 2.4%, at $644.20 a troy ounce.
- Holdings in SPDR Gold Shares dropped 16 tonnes to 965.22 tonnes on Tuesday as US equity markets reached record highs. The drop comes after assets in the ETF jumped by 50% this year, headed for the biggest yearly gain in a decade. The gold sector in Toronto rose 1.81% while silver stocks outperformed, rallying 4.05%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR
- Oil tumbled after a government report showed US fuel inventories unexpectedly grew, adding to concerns about oversupply. West Texas Intermediate crude for August delivery fell $2.05 to settle at $44.75/ barrel on the New York Mercantile Exchange. Futures increased 4.6% on Tuesday, the biggest one-day gain since April 8. Brent for September settlement dropped $2.21, or 4.6%, to $46.26/barrel on the London-based ICE Futures Europe exchange.
- The global benchmark crude closed at a 82-cent premium to WTI for September delivery. US crude supplies fell 2.55 million barrels to 521.8 million last week, EIA data show. Inventories remain at the highest seasonal level in at least a decade. Analysts surveyed by Bloomberg had forecast a 3 million-barrel decline.
- The industry-funded American Petroleum Institute said stockpiles climbed 2.2 million barrels last week. Middle East production has climbed to a record while US output slumps, a sign that Opec’s strategy of defending market share is succeeding, the International Energy Agency said. Middle Eastern output exceeded 31 million barrels a day for a third month in June amid near-record supply from Saudi Arabia, the Paris-based agency said in its monthly market report released Wednesday. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
- China iron ore extended its climb towards a 10-week high as iron ore for September delivery rose 1%, closing at its highest since April 29. Iron ore’s rally to a two-month high just prompted Macquarie Group to sound the alarm as the bank says gains may be well beyond fundamentals, with abundant supply from miners, inventories stacking up at China’s ports and steel production set to contract.
- While speculation about stimulus in China has helped to lift prices, Macquarie said it’s sceptical about fundamental support for the recent move higher. Iron ore was caught up in a speculative rally in China earlier this year as prices soared in April, prompting a host of banks to warn that the surge wouldn’t last, after which rates cratered. Last week, Australia cut its price outlook for 2017 by 20%, citing prospects for increased supply just as steel output in China shrinks further.
- Goldman Sachs Group said recent stimulus in China hadn’t brought a meaningful increase in steel demand, according to a report received on Wednesday. Official data from China yesterday showed that the country both imported a record volume of iron ore in the first half, and shipped out the most steel ever in the period. Ore imports were 494 million tons between January and June, 9.1% more than a year earlier, while exports of steel neared 10 million tons a month. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
- Copper surged to its highest level since late April, briefly topping $5,000/tonne on expectations central bank efforts to spur economic growth will increase demand for metals. Copper for delivery in three months rose 1.4% to settle at $4,938/tonne ($2.24/pound) on the London Metal Exchange, after touching $5,032/tonne, the highest since April 29. Prices climbed more than 5% on the Shanghai Futures Exchange. Copper futures for September delivery increased 1.2% to $2.24 a pound on the Comex in New York.
- Zinc, nickel, tin and aluminum dropped on the LME, while lead gained. Data from China yesterday showed that the world’s biggest producer and user of refined copper, boosted imports to a record in the first six months of the year as a credit boom and property rebound increased demand. Purchases of unwrought copper and products climbed 22% to 2.74 million tonnes in the first half from a year earlier, according to customs data.
- Inbound shipments of copper concentrate and ore increased 35% to 8.04 million tons in the first six months, also a record high. Policymakers vowed this year to sustain growth, pumping money into the economy and investing in infrastructure, fueling a property boom and creating more demand for cables and wires. Some smelters and traders brought forward imports to hedge against yuan depreciation, which would make dollar-priced commodities more expensive to Chinese buyers.
- Inventories in the bonded warehouses – which aren’t publicly disclosed – climbed to 620,000 tons in May, the highest since July, according to Bloomberg Intelligence. Holdings in warehouses tracked by the Shanghai Futures Exchange reached a record 394,777 tons in March and have more than halved since then. On monthly basis, copper imports receded for a third month to 420,000 tons in June, from a record 570,000 tons in March, as the nation heads into the low summer season for demand and struggles to clear its surplus.
- Concentrate purchases were at 1.35 million tons, compared with 1.43 million tons in May. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
- APN Outdoor (APO): To buy Metrospace, iOM outdoor advertising assets
- Fortescue (FMG): Shipped 169.4mt of iron ore in FY16, targeted 165mt
- Iluka (ILU): Scheduled to release production report
- Oil Search (OSH): Exxon said to make offer for InterOil, tops bid from Oil Search
Stock to watch: Ramelius Resources (RMS.xasx)
After forming a smooth rounding bottom formation, Ramelius Resources most recently made a decisive break-out as confirmed by the large weekly bar last week. It appears to have cleared its resistance zone levels between 38–48 cents, which was defined as significant support from 2008 through to 2012.
Upon a retracement lower, we would expect to see RMS.xasx receive buying support starting at 50¢ down to 48¢. Should RMS.xasx bounce off these levels, the market can expect to see the next wave of a higher move with targets to the upside being: 65¢, 70.5¢; and the ultimate target at the 90¢ mark. It’s important to mark that a 50% retracement between the 2011 highs to the 2014 lows is 0.885¢ so long holders should exercise natural caution at these levels given that the 100% extension of the rounding bottom is at the 90¢ mark.
Source: Saxo Bank
Broker upgrades and downgrades
- Treasury Wine (TWE): Upgraded to overweight from neutral at JPMorgan
- Alumina (AWC): Upgraded to buy from neutral at Goldman Sachs
- Incitec Pivot (IPL): Downgraded to neutral from outperform at Credit Suisse
- Tassal (TGR): Cut to neutral from outperform at Credit Suisse
AUDUSD and XAUUSD
Copper pushed higher above the July high 224.80 and came close to test the previous double top level 230, however AUDUSD
still failed to close above the resistance level 0.7650. Today’s focus would be on the Australian employment figures at 1130 AEST and the support levels remain at 0.76 – 0.7570. Furthermore the Bank of England is expected to cut rates by 25 basis point tonight at 2100 therefore the price actions of the cable (GBPUSD) may be under pressure below 1.30.
Yesterday gold (XAUUSD
) ended the two days of heavy declines and is looking to regather the upside momentum in the near term. We maintain our bullish bias with the target towards 1,388 and 1,404 using the stop below yesterday’s low 1,327.35.
Source: Saxo Bank
Source: Saxo Bank
AUS200.i and US500.i
is now approaching near the key resistance level 5,430, which could be a potential reversal point, but a daily close above the psychological level 5,400 would signal further gains to the topside.
Despite making a fresh high 2,158.25, the US500
reversed when the US market opened. It is tempting to take short positions in the anticipation of any profit-taking but the current strength is seen as resilient and it is difficult to predict the levels to the topside until we see any clear fading price actions. In order to justify attempting to short, the RSI ideally needs to hold the current level 64 and continuous falling trading volume.
Source: Saxo Bank
Source: Saxo Bank
Today's information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
– Edited by Gayle Bryant