Article / 29 September 2016 at 0:59 GMT

Today's Trade: Opec surprise fuels ASX surge

Trading Desk / Saxo Capital Markets
  • OPEC agrees to cut production for first time in eight years and oil prices soar
  • Mining giants BHP and Rio are also rallying - the former has oil interests
  • AUD closes at US76.92c overnight, above the 3.5 year downtrend line at US76.75
  • Mining, base metals, materials and energy stocks all enjoying the rally

By Saxo Capital Markets Australia

Overnight and early trading

At the end of six hours of negotiations and weeks of horse trading, Opec announced the plan to cut production to a level of 32.5-33 million barrels/day from 33.47 billion/day.

As a result, Australia's biggest energy names rocketed higher in morning trade, with Santos soaring 9.4% at $3.73, Origin Energy rallying 8% to $5.39 and Woodside leaping 4.2% to $27.63.

The oil price rally extended to base metals, which saw the materials sector also rise sharply. US stocks rose, with energy shares rallying the most in eight months, as Opec agreed to a preliminary deal that will cut production for the first time in eight years.

At the 1015 AEST (0015 GMT) official market open, the benchmark S&P/ASX 200 index rose 47.9 points, or 0.9%, to 5,460.3

Oil and gas producers in the S&P 500 Index posted the biggest jump since January as crude futures surged more than 5%.

Equities had earlier swung between gains and losses as oil prices whipsawed amid optimism for an agreement and mixed data on stockpiles. The afternoon rally in energy overshadowed a 3.8% drop in Nike and AT&T’s 1.5% retreat that dragged down phone companies.

The S&P 500 rose 0.5% to 2,171.37, erasing a 0.4% slide and closing above its average price during the past 50 days for the first time in almost a week.

The gauge also wiped out a monthly decline. The Dow Jones Industrial Average rose 110.94 points, or 0.6%, to 18,339.24, with two stocks - Exxon Mobil and Chevron - contributing more than 40% of the gain. The Nasdaq Composite Index added 0.2%.

Opec agreed to drop production to a range of 32.5 to 33 million barrels/day, said Iran’s Oil Minister Bijan Namdar Zanganeh, following a meeting in Algiers.

While some members of the organisation will have to cut output, Iran won’t have to freeze production, he said. Many of the details remain to be worked out and the group won’t decide on targets for each country until its next meeting at the end of November.

 Deals made in far off places have put a rocket under Aussie shares. Photo: Flickr

Federal Reserve chair Janet Yellen testified last night on bank supervision and regulation while also including remarks on monetary policy.

She told lawmakers the US will continue to add jobs at a solid rate, though the recent average pace is probably higher than what’s sustainable over the long term and would eventually cause the economy to overheat.

She also said the current course calls for a gradual increase in interest rates, something that doesn’t have a fixed timetable.

Meanwhile, investors are looking for signs that the economy is strengthening and awaiting the next earnings season, which will kick off in about two weeks.

A report today showed orders for durable goods were little changed in August, while shipments of capital equipment declined for a fourth month, indicating lingering weakness in manufacturing.

A revised reading on second-quarter growth, pending home sales as well as measures of personal income and spending are due later this week.

In addition to eking out a gain for the month, the S&P 500 is also now on pace for a third weekly increase, which would be the most since July. The CBOE Volatility Index fell 5.4% today to 12.39, extending its two-day decline to almost 15% after an 18% jump on Monday.

The measure of market turbulence known as the VIX is now down almost 8% in September, erasing a climb that reached 35% two weeks ago.

Last night, energy companies jumped 4.3% as eight of the S&P 500’s 11 main industries advanced. Raw materials and industrials added more than 0.6%. Phone companies dropped 1%, after losing as much as 1.6%.

Utilities fell for a fourth day, while biotechnology shares slipped to weigh on the healthcare group. About 7.1 billion shares changed hands on US exchanges, 7.6% more than the three-month average.

Leading energy, Exxon Mobil rallied 4.4%, the most since February, and Chevron added 3.2%. Murphy Oil and Devon Energy increased more than 8.3%.

Nine of the S&P 500’s 10 strongest performers today were energy names. The lone outsider was copper miner Freeport-McMoRan, which gained 6.9%.

AT&T fell the most in two weeks after UBS Group AG downgraded the shares to neutral from buy, and lowered its price target to $43 from $46.

The firm cited, in part, higher competition in the wireless business. Verizon lost 0.8% after declining as much as 1.3%.

Nike had its worst session since March, after disappointing futures orders renewed concerns that competitors are crimping the footwear maker’s growth.

Gains were also seen in Europe, as Deutsche Bank rebounded from a record low as it agreed to sell its UK insurance unit and CEO John Cryan ruled out a capital increase.

Deutsche Bank climbed 2% after losing a fifth of its value this month through Tuesday. Growing concerns about its capital buffers amid mounting legal costs have hurt the firm, which has become one of the biggest bank losers in Europe this year.

The industry, down 24% in 2016, has led declines among Stoxx 600 groups. Germany’s Dax Index climbed 0.7%, snapping a three-day losing streak, with Linde AG leading gains after Sanford C. The FTSE lifted 0.61% and CAC rose 0.77%.

Information sources: Bloomberg,

Local markets and commodities

  • S&P/ASX 200 Index futures up 0.8%; futures relative to estimated fair value suggest an early gain of 0.9%.
  • Bank of New York Australia ADR Index +2.3%, BHP Billiton ADR +4.5% to A$22.17 equivalent, 3.6% premium to last Sydney close Rio Tinto ADR +4.7% to A$43.86 equivalent, 12% discount to last Sydney close.
  • Gold prices fell to a one-week low on Wednesday on a stronger dollar and mixed views on the likelihood of a rate increase by the Federal Reserve this December. Gold for December delivery settled down 0.5% at $1,323.70, trading at its lowest level since September 20. Gold traders remain focused on the chances for a rate increase this year at the Fed’s policy meeting in December.
  • Gold stocks were up 1.35% in Toronto on Wednesday. Silver is looking shinier than ever, at least in the eyes of exchange-traded fund investors. Holdings in ETFs backed by the metal climbed to the highest since they were created about a decade ago, helped by an improving outlook for the US economy and Chinese manufacturing. Industrial use accounts for more than half of the metal’s demand. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil increased the most since April after Opec agreed to limit production for the first time in eight years at an informal meeting in Algiers. Futures advanced 5.3%. The group agreed to reduce output to a range of 32.5 to 33 million barrels/day, said Iran’s Oil Minister Bijan Namdar Zanganeh. The lower end of the production target equates to a nearly 750,000 barrels/day drop from what Opec said it pumped in August.
  • Saudi Arabia and Iran wrong-footed traders who expected a continuation of the pump-at-will policy the group adopted in 2014 but the group will wait until November to finalise a plan. Prices fell earlier as a government report showed a US gasoline supply gain.
  • West Texas Intermediate for November delivery climbed $2.38 to settle at $47.05. It’s the highest close since September 8. Total volume traded was 77% above the 100 Day Moving Average. Brent for November settlement rose $2.72, or 5.9%, to $48.69. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore on Dalian Commodity Exchange closes +1.7% at 413 yuan/tonne, the first advance this week. However, spot iron ore edged slightly lower by 0.15% to $56.48/tonne. It has been a bumpy ride the past few sessions with prices swinging between gains and losses as traders contrast the potential for continued interest in the commodity amid the slowdown of construction season and the expectation for new supplies to hit the market. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Nickel prices are experiencing renewed upside momentum following the release of the results of the Philippines’ Department of Environment and Natural Resources (DENR) mining inspections, confirming yesterday that it was suspending 30 of the country’s 41 mines. Tin climbed to the highest since January 2015, nearing $20,000/t, as inventories of the metal tracked by the London Metal Exchange continued to fall, hitting the lowest in almost eight years.
  • Tin for delivery in three months added 0.3% to settle at $19,810/t, after touching $19,950/t. Prices are up 11% in the past two months and 36% year-to-date. Stockpiles fell 5.2% to 3,460 tonnes, the lowest since November 2008. US aluminium makers are calling for a “meaningful dialogue” with Chinese authorities in a bid to end incentives and subsidies that they say are fuelling a global glut and squeezing US producers out of the market. Copper, zinc and lead also gained on the LME. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: Spark Infrastructure (SKI): State-wide power failure in South Australia; BHP Billiton (BHP): Olympic dam restarted after South Australia power cut; Oz Minerals (OZL): Prominent Hill copper and gold mine using back-up generators; G&W, Macquarie Working on Bid for Glencore Rail Ops: Australian; Ebbing Aussie Debt Demand Drags Kangaroo Sales to Seven-Year Low; Opec outlines first oil production cut in eight years; Private lending has grown to $68 billion, as banks slow lending; Brisbane, Melbourne, Perth apartment losses rise: Corelogic; Yield story here to stay at Charter Hall: Charter Hall's managing director David Harrison has mounted a robust defence of one of the strongest themes for listed property in recent years – the yield story – as he prepares to launch the largest initial raising ever in the sector.

Broker gradings

- AGL Energy (AGL): raised to outperform at Credit Suisse; upgraded to buy at Citi

Stock to watch: QBE

QBE Insurance made a 13-year fresh low as it broke below the February low $A9.50 yesterday. The major support level of $A10 held for almost five years but now it appears to be broken and may act as a resistance level. The selling pressure is expected to remain and we would look to sell any rallies towards $A10.

QBE quarterly chart


The US dollar index (DX) continues to hover just above the uptrend near 95 and the resistance level remains at 96 where the 200 DMA crosses.

AUDUSD is looking solid along with the CAD as both copper and crude rallied. While 0.77 handle is still obvious resistance level, upside momentum seems to be strong enough to push higher.

The final US Q2 GDP numbers (2230 AEST, 1230 GMT) could be interesting while the Yellen’s speech at 0600 AEST is expected to cause some volatility in the currencies.
AUDUSD monthly chart

The AUS200 failed to break the resistance level 5,435 in the Asian session, but it made a break out in the SYCOM session following the positive leads from the US.

The AUS200 is now trading at the previous support level 5,455 which was a double bottom last month. It may extend the gains towards the next resistance level 5,500 where we would consider selling.

AUD200 monthly chart
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Information sources for Today's Trade: 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 recording of this Week’s Macro Monday Call at 1030 AEST.


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