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Optimism from Australia's central bank drove Chinese shares sharply higher overnight, with investors looking to the Aussie statement as a proxy for bullishness on the mainland economy.
Article / 28 November 2016 at 23:38 GMT

Today's Trade: Overseas gloom infects ASX

Trading Desk / Saxo Capital Markets
Australia
  • The ASX200 was lower at the start, led by BHP and the big-four banks
  • Iron ore rose 1.5% to $80.83
  • AUDUSD extended gains and is approaching the 0.75 handle 
  • Qantas drops bid for deeper partnership with American Airlines

By Saxo Capital Markets (Australia)

The ASX opened lower at the start with BHP and the big-four banks leading the charge. Telecoms provider Vocus was also thumped, losing 13%. At the open the ASX200 was down by 10 points to 5455. Meanwhile, Qantas announced it is dropping its bid to form a deeper partnership with American Airlines after the US Transportation Department ruled that the plan would harm competition in the US-Australasia market.

Overnight

US stocks slipped Monday, snapping the Russell 2000’s longest winning streak in 20 years. The index of small-company shares rose for 15 consecutive trading sessions through Friday. The gains began before the US presidential election, but accelerated after November 8 as investors poured money into US-based companies. 

Investors bet that President-elect Donald Trump’s policies could improve domestic growth, lower corporate taxes and increase infrastructure spending – which they believe will benefit smaller, domestically focused companies that are typical of the Russell 2000 which dropped 1.3% overnight.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite also edged lower down 0.3% & 0.6% respectively. The declines represent an unusual pullback for US stocks after a weeks' long rally that sent all three indices – plus the Russell – to fresh records again Friday. The VIX climbed above 13.15For the 12 trading sessions following the US presidential election, the Dow industrials rose 4.5% through Friday and only fell two days.

Indices in both Europe and the US were weighed down by falling bank stocks, which have been big winners since the election. Financial companies in the S&P 500 were the worst-performing sector Monday, falling 1.4%.

Ahead of Monday, banks had also posted stand-out performances in recent weeks as investors bet on lightened regulation under President-elect Trump and higher interest rates. On Monday, Russell 2000 component Bank of the Ozarks fell 3.1%. In the past month the bank is up 24%.
Banks in the Stoxx Europe 600 fell 1.8% ahead of a December 4 referendum on Italian constitutional reform.

Many investors are concerned that a “no” vote and the political uncertainty that could follow might derail plans to shore up the country’s fragile banking system. Recent polls suggest the proposed changes are likely to be rejected, an outcome that Prime Minister Matteo Renzi has said would prompt him to resign. Italy’s FTSE MIB index dropped 1.8%. The broader Stoxx Europe 600 fell 0.8%.

Shares of oil and gas companies also struggled Monday as crude prices swung ahead of a meeting of major oil producers in Vienna. US-traded crude oil gained 2.2% to $47.08/barrel.
Opec agreed in September to trim production amid a global glut of supply, but left the details of who cuts how much to a meeting in Vienna on Wednesday.

The US dollar weakened Monday after its best three-week stretch since 2008. Emerging-market currencies and the yen rose sharply against the dollar, sending the WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, down 0.3% on Monday. Some investors said the pullback in the dollar was likely to prove temporary, with inflation expectations on the rise and the Federal Reserve widely expected to raise interest rates in December and in 2017. 

US government bonds strengthened, sending the yield on the 10-year US Treasury note down to 2.319% from 2.359% on Friday.

lll
 No lift-off ... Qantas has dropped its bid to form a deeper partnership
with American Airlines. Photo: iStock

Local markets and commodities

  • Bank of New York Australia ADR Index -0.8%, BHP Billiton ADR -0.8% to A$25.72 equivalent, 0.3% discount to last Sydney close, Rio Tinto ADR +0.5% to A$52.91 equivalent, ~13% discount to last Sydney close
  • Gold futures posted the biggest gain in almost four weeks as the dollar fell and investors bet the recent selloff was excessive. Palladium reached a 17-month high. The US dollar declined from the highest in a decade as a retreat in Treasury yields sapped the currency’s appeal. 
  • Weakness in the dollar tends to help commodities priced in the currency. Gold futures for February delivery climbed 1.1% to $1,193.80/ounce on Comex, which marked the biggest gain for a most-active contract since November 2. The metal fell below $1,200 last week for the first time since February. 
  • Last week, investors sold the most gold through exchange-traded products in more than three years. Holdings dropped 39.2 tonnes through Friday to 1,893.3 tonnes, the lowest since June, data compiled by Bloomberg show. Goldies soared 3.73% in Toronto overnight and we expect our gold stocks to follow suit today. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Oil rose as Iraq’s oil minister said it pledged to cooperate with Opec to reach an agreement this week that’s acceptable to all members. West Texas Intermediate for January delivery rose $1.02 to settle at $47.08/barrel on the New York Mercantile Exchange reversing an earlier decline. 
  • Brent for January settlement advanced $1 to end the session at $48.24/barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a $1.16 premium to WTI. 
  • Iraq’s Oil Minister Jabbar al-Luaibi said he’s “optimistic” a deal will be reached at Opec's summit in Vienna on Wednesday. However, after hours of discussions on Monday, an Opec committee didn’t reach agreement on production cuts during high-level talks in Vienna, according to a delegate. Iran and Iraq still have reservations on cuts, the delegate said. 
  • While Saudi Arabia has pushed to reverse Opec's pump-at-will policy, Energy Minister Khalid Al-Falih said Sunday the oil market would recover in 2017 even without cuts as consumption grows in countries such as the US, according to Saudi newspaper Asharq al-Awsat
  • Algerian Energy Minister Noureddine Boutarfa had presented a proposal Saturday to Iranian Oil Minister Bijan Namdar Zanganeh for an Opec cut of 1.1 million barrels/day, according to an Iranian oil ministry official. Russia has so far resisted requests to join a cut, offering instead to freeze production at current levels. Energy Minister Alexander Novak has insisted that Opec reach an internal consensus on output curbs before Russia considers joining an accord. 
  • Russian President Vladimir Putin and Iranian counterpart Hassan Rouhani had a phone conversation on Monday and stressed that Opec's efforts to cut output is a “key factor” in stabilising the global oil market, according to an emailed statement from Kremlin. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY
  • Iron ore for delivery to China's Qingdao port climbed 1.5%, or $1.22, to $80.83 at its latest fix, according to Metal Bulletin. That's the first time it has traded above $80 since October 2014. The price has risen 26% this month and has risen 82% so far this calendar year. 
  • The latest advance came as China's State Council pressed ahead with its environmental probe into illegal capacity expansion at mills in Jiangsu and Hebei provinces. Meanwhile the Dalian Commodity Exchange will raise margin requirements of iron ore contracts to 10% (from 8%) effective from Monday settlement, the exchange says in a statement on website. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • Industrial metals continue to rally as zinc touched a nine-year high. Prices rallied after China’s top economic commission approved a $36 billion plan on new rail links around Beijing, boosting demand for industrial raw materials. 
  • Zinc for delivery in three months rose 2.9% to settle at $2,900/tonne on the London Metal Exchange, after touching $2,985, the highest since October 2007. Zinc's volatility, measured in price swings in options, currently sits at its highest since 2010. 
  • Copper for delivery in three months rose less than 0.1% to $5,881, and broke above $6,000 during the Asian trading day on Monday, bringing call contracts at that price into the money. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • AGL Energy (AGL), Graincorp (GNC): Trades ex-dividend
  • ALS (ALQ): 1H results expected; NOTE: 1H rev. est. $A685.7mln (3 analysts): Bloomberg data; Co. in July forecast 1H underlying profit $A50mln-$A55mln
  • BHP Billiton (BHP): Among individual bidders for Deepwater bid: CNH
  • Bradken (BKN): ACCC doesn’t plan to conduct public review of HCM deal
  • Brickworks (BKW): Annual meeting scheduled; NOTE: Co. in September forecast full order book, work pipeline to support earnings in 2017
  • Capitol Health (CAJ): Names James Harkness as CFO
  • Crown Resorts (CWN): Puts intl demerger plan on hold: AFR
  • Mayne Pharma (MYX): Annual meeting scheduled; NOTE: Co. in August forecast significant growth in FY17 on acquisitions
  • Money3 (MNY): Notes govt response to report of review of SACC laws; says company is well equipped to comply with all of suggested changes
  • Northern Star (NST): Annual meeting scheduled; NOTE: Co. in October forecast FY17 output 485k-515k ozs gold
  • Resolute Mining (RSG): Annual meeting scheduled
  • Rio Tinto (RIO): Yancoal in exclusive talks to buy Rio coal assets: Australian
  • Tower (TWR): To create separate unit for Canterbury claims after loss
  • Vimy Resources (VMY): Says minister determines to partly allow appeals for Mulga Rock Project
  • Vocus (VOC): Annual meeting scheduled
  • Woodside (WPL): North West Shelf royalty revenue audit finds inefficiencies

Broker upgrades and downgrades

  • Metcash (MTS): Cut to neutral at JPMorgan
  • Pact Group (PGH): Raised to neutral vs sell at UBS
  • South32 (S32): Outlook to stable from negative at Moody’s

AUS200.i and AUDUSD

AUDUSD extended gains and is now approaching the interim resistance level 0.75 handle where two Fibonacci retracements are overlapping.  The 200 DMA also hovers 20 pips above 0.75 therefore we may see some pull back at 0.75-0.7520. The major focus for today would be quarterly US preliminary GDP that will be released at 1230am AEDT.  The expectation is high with 3% annualised and strong numbers should push the US dollar back up.
 
AUDUSD monthly
1
Source: SaxoTrader
 
AUS200 looked weak from the early open yesterday morning and stayed offered throughout the Asian trading session. Last night, the Italian banks sold off ahead of this week’s referendum, and the US banks also seem to have been affected by this. Our big four banks may follow the weak leads from overnight, while the yielding stocks should continue to bid up as the bond prices are making a decent recovery.
 
AUS200 monthly
Source: SaxoTrader. Create your own charts with SaxoTrader; click here to learn more 

Today's data sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Gayle Bryant

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

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