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 / 25 August 2017 at 0:13 GMT

Today's Trade: Qantas checks in with second-highest profit

Trading Desk / Saxo Capital Markets
  • Qantas posted its second-highest profit as a result of a strong domestic business
  • Hurricane Harvey is sending oil tumbling and gasoline margins soaring 
  • Asian markets are likely to be cautious ahead of Jackson Hole speeches today

By Saxo Capital Markets (Australia)

  • Asian equities are set to make little headway on Friday and Australian bonds futures declined as markets adopt a cautious tone amid political wrangling over the US debt ceiling and ahead of central bank speeches in Jackson Hole. 
  • Oil fell as a storm strengthened into a hurricane aimed at Texas. Equity-index futures were higher in Japan and little changed in Seoul and Sydney, while US futures were slightly higher.
  • US stocks drifted lower Thursday, as disappointing earnings and ’s plan to slash prices at Whole Foods Market dragged down shares of consumer-staples companies.
  • Overall moves were relatively small, continuing a calm week for stocks.
  • The Dow Jones Industrial Average fell 28.69 points, or 0.1%, to 21,783.40. The S&P 500 declined 5.07 points, or 0.2%, to 2438.97 and the Nasdaq Composite slipped 7.08 points, or 0.1%, to 6271.33. The VIX declined to 12.23 overnight.
  • Shares of J.M. Smucker and Hormel Foods HRL were among the S&P 500’s biggest decliners after the food companies announced quarterly results.
  • J.M. Smucker SJM fell $11.34, or 9.5%, to $107.51 after the company said weak sales of Folgers coffee weighed on earnings, causing it to lower its guidance.
  • Hormel Foods shed 1.83, or 5.4%, to $32.09 after narrowly missing earnings expectations due, in part, to higher pork and beef costs. The company also lowered its guidance.
  • Grocers Kroger, Costco Wholesale and Wal-Mart Stores fell after Amazon revealed its plans for its acquisition. Investors are concerned that Amazon might start a price war as it works to broaden Whole Foods’s reach.
  • Some retailers rose following upbeat results.
  • Signet Jewelers gained $8.65, or 17%, to $60.54 after it reported higher same-store sales and a deal to acquire R2Net, the owner of, to expand its digital footing. The parent of Kay Jewelers, Zales and Jared also raised its annual earnings guidance.
  • Dollar Tree rose $4.18, or 5.6%, to $78.50 after reporting better-than-expected earnings and strong sales growth, while Calvin Klein parent PVH gained $6.88, or 5.7%, to $126.92 after it exceeded analysts’ expectations and raised its outlook for earnings and revenue for the year.
  • Stocks have wavered this month, as investors weigh generally solid earnings and steady global growth against geopolitical tensions and political uncertainty in Washington, D.C.
  • Investors will be monitoring European Central Bank President Mario Draghi’s comments, expected Friday, to see if he is concerned about the euro’s ascent. The currency has risen 12% against the US dollar this year through Wednesday.
  • Data released Thursday showed the number of Americans filing fresh applications for unemployment benefits rose slightly last week, but remains low. Initial jobless claims ticked up by 2,000 to a seasonally adjusted 234,000 in the week ended August 19, the Labor Department said Thursday. That was slightly less than the 235,000 new claims expected by economists.
  • The Stoxx Europe 600 rose 0.2% Thursday. Japan’s Nikkei Stock Average edged down 0.4% to its lowest close since the start of May.

Source: Bloomberg,,

 Qantas announced plans to launch direct flights from Australia's east coast to London
and New York within five years. Photo: Shutterstock

Local markets and commodities

  • The S&P/ASX 200 Index futures contract falls 0.1%; futures relative to estimated fair value suggest little early change
  • Bank of New York Australia ADR Index -0.3%, BHP Billiton ADR -0.1% to A$26.40 equivalent, 0.8% discount to last Sydney close, Rio Tinto ADR +0.6% to A$60.22 equivalent, 10% discount to last Sydney close
  • Gold prices drifted lower on Thursday, pressured by a firmer dollar as investors awaited cues on further interest rate hikes from central bankers meeting in Jackson Hole this week.
  • Losses were limited, however, after a threat by US President Donald Trump to shut down the government unless he got funding for a border wall with Mexico. 
  • Geopolitical risk tends to drive buying of safe-haven investments like bullion. Key to the direction of the market were funds holding huge long positions in Comex gold futures, said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. "We've had two failed attempts at the upside this year which resulted in a flush out of longs, and the longer we stay here without breaking higher, the bigger the risk that these guys will start to get impatient," he said. 
  • Gold failed in April and June to break through the top of its broad $1,200-$1,300 range this year. "But at the same time, there's this threat to close down the US government by Trump if he doesn't get his wall so that's providing some underlying support." 
  • Spot gold was down 0.25% at $1,286.5/ounce, giving back some of the previous session's gains. The most-active US gold futures for December delivery settled down $2.70 at $1,292/ounce. Gold stocks in Toronto added 0.35% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR
  • Hurricane Harvey sent oil tumbling and gasoline margins soaring as it approaches the refining hub on the Gulf Coast of Texas. Harvey has forced workers off some energy platforms in the Gulf of Mexico, closed marine terminals and threatens to flood refineries in Houston and Corpus Christi. 
  • The hurricane is intensifying an oil rout driven by concerns over rising output from producers such as the US and Libya as Opec and its allies struggle to drain a global glut. Futures in New York are down by more than 5% this month. 
  • West Texas Intermediate for October delivery declined 98 cents to settle at $47.43/barrel on the New York Mercantile Exchange. Total volume traded was about 7% above the 100-day average. Brent for October settlement slid 53 cents to end the session at $52.04/barrel on the London-based ICE Futures Europe exchange. 
  • The global benchmark crude traded at a premium of $4.61 to WTI, the widest in two years. As Harvey approaches, refiner Flint Hills Resources will shut down all operational units at its West Plant and East Plant in the area, and LyondellBasell Industries NV’s Houston refinery is said to be running at reduced rates ahead of the hurricane. 
  • Royal Dutch Shell Plc shut production at its Perdido platform in the Gulf of Mexico and evacuated the facility. Anadarko Petroleum shut its production and also evacuated personnel at several oil and gas production platforms, and Exxon Mobil also closed platforms. 
  • Meanwhile, Magellan Midstream Partners suspended operations at its Corpus Christi marine terminal and condensate splitter. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY
  • Spot iron ore prices eased lower as traders moved to the sidelines after the strong rally in recent weeks. This was despite strong gains in futures markets in China for both steel and iron ore. 
  • Signs that demand for steel making raw materials is high is likely to keep prices well supported in the short term. Global steel output rose 6.3% y/y in July to 143.2 million tonnes, according to the World Steel Association. This was fuelled by China, with output rising 10% y/y in the same month. Spot iron ore shed 0.8% or $0.66 to close at $77.16. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL
  • The rally in base metals continued unabated as confidence in the outlook for metals continues to rise. Aluminium hit a four-year high as investors bet the announced capacity closures in China will tighten the market even further. It recently announced that approximately 4mtpy of capacity will be closed as a result of illegal development and environmental issues over the upcoming winter. 
  • However, expectation of strong demand due to infrastructure spending is also fuelling the move. China aluminium futures rose to their highest in more than five years on Thursday while prices in London rose 0.4% to $2106. 
  • Copper rose to a near three-year high on signs of stronger demand in China while inventories fell in London warehouses. Benchmark copper on the London Metal Exchange (LME) closed 1.9% higher at $6688/tonne, having earlier touched $6731.50, its highest since November 2014. 
  • Lead slipped 0.8% to $2357 tonnes, tin fell by 0.2% to $20,490, zinc rose 0.8% at $3120 while nickel was 0.7% higher at $11,745. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • Qantas (QAN) has posted the second-highest profit in its history as a result of a strong domestic business, a recovery in international and cost cuts as it announced plans to launch direct flights from Australia's east coast to London and New York within five years.
  • Underlying net profit fell 8.6% to $1.4 billion, in line with analyst forecasts. The profit was lower than last year's record earnings, but at the upper end of the airline's guidance following the completion of a $2 billion three-year cost-cutting program. 
  • Net profit was $1.1 billion and the airline declared a final dividend of 7 cents and an on-market buyback of up to $373 million. Qantas chief Alan Joyce said the domestic business was in good shape and conditions in the competitive international business had improved in the second half. 
  • Qantas said it expected group capacity to increase by 3% in the first half and domestic capacity to rise by 1%. International capacity will increase 5% as it expands on new routes into Asia. Joyce, who has been running Qantas for eight years, also confirmed plans to fly non-stop to London and New York from Melbourne, Sydney and Brisbane by 2022 if Boeing or Airbus can build the aircraft capable of flying the distance. Qantas is targeting further cost reductions of $400 million a year for the next three years to 2020.
  • Trading ex-div: Beach Energy, Evolution, Fairfax, Ingenia
  • Traders see little risk Aussie to reverse on Jackson Hole
  • Fonterra (FSF): Still in talks for Argentine SanCor acquisition: Nacion
  • Galaxy Resources (GXY): Names Goldman as defence adviser: AFR
  • Mayne Pharma (MYX): FY results expected; NOTE: FY17 adj. net income est. A$112.9m (5 analysts)
  • Medibank Private (MPL): FY results expected; NOTE: FY17 adj. net income est. A$434m (12 analysts)
  • Orica (ORI): Calls For flexible LNG deals to end high Aussie gas prices
  • QBE Insurance (QBE): May be among insurers facing losses from Hurricane Harvey
  • Regis Healthcare (REG): FY results expected; NOTE: FY17 adj. net income est. A$61m (8 analysts)
  • Santos (STO): Dividends frozen as Santos takes razor to $2.9bn debt pile; To cap output from GLNG export plant below capacity
  • Sims Metal (SGM): FY results expected; NOTE: FY17 adj. net income est. A$132.1m (8 analysts)

Broker upgrades and downgrades

  • Alumina (AWC): Raised to neutral at Credit Suisse, PT A$2.30
  • Asaleo Care (AHY): Raised to outperform at Credit Suisse, PT A$1.70
  • Automotive Holdings (AHY): FY results expected; NOTE: FY17 adj. net income est. A$86.2m (12 analysts); Raised to buy at Morningstar
  • Cromwell Property (CMW): Is said to ready Singapore’s first Euro-denominated IPO; Raised to neutral at Credit Suisse, PT A$0.94
  • Flight Centre (FLT): Cut to sell at Morningstar
  • Nanosonics (NAN): Raised to buy at Bell Potter, PT A$2.73
  • OZ Minerals (OZL): Cut to hold at Argonaut Securities, PT A$8.95; Cut to hold at Morgans Financial, PT A$8.95
  • Perpetual (PPT): Raised to outperform at Credit Suisse, PT A$56.50
  • South32 (S32): CEO expects to be done with $750m share buyback in June; Cut to sector perform at RBC
  • Super Retail (SUL): FY results expected; NOTE: FY17 adj. net income est. A$128m (12 analysts); Raised to buy at Morningstar
  • Vocus Group (VOC): Cut to sell at Shaw and Partners, PT A$2.45

Australian earnings

Date event forecast

  • Nine Entertainment FY result $115mln cash profit, down a bit on last year. Tough times and still uncertainty over media law changes
  • Medibank Private FY result $435mln cash profit, +4pc on pcp. Ongoing problems with brand and low margin business cannibalising premium business

Source: ABC Business


AUDUSD continues to show resilience as the uptrend (from June low of 0.7373) remains valid but the gains have been restricted up to the downtrend (from July high of 0.8066). Copper made a new high above 300 last night and this has caused a sharp divergence against AUDUSD as these are usually closely correlated. We are more biased towards a break to the topside as the three-month trend is ascending.

AUDUSD monthly
Source: SaxoTrader
AUS200 again bounced off 200DMA, which has been acting as a key support line in the last three months or so. The big four banks are struggling while the major miners are grinding higher, therefore we are expecting further ranging price actions in the near term. The interim resistance level also remains the same at 5,800 while the support level would be 5,700.

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. Follow the team on Twitter at:

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