Article / 24 August 2016 at 1:15 GMT

Today's Trade: Qantas flies high, Wesfarmers grounded

Trading Desk / Saxo Capital Markets

  • ASX remains largely flat as market digests new corporate earnings numbers
  • Results in from Wesfarmers, Qantas, Murray Goulburn, Boral and Worley Parsons
  • The focus is on blue chips to see if they can continue yesterday's push
  • US stocks near a record high after news the Fed won't rush a rate rise

By Saxo Capital Markets (Australia)

The Australian sharemarket is flat as the market digests corporate results which are coming in thick and fast today.

At 1030am AEST (0030 GMT) the benchmark S&P/ASX 200 index rose a mere four points, or 0.07%.

Qantas and Worley Parsons were the early winners - with strong earnings results, but this was balanced by Wesfarmers and Blackmores which appeared to be the latest high-profile casualties of earnings season.

Qantas shares roared into the session, shooting 5% higher to $3.565 after it announced a record $A1.52 billion profit and the long-awaited return of its dividend.

Wesfarmers has suffered an 83.3% slump in its full-year profit to $407m after more than $2bn in impairments flowing from its loss-making coal operations.

Overnight, US stocks closed near a record high after mixed data in the world’s largest economy bolstered speculation the Federal Reserve will be in no rush to raise interest rates.

The dissonance of reports showing a surge in American new home sales and a slowdown in manufacturing brought into question the hawkish tone of recent comments from Fed officials, keeping the relative sense of calm across asset classes.

The S&P 500 Index briefly topped its record closing high, while Treasury 10-year notes were stuck in the tightest monthly trading range since 2006.

Oil rallied on speculation that Iran may be more willing to cooperate with other producers seeking to freeze output. Market sentiment has see-sawed in recent weeks as traders look for clues on how aggressive the Federal Reserve will be in its approach to tightening, while awaiting a speech from chairwoman Janet Yellen on Friday.

The set of mixed economic data is dimming the outlook for the US to diverge from increased monetary stimulus in Europe and Asia. There’s a 26% chance of a rate hike in September, according to data compiled by Bloomberg based on fed fund futures.

The S&P 500 rose 0.2%, the Dow Jones added 0.1% whilst the Nasdaq lifted 0.3%. The S&P500 has been moving within narrow ranges as investors assess valuations near the highest levels in more than a decade and signals from policy makers, while the earnings season winds down.

European shares rose the most in two weeks as commodity producers rebounded on higher metals prices, and data pointed to continuing economic progress in the region.

BHP Billiton and Anglo American led miners to the best performance of the 19 industry groups on the equity gauge as iron ore in China jumped to a two-week high.

Emerging market shares halted a two-day slide as Brazil’s Ibovespa rose after the government signaled stepped up efforts to trim a budget deficit, fueling optimism that lawmakers will support measures aimed at restoring the country’s finances.

Benchmark Treasury 10-year note yield was little changed at 1.55%, according to Bloomberg Bond Trader data. It hasn’t closed above 1.6% since June 23, the day the UK voted to leave the European Union.

Investors turned even more neutral on Treasuries in the week ended August 22, with both long and short positions declining, a JPMorgan Chase survey showed.

The Fed chief is scheduled to speak at an annual symposium in Jackson Hole, Wyoming, on August 26, at a time when vice-chairman Stanley Fischer and other Fed colleagues have stated that interest rates may still rise in 2016.

Officials are trying to balance their desire to hike this year, following lift-off from near zero in December, with longer-term concerns that slowing global growth may prevent the policy rate from rising to levels seen in previous economic cycles.

Tuesday’s $26 billion US 2-year note sale drew a yield of 0.76%. Direct bidders, non-primary-dealer investors that place bids with the Treasury, purchased 25.2%, the highest allocation since May and exceeding the 16.3% average at the previous 10 auctions.

The yield premium that investors demand for holding Italian 10-year debt instead of benchmark German bunds has widened from a four-month low reached on August 15.

Qantas is up 5% in early trade and back in dividends with a net profit of $A1.5bn. Photo: iStock

Already struggling with sluggish growth and a banking crisis, Italy is heading for a referendum as Prime Minister Matteo Renzi attempts to overhaul the constitution.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.1% after dropping throughout most of the trading day. The greenback lost 0.1% to 100.24 yen, and rose 0.1% to $1.1306 per euro.

Oil rose 1.5% higher after Reuters reported that Iran is sending "positive signals" that it may support joint action to bolster the oil market, citing unidentified sources in Opec and the oil industry.

Iran hasn’t decided whether to join any action, according to the sources. If Opec and some other producers agree to cap output at informal talks next month, the resulting price boost may help other suppliers revive output, Goldman Sachs analysts wrote.

West Texas Intermediate for October delivery rose 69 cents to settle at $48.10/barrel on the New York Mercantile Exchange. Prices dropped as much as 1.7% earlier.

Brent for October settlement climbed 80 cents, or 1.6%, to $49.96/bl on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.86 premium to WTI.

Gold futures for December delivery advanced 0.2% to settle at $1,346.10/oz at 1354 EDT on the Comex in New York. The metal lost 1% in the previous two sessions.

Source: Bloomberg,

Key earnings

Global: HP, Royal Bank of Canada, Guess, Express, WPP Group, Heico, Williams-Sonoma,
AU: Wesfarmers, Boral and Westfield

Global: Toronto-Dominion Bank, Canadian Imperial Bank, Tiffany, Movado, Burlington Stores, Dollar General, Dollar Tree, Michaels Cos, Autodesk, GameStop, Pure Storage, Splunk
AU: Woolworths, Amcor, Perpetual and South32

Global: Big Lots
AU: Harvey Norman and Coca-Cola Amatil

Local markets and commodities

  • The S&P/ASX 200 Index futures +0.3%; futures relative to estimated fair value suggest an early gainX of 0.1%.
  • Bank of New York Australia ADR Index +1.9%, BHP Billiton ADR +3.3% to A$21.47 equivalent, 1.9% premium to last Sydney close, Rio Tinto ADR +1.7% to A$42.20 equivalent, ~14% discount to last Sydney close.
  • Gold futures posted the first gain in three days as the dollar fell, reducing demand for the metal as an alternative asset. The greenback slipped against a basket of currencies on speculation that Yellen will this week stop short of affirming the central bank will raise interest rates by year-end. Low rates are a boon for gold, which becomes more competitive against interest-bearing assets. Gold futures for December delivery advanced 0.2% to settle at $1,346.10/oz on Comex after losing 1% in the previous two sessions.
  • Silver futures for December delivery climbed 0.4% to $19.065/oz on Comex. Gold is up 27% this year as the Fed held off from further monetary tightening. Yellen’s speech will be closely monitored after hawkish comments by Fed officials Stanley Fischer and William Dudley, and with San Francisco Fed President John Williams saying the central bank’s meeting in September is “in play” for a rate move. Goldies lost 2.15% overnight in Toronto. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil fell as industry data showed US crude stockpiles expanded, adding to a global glut of supply. US inventories of crude increased by 4.46 million barrels last week, the American Petroleum Institute was said to report late Tuesday. A Bloomberg survey ahead of government data forecasts crude stockpiles fell last week. West Texas Intermediate for October delivery rose 69 cents to settle at $48.10/b on Tuesday after Reuters cited unidentified sources in Opec and the oil industry saying that Iran is sending “positive signals" that it may support joint action to bolster the market.
  • Total volume traded was about 2.9% above the 100-day average. Brent for October settlement climbed 80 cents, or 1.6%, to $49.96/b on the London-based ICE Futures Europe exchange on Tuesday. The global benchmark crude closed at a $1.86 premium to WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • China iron ore jumped to a 2-week High as mills’ profits improved. Iron ore for January rallied 2.9% to 456.5 yuan/mt on Dalian Commodity Exchange which is its highest close for the most-active contract since August 10. According to Chinese brokerage houses, steelmakers’ profits have improved amid restrictions on production. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Benchmark copper on the London Metal Exchange ended down 0.8% at $US4710/tonne, from an earlier $US4701.5/t, its lowest since July 11. Copper futures for December delivery fell 1.2% to $2.126/pound on Comex. Copper is on the verge of becoming the only major metal to post a loss this year as the highest stockpiles in almost seven months suggest the market is amply supplied. Inventories of copper, used in everything from wiring to automobiles to iPhones, rose 4.7% to 240,075 tonnes, according to London Metal Exchange data, the highest since January 29.
  • After rising as much as 9.1% by March, copper has now lost almost all its gains in 2016 as investors anticipate supply will outpace demand. It’s the worst performer among the six major metals traded on the LME. Zinc rose 1% to $2,302/tonne. Worrying the market is a large LME position, holding 40-49% of zinc warrants and cash contracts. This, traders say, is behind the premium for the cash contract over the three-month future for the first time since late May. Three-month aluminium was up 0.1% at $1,669, lead gained 0.4% to $1,861/t, tin added 0.9% to $18,700/t and nickel was flat at $10,260/t. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC
  • In other news: A2 Milk (ATM): FY NPAT NZ$30.4m; Net income GAAP est. NZ$31.9m (5 analysts); Sees continued growth FY17; Altium (ALU): Scheduled to release FY results; NOTE: Adj. net income est. A$21.9m (5 analysts); Alumina (AWC): Scheduled to release 1H results; APA Group (APA): Scheduled to release FY results; NOTE: Adj. net income est. A$203.6m (13 analysts); Ardent Leisure (AAD): Scheduled to release FY results; NOTE:: Adj. net income est. A$58.9m (7 analysts); Bega Cheese (BGA): Scheduled to release FY results; NOTE: Adj. net income est. A$29.3m (3 analysts); Blackmores (BKL): Scheduled to release FY results; NOTE: Adj. net income est. A$99.3m (7 analysts); Boral (BLD): Scheduled to release FY results; Adj. net income est. A$254.5m (10 analysts); ISentia (ISD): Scheduled to release FY results; NOTE: Adj. net income est. A$30.7m (5 analysts);James Hardie (JHX): U.S. new-home sales unexpectedly surge to almost 9-yr high; AGL Energy (AGL):, LendLease (LLC), Telstra (TLS): Trades ex-div; Link Administration (LNK): Scheduled to release FY results; NOTE: Adj. net income est. A$98.5m (4 analysts).
  • McMillan Shakespeare (MMS): Scheduled to release FY results;NOTE: Adj. net income est. A$89.3m (5 analysts); Metcash (MTS): Set to buy Woolworths’ (WOW) home timber unit: Australian; Oil Search (OSH): Says PNG LNG operated 12% above nameplate capacity in 1H; Pact Group (PGH): Scheduled to release FY results; NOTE: Adj. net income est. A$92.7m (7 analysts); Qube (QUB): Scheduled to release FY results; NOTE: Adj. net income est. A$94.8m (11 analysts); Sirtex (SRX): Scheduled to release FY results; NOTE: Adj. net income est. A$54.1m (10 analysts); South32 (S32): Improvement seen in manganese, met coal: Preview; Spotless (SPO): Scheduled to release FY results; NOTE: Adj. net income est. A$141.3m (4 analysts); St Barbara (SBM): Expects FY17 production to drop, AISC to rise; Steadfast Group (SDF): Scheduled to release FY results; NOTE: Adj. net income est. A$82.1m (6 analysts);Wesfarmers (WES): Scheduled to release FY results; NOTE: Adj. net income est. A$2.29b (15 analysts); Westfield Group (WFD): Scheduled to release 1H results; NOTE: Adj. net income est. $319m (2 analysts); Worleyparsons (WOR): Scheduled to release FY results; NOTE: Adj. net income est. A$156.8m (9 analysts)

Broker gradings

- Abacus Property (ABP): Raised to buy vs hold at Morningstar
- Aconex (ACX): Cut to neutral vs outperform at Credit Suisse
- BHP (BHP): Upgraded to buy; Mining demand stable, supply low: Jefferies
- Caltex Australia (CTX): Raised to overweight vs neutral at JPMorgan
- Fortescue (FMG): Raised to hold vs underperform at Jefferies
- Gold Road Resources (GOR): Rated new speculative buy at Canaccord Genuity
- GWA Group (GWA): Cut to sell vs neutral at UBS
- Virtus Health (VRT): Cut to neutral vs buy at UBS
- Mesoblast (MSB): Raised to buy vs hold at Morningstar
- Monadelphous Group (MND): Raised to hold vs reduce at Morgans; Cut to sell vs neutral at UBS


AUS200 broke out of the recent range on the back of the strong lift from the big banks and it remained bid up through out the overnight session as the US markets continued to show resilience.

Key resistance level is expected to be the psychological level 5,600 where we would look to short.
Although the US dollar index (DX) still looks choppy, AUDUSD is expected to remain under selling pressure as copper extended its losses for two consecutive days to break the July low.

The key support level is 0.76 handle which crosses the uptrend (from May low) and this level has been support levels during March to June 2015. A daily close below this Monday’s low 0.7583 would be ideal to confirm a proper reversal of the three months uptrend.
Today's Trade 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 recording of this Week’s Macro Monday Call at 1030 AEST. Please visit our website at:

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