Today's Trade: Rally cools as traders await RBA
- In early trading banks are having a mixed performance, as are the major miners
- Pundits say charts looked bullish but the length of the rally points to a pullback
- Stocks remain flat this morning with activity subdued ahead of the RBA minutes
By Saxo Capital Markets
At the 1015 AEST (0015 GMT) official market open, the benchmark S&P/ASX 200 index inched up 1.6 points, or 0.03%, to 5,460.10.
The benchmark has risen for eight straight sessions and a ninth today would equal last December’s winning run. If it continues it will come close to the record 12-day streak across January and February last year.
In overnight trading, the S&P 500 Index closed at a record for the fifth time in six days, as technology shares rallied amid deal activity while corporate earnings spurred optimism that results this season will be sturdy enough to help sustain equities at record levels.
The Dow Jones Industrial Average closed at a record for a fifth straight session. SoftBank Group's agreement to buy ARM Holdings for $32 billion pushed semiconductor shares to a 15-year high, and Bank of America advanced 3.3% after posting higher profit in each of its four main businesses.
Hasbro dropped 6.6% as sales in its boy-oriented toys disappointed. After the bell, Netflix tumbled as its quarterly results disappointed.
The S&P 500 added 0.2% to 2,166.89 amid light trading, following three consecutive weekly gains. The Dow climbed 16.50 points, or 0.1%, to 18,533.05 to extend its longest winning streak in four months.
The Nasdaq Composite Index surged 0.5%, bolstered by chip companies and Apple's climb to a seven-week high. About 5.6 billion shares traded hands on US exchanges, 22% below the three-month average and the lowest since March 28.
but the likelihood is that overall there will be a downtrend in numbers. Photo: iStock
More than 90 S&P 500 companies report earnings this week. Analysts project a profit decline of 5.8% for the index in the second quarter, which would make it a fifth straight drop, the longest streak since 2009.
Firms including JPMorgan Chase and Alcoa beat earnings estimates last week, sending shares higher. After Monday’s close, Netflix reported fewer new subscribers than predicted, as higher prices for some older customers spurred an increase in cancellations.
The shares dropped 16% while International Business Machines rose 3.1% in after-hours trading as its revenue beat analysts’ estimates.
The S&P 500 has recovered all its losses following the UK’s vote to leave the European Union and rallied to four consecutive records up to Thursday.
Signs of strength in the economy combined with speculation the Federal Reserve will hold rates steady this year have helped boost equities from a three-month low on June 27.
The main US equity benchmark is up 6% this year and on pace for a fifth straight monthly gain, which would be the longest in two years.
While bets for a Fed rate increase crept up amid improving economic reports, traders are still pricing in less than even odds of a move until mid 2017. Meanwhile, a Citigroup gauge that tracks the degree to which data are exceeding economist projections is at an 18-month high.
Investors will scrutinise reports on housing starts, existing home sales, manufacturing and jobless claims this week for cues on the vitality of growth.
In Monday’s trading, the CBOE Volatility Index fell 1.8% to 12.44, to an 11-month low. The measure of market turmoil known as the VIX is down about 52% from a four-month high on June 24.
Technology shares led gains among the S&P 500’s 10 main industries, rising to the highest since December 4, while consumer-staples and industrial companies slipped less the 0.2% as the worst performers.
Retailers paced a climb in consumer-discretionary stocks, and financials rebounded from a decline on Friday, paced by lenders after Bank of America’s results. Qorvo and Skyworks Solutions rose at least 1.9% as semiconductor and equipment stocks extended a climb to the highest since February 2001.
Hard drive maker Seagate Technology increased 4.3% to a three-month high. Facebook added 2.2% for its best level since May 27. Coach gained 2.5%, among the strongest in consumer discretionary, after Robert W. Baird upgraded the shares to the equivalent of buy from hold.
Amazon.com eked out a gain to snap its longest losing streak since March, while Dollar Tree and Macy’s increased more than 1.4% as retailers in the S&P 500 briefly flirted with an all-time high.
Energy producers nearly wiped out a 0.9% dropping, slipping with oil as shipments continued through the vital conduit for oil from Russia and Iraq to the Mediterranean Sea following the failed coup attempt in Turkey.
West Texas Intermediate crude futures sank 1.5%, after falling as much as 2.4%. Apache and Diamond Offshore Drilling lost at least 1.3%.
Monster Beverage fell 3.8%, the most since February, to weigh on the consumer-staples group. Wells Fargo analyst Bonnie Herzog downgraded the stock, saying she expects softer results in the near term and a lack of new products.
Merck declined 1%, among the most in the Dow, after BMO Capital Markets cut the shares to the equivalent of neutral from buy, citing continued pricing pressure.
Among other shares moving on corporate news, GameStop had its biggest rally since January 2015, rising 7.9%, after CEO Paul Raines told CNBC that sales were up 100% in 462 stores that are “gyms” in the Pokemon Go app.
The retailer is the largest distributor of Pokemon video games and collectibles, he said.
The Stoxx 600 earlier erased gains of as much as 0.8%, with the volume of shares changing hands about 35% lower than the 30-day average. The index traded at 14.9 times estimated earnings, less than the MSCI All-Country World Index’s 15.7 multiple
A surge in ARM Holdings after a deal announcement pushed chipmakers higher, boosting European equities at the close of a volatile session. ARM jumped 41% to a record after SoftBank Group agreed to buy the chip designer for 24.3 billion pounds ($32 billion).
Peers Dialog Semiconductor and Ams AG advanced more than 4.7%, pushing a gauge tracking the region’s technology shares to their biggest surge since last August.
Miners erased earlier declines, while energy companies in the Stoxx Europe 600 Index fell as oil slipped.
Sources: Bloomberg, TradingFloor.com
Goldman Sachs, Johnson and Johnson, United Health, TD Ameritrade, Microsoft, Lockheed Martin, United Continental, Discover Financial, Kansas City Southern.
American Express, Morgan Stanley, Halliburton, Abbott Labs, Illinois Tool Works, Northern Trust, St. Jude Medical, eBay, Las Vegas Sands, Qualcomm, Intel, Newmont Mining, Motorola Solutions, Mattel.
AT&T, Visa, Capital One, Chipotle, General Motors, Travelers, Union Pacific, Bank of NY Mellon, Biogen, Blackstone, DR Horton, Hershey, Johnson Controls, Sherwin Williams, Royal Caribbean, PulteGroup, Domino's Pizza, Nucor, Quest Diagnostics , Pandora.
General Electric, Honeywell, American Airlines, VF Corp, Whirlpool, Synchrony Financial, SunTrust, Stanley Black and Decker, Newell Brands, Moody's.
Local markets and commodities
- S&P/ASX 200 Index futures were little changed; futures relative to estimated fair value suggest an early gain of 0.2%.
- Bank of New York Australia ADR Index -0.1%, BHP Billiton ADR -0.8% to A$19.95 equivalent, 1.4% discount to last Sydney close, Rio Tinto ADR +0.4% to A$43.50 equivalent, 13% discount to last Sydney close.
- Gold prices gained Monday as a weaker US dollar and demand for safe-haven assets drove investors into the precious metal. Gold for August delivery settled up 0.1% at $1,329.30/oz on the Comex division of the New York Mercantile Exchange, breaking a two-day losing streak.
- Gold prices fell as low as $1,326.70/oz earlier in the session, and traded as high as $1,336/oz. The gold sector in Toronto gained 0.63% overnight. Meanwhile in early reporting, Saracen Minerals released their June 2016 quarterly report which showed that they had achieved record FY16 production. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
- Oil declined following a failed coup in Turkey as shipments continued through the vital conduit from Russia and Iraq to the Mediterranean Sea. Futures slid 1.6% in New York. Oil tankers are loading and unloading at Turkey’s ports, and supplies are arriving in pipelines from neighboring countries, a Turkish Energy Ministry official said on Sunday, asking not to be identified in line with ministry rules.
- President Recep Tayyip Erdogan ordered reprisals for the attempt to oust him. The oil price recovery will remain volatile amid mounting risks, BMI Research wrote in a note. West Texas Intermediate crude for August delivery fell 71 cents to settle at $45.24/barrel on the New York Mercantile Exchange, reversing gains in the two previous sessions.
- Brent for September settlement declined 65 cents, or 1.4%, to end the session at $46.96/b on the London- based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $1.02 to WTI for September. The energy sector was flat in the S&P500 overnight. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
- Iron ore fell $1.56, or 2.7%, to $56.86/tonne, according to a price index compiled by Metal Bulletin. Rio Tinto reported this morning which showed that iron ore exports from Western Australia were lower than analysts had expected in the June quarter, putting the miner further behind the pace required to achieve its full year target.
- Rio confirmed on Tuesday it had shipped 80.9 million tonnes from the Pilbara region in the quarter, which fell short of the 83.3 million tonnes that analysts had expected. Rio was already behind the pace after shipping just 80.8 million tonnes from its global operations in an interrupted March quarter. The company must now lift its game to meet its full year goal of shipping 350 million tonnes from its global operations in 2016. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
- Copper fell with most industrial metals amid speculation that credit conditions in China, the biggest user, will curb demand in the second half of the year. Nickel held last week’s advance as the Philippines shuttered more mines as part of as environmental crackdown. Copper for delivery in three monthsfell 0.8% to $4,881/t on the London Metal Exchange. Prices reached $5,032 on July 13, the highest since April 29.
- Copper futures for delivery in September advanced 0.2% to $2.237 a pound on Comex. Nickel for delivery in three months advanced 2.6% to settle at $10,545 a metric ton on the London Metal Exchange, the biggest gain among the six main metals on the bourse. That’s the highest closing price since October 28.
- Aluminum, lead and tin retreated on the LME, while zinc was little changed. Stoxx 600 Basic Resources index dropped as much as 1.6% and was the worst performing sector on the Stoxx Europe 600 index early London session. At its trough, BHP dropped as much as 2.8%, Rio Tinto down 2.4%, Anglo American down 3.3%. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- In other news: ANZ (ANZ), Westpac (WBC): Said to delay defense vs alleged ASIC claims, AFR says; CSL (CSL AU): CSL Behring’s Berinert drug gets FDA approval for use on children; Oz Minerals (OZL): Settles Zinifex class-action suit; Paladin Energy (PDN): Reviewing FY17 forecast to include LHM mine plan to “substantially” cut costs; Woolworths (WOW): Gets four bids for Home Timber & Hardware.
Stock to watch
The several weeks of large gains seen in Rio Tinto recently threatened to break above the downtrend line which defined a potential inverse head and shoulder formation.
Rio’s disappointing reporting this morning (see details below) coupled with resistance being met over the RSI signals that Rio is poised to retrace lower for now.
The first level to watch for a potential rebound or support would be upon the gap fill which was created upon last week’s opening session on Monday at $48.30.
Rio Tinto quarterly chart
Source: Saxo Bank
Broker upgrades and downgrades
- Tatts (TTS): Downgraded to neutral from buy at UBS
EURUSD and XAUUSD
EURUSD made some retracements from the Friday’s sell off but it is still trading below the 200 Daily Moving Average and 1.11 handle.
We maintain our bullish bias on the US dollar index (DX) as it is showing resilience, therefore we would look to sell any rallies in EURUSD with stops above 1.12 handle.
Gold (XAUUSD) continued to bid above the key support level 1,320 but at the same time it looks to be struggling to push higher. This price action is indicating it is forming a temporary descending triangle pattern which is usually a bearish formation.
Furthermore the RSI has been falling since it hit 75 and the uptrend is also broken. It is now near 50 which used to be the pre-Brexit level back in 23 June while the price of gold is much higher than the 1,250.
We are shorting the break out below 1,320 with stops above 1,335. The risk for the short could be the long-term downtrend and the 200 weekly moving average near 1,300.
XAUUSD monthly chart
EURUSD monthly chart
Source: Both charts, Saxo Bank
Soybeans and US500
S&P500 extended the upside momentum to close at a record high as the positive sentiments persist. The US500 appears to be forming a bullish pennant and it is quite difficult to set the resistance level until we see any clear reversal price actions.
Soybeans (ZS) formed a beautiful rounding bottom during July 2015 to April 2016 then it made a break out in May to touch 1,200 in June.
Since then it has retraced down to the break out level 1,050 which became a solid support. Yesterday we witnessed another rebound and we see a tactical buying opportunity at the current level with profit targets 1,100 and 1,150 and stops below 1,043.
The CFD Soybeans are also available to trade with a ticker SOYBEANSAUG16 or SOYBEANSSEP16.
Soybeans monthly chart
US500 monthly chart
Source: Both charts, Saxo Bank - create your own charts with SaxoTrader. Click here for more
Today's Trade information 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.