Article / 11 May 2017 at 0:45 GMT

Today's Trade: Renewed appetite for big banks lifts S&P/ASX200

Trading Desk / Saxo Capital Markets
  • Oil prices have risen on a big one-week drop in US inventories so far
  • Support for Opec cuts from Iraq and Algeria also helped crude prices
  • Gold futures rose on uncertainty abouty North Korea’s plans for a nuclear test
  • Uncertainty driven by the firing of the FBI director also helped lift gold futures
  • Iron ore prices have stabilised, after steel prices in China rebounded
By Saxo Capital Markets Australia

Overnight and early trading

  • The S&P/ASX200 headed higher in early trading, adding to Wednesday's post-Federal budget gains. The benchmark index was up 0.60% to 5,910.40 at 1025 AEST (0025 GMT).
  • Declines in shares of Walt Disney and Boeing dragged down the Dow Jones Industrial Average. The two companies combined to shave roughly 42 points from the blue-chip index.
  • Overall, the Dow Jones lost 32.67 points Wednesday, or 0.2%, to 20943.11. The S&P 500 edged up 2.71 points, or 0.1%, to 2399.63 and the Nasdaq Composite added 8.56 points or 0.1%, to 6129.14, with both reaching fresh highs. The VIX rose above 10 to settle 10.21.
  • Disney fell $2.41, or 2.2%, to $109.66, pressuring the consumer-discretionary sector, after the company late Tuesday reported a smaller-than-expected increase in revenue for its fiscal second quarter.
  • The sector faces another test Friday, when monthly retail sales data are due. Some analysts said it could also help clarify whether recent signs of cooling economic growth are temporary, as the Federal Reserve has suggested.
  • Boeing shares lost $2.31, or 1.2%, to $183.18 after the aircraft maker said it had halted flight tests of its new 737 Max jetliner, citing engine issues. Boeing still expects the first delivery of the planes this month.
  • Energy shares in the S&P 500 rose 1.1% as oil prices surged. US crude rose 3.2% to $47.33/barrel in its biggest one-day gain since December after data showed crude stockpiles fell more than analysts expected last week. Chevron climbed $1.42, or 1.4%, to $106.50.
  • Financials, especially banks, have been some of the best-performing stocks since Trump's election last November. The Financials' Select Sector SPDR Fund ETF (XLF) has spiked nearly 20% since Nov. 8.
  • FBI director Comey's firing came at a time when Republicans were seemingly getting ready to move forward on tax reform as they got the ball rolling on health care reform. On April 26, Treasury Secretary Steven Mnuchin and White House chief economic advisor Gary Cohn outlined Trump's tax plan, which included reducing the top bracket to 35% and lowering the business tax rate to 15%.
  • US government bonds prices edged lower, sending the yield on the benchmark 10-year Treasury note to 2.414% from 2.405% Tuesday. Government bonds had rallied overnight, after the unexpected firing of James Comey, the director of the FBI.
  • The Stoxx Europe 600 rose 0.2%. Many investors are upbeat on European stocks. The corporate earnings season is on track for its strongest quarter in a decade, according to a recent report from Morgan Stanley .

Source: Bloomberg,

 The banking sector was up as investors chased bargains following
yesterday's falls. Photo: Shutterstock

International earnings
  • Thursday: Nordstrom, Teva Pharma, Macy's, Kohl's, Nissan, Telefonica, CyberArk Software, Schneider National, BT Group, ING, Invitation Homes.
  • Friday: Allianz, ArcelorMittal, JCPenney, Acushnet.
Local markets
  • Bank of New York Australia ADR Index rose 1.2%, BHP Billiton ADR +2% to A$23.85 equivalent, 1.4% premium to last Sydney close, Rio Tinto ADR +0.9% to $A52.74 equivalent, ~12% discount to last Sydney close.
  • Gold futures rose the most in more than two weeks amid uncertainties fuelled by North Korea’s reported plans for a nuclear test and the firing of the FBI director. Spot gold slipped 0.20% to $1,218.46/oz, while US gold futures for June delivery were up $2.80 to settle at $1,218.90. Gold imports by India gained more than four-fold in April driven by jewelers restocking in anticipation of a recovery in sales during the wedding season that will last till mid-June. Indian demand recovered this year as cash supply improved following measures taken by the government to curb unaccounted-for money, a move labelled as demonetization. Gold stocks in Toronto were up 1.28% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil prices rose on Wednesday, bolstered by the biggest one-week drop in U.S. inventories so far this year, and after Iraq and Algeria joined Saudi Arabia in supporting an extension to Opec supply cuts. Concerns about rising output from the US, Libya and Nigeria continue to weigh on markets, however, and some analysts questioned whether the sharp rebound following the U.S. government figures would be sustained. The U.S. Energy Information Administration said U.S. crude inventories fell by 5.2 million barrels last week, which was more than the 1.8 mln-barrel slide analysts predicted. Gasoline and distillate stocks also fell, supporting a market that has sold off sharply in recent weeks due to persistently high US inventories. US light crude oil ended Wednesday's trade $1.45, or 3.2%, higher at $47.33/barrel. Global benchmark Brent crude was up $1.44, or 3%, at $50.77/b. Gasoline demand, which has been soft in recent weeks, also rebounded. U.S. gasoline futures were up 3.4% after the report, having fallen more than 12% in the last four weeks. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore stabilised, as steel prices in China rebounded. Spot prices were flat at $60.75. Expectations that Beijing would order some mills to suspend production during the Belt and Road summit helped sentiment as traders hoped that these closures would help rebalance the market. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Benchmark copper on the London Metal Exchange closed 0.2% down at $5,500 a tonne, having touched $5,481.50 near Monday's $5,462.50, its lowest since January 4. Aluminium slipped 0.3% to $1,865 a tonne, zinc lost 0.5% to $2,600, lead added 0.7% to $2,190 and nickel finished 1% down at $9,120. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • AMP (AMP): Annual meeting scheduled; NOTE: In February, the company forecast a 3% cut to controllable costs in 2017.
  • ANZ Bank (ANZ), Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac (WBC): Australian budget will add to headwinds for banks: Moody’s; ANZ CEO says bank tax in Australia budget is ‘regrettable policy’.
  • BHP Billiton (BHP): Mining stocks set to fall with bulk commodity prices: Liberum
  • BT Investment Mgmt (BTT): H1 results expected; NOTE: two-analyst adjusted net income estimate is $A82.7mln.
  • Fairfax Media (FXJ): TPG Capital threatens to walk away from takeover proposal if investors, board hold out for higher bid: Australian.
  • Fortescue (FMG): Sees $2.2bn bonds as next refinancing target.
  • Genworth Australia (GMA): Annual meeting scheduled; NOTE: Co. earlier this month forecast 2017 GWP down 10%-15% vs 2016; net earned premium down 10%-15%.
  • Graincorp (GNC): H1 results expected; NOTE: Two-analyst rev. est. $A2.39bn.
  • GPT Group (GPT): Annual meeting scheduled; NOTE: Co. in Feb. forecast FFO/share up 2%.
  • Macquarie Group (MQG): Likely to be part of winning group for ~$A4bn stake in Endeavour Energy: Australian.
  • Orocobre (ORE): Said it is preparing to list shares in Argentina.
  • Seven Group (SVW): Caterpillar sees improved global economy, cautions on 2nd-half; NOTE: is authorized dealer in West Australia, NSW, North China.
Broker upgrades, downgrades

  • AGL Energy (AGL): Cut to neutral at Macquarie, price target $A25.
  • Crown Resorts (CWN): Cut to neutral at UBS, PT $A13.19.
  • CSR (CSR): Cut to sell at Bell Potter, PT $A3.90.
  • REA Group (REA): Cut to neutral at Credit Suisse, PT A$65; Cut to neutral at Macquarie, PT $A65; Cut to sell at UBS.
  • NRW Holdings (NWH): Raised to buy at Moelis & Co., PT $A0.73.
  • Sirtex Medical (SRX): Cut to hold at Bell Potter, PT $A17.12.
  • Xanadu Mines (XAM): New buy at Bell Potter, PT $A0.48.
Crude impacts Canadian dollar

USDCAD has been the major beneficiary from falling crude oil prices since mid April, however the upside momentum stalled last Friday. This morning, USDCAD regained the strength on the back of the Moody’s downgrade announcements on six Canadian banks.

The interim support level remains at 1.3640-1.3650 and a break out below these levels would be needed for a further downside move.
USDCAD chart

NZD loses ground
NZDUSD has been reluctant to decline this month while the previous uptrend (from 2015 low 0.6236) acted as a resistance line. RBNZ has held rates unchanged but indicated an unimpressive outlook on the inflation, housing and wages. NZDUSD showed negative reactions as it sold off 100 pips.

We expect further selling pressure below the resistance level 0.69 handle.

NZDUSD trend2

Crude heads higher
Crude oil experienced decent gains overnight and now trades at its first resistance test as offered by the March swing lows. Above this level lies the 2016 positive trendline, which crude broke through earlier this month and we expect gains to struggle here.

Crude price chart
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Source: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

– Edited by Robert Ryan

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

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