Article / 02 February 2015 at 1:36 GMT

Today's Trade: Reporting season kicks off, RBA will hold rates

Trading Desk / Saxo Capital Markets
Australia
  • The S&P/ASX200 futures index was down 23 points after a heavy US sell-off
  • Crude Oil prices gained ground on Friday, up 8%, gold futures also rising
  • We believe the RBA will keep rates on hold, buoying the AUD temporarily

By Saxo Capital Markets Australia

The key mover on Friday night was the rally seen in oil that is signaling a bottom to the seven-month collapse in oil prices: US crude futures jumped 8.3% to settle at $US48.24 a barrel and Brent crude shot up 7.9% to settle at $US52.99, its biggest one-day gain since 2009.

Sparking the rally was data that showed drillers were cutting back on shale activity.
Weak GDP figures in the US (print was a weaker-than-expected 2.6% annual pace against third quarter’s 5%) led US stocks to finish the day down more than 1%.

For the month of January and the final week of the month, major US stock indices posted losses with the falls dominated by falling oil prices and concern about weak overseas demand. For the week, the Dow and S&P were each down 2.8%, and the Nasdaq fell 2.6%. For January, the Dow was down 3.6% and the Nasdaq was off 2.1%. The S&P fell 3.1% in January, which was its biggest monthly loss since January 2014 and its first back-to-back monthly decline since April-May 2012.

European stocks also ended lower, however all recorded their biggest monthly rise in three years.

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Iron ore prices are still reeling. Photo: iStock

Yesterday's weak Chinese factory activity which was its first contraction in more than two years in January will likely dominate our markets sentiment for today. China’s official manufacturing purchasing managers index fell to a weaker-than-expected 49.8 in January from 50.1 in December, its first dip below 50 since September 2012.

Local Markets

  • The S&P/ASX200 futures index was down 23 points after a heavy sell-off in America where our index lost 38 points in the last 90 minutes of trade. Our market was up 2.9% in January compared the S&P 500 which was down 3%.
  • Bank of New York Australia ADR Index was +0.1% on January 30 with BHP Billiton ADR +1.4% and Rio Tinto’s ADR -0.4%
  • Gold futures jumped the most in two weeks on Friday in New York after weak US data which lead to a buy up of the safe-haven asset; Gold stocks include NCM, NST, AQG, EVN, KCN, RMS, SLR
  • China import iron ore benchmark falls for the seventh time in 8 sessions, according to Metal Bulletin
  • Crude Oil prices gained ground on Friday, up 8%. Announcements of exploration and capital expenditure cuts supported sentiment. However OPEC production rose 483kbbls to 30.9mbbls/day. Stocks to watch: STO, WPL, ORG, OSH
  • The world’s largest aluminum producer, UC Rusal, announced it would keep output flat after 2014’s 7% cuts to 3.6m tonnes. This gave support to base metal, lifting it 2.4%. Aluminum stocks include AWC
  • Iron Ore fell 1.7% to $62.21 on seasonally weak demand. The end of Chinese New Year could not come soon enough for the miners to better gauge where the market is really at. Stocks to Watch: AGO, FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL
 
Data points (Australia and Asia)

Monday: China - HSBC Final Manufacturing PMI (12:45pm)

Tuesday: Building Approvals m/m and Trade Balance (11:30am), Cash Rate and RBA Rate Statement (2:30pm)

Wednesday:
Chinese HSBC Services PMI (12:45pm)

Thursday:
Retail Sales m/m (11:30am), NAB Quarterly Business Confidence (11:30am)

Friday: RBA Monetary Policy Statement (11:30am)

Current Trades

  • (30/1) JB Hi-FI (Ticker: JBH:xasx): Entered long position 30th of Jan at AUD16.70 as stock has been forming a bullish wedge leading into their reporting. First profit target around 17.47 (+4.4%) and second profit target around 17.90 (+6.9%). Stop loss set at 16.38 (at around -2%)
  • (22/1) Bluescope Steel: BSL is heading back up to its resistance level of close to AUD5.37 where there has been quite a lot of noise since January 2014. Should it fail to push higher above this level, a head and shoulders pattern will be completed where a quick and swift sell off is expected. Sell Limit: from AUD5.33 to AUD5.37 with a stop loss above AUD5.62 (Loss: 5.4%). First profit target: AUD4.70 [December 14 low] (Profit: 11.8%), Second profit final target: AUD4.04 (Profit: 24%)
  • (21/1) Accumulation of the big four banks. Buying is coming back in the past couple of days and it appears as if our div yielding banks are back on investor radars: ANZ, CBA, NAB, WBC

Broker downgrades / upgrades
     
  • Newcrest (NCM): Cut to hold from add at CIMB with PT A$14.40
  • Sirtex (SRX): Raised to buy/neutral at Goldman Sachs
  • Steadfast (SDF): Cut to buy from hold at Shaw Stockbroking

AUDUSD
With rates decision due tomorrow and considering the fall the Aussie has had this past several trading days we see the Aussie trading range bound here for now. Despite the weak Chinese data released over the weekend (see details above), the AUS has managed to hold its low so this attributes to our view that the Aussie will now wait for tomorrow’s data before moving aggressively again. Our view is that the RBA will keep rates on HOLD despite the markets prediction for a cut which would mean the Aussie could experience significant temporary gains – levels to follow in tomorrow’s Todays’ Trade.

AUDUSD - four hour graph

AUDUSD DO
 
ASX/S&P200

Weak Chinese data point over the weekend (details above) will drive our markets lower for today however don’t see significant losses. Any intended short positions should be entered on stop at 5,529.79 with a stop to be trailed every 10 points
 
ASX/S&P200 hourly
SP200 DO
 

Corporate news out this week

Monday: JB Hi-Fi Interim

Tuesday: Navitas Interim, REA Group Interim

Wednesday:  Echo Entertainment Interim

Thursday:
Tabcorp Holdings Interim, National Australia Bank Q1, Downer EDI Interim, FlexiGroup Interim, News Corp Q2

Source: AFR, SMH, CNBC, BBG, WSJ


-- Edited By Adam Courtenay

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





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