- The S&P/ASX200 index falls 0.7% at the open to 5838
- Copper fell almost 3% and other base metals have turned lower
- Strength in the greenback pressured commodity prices and resources sector
- AUDUSD now at around 78.16 US cents, sliding overnight against greenback
By Saxo Capital Markets
Overnight and local shares
The S&P/ASX 200 index was down close to 40 point sin the firts hour of trading, with the resources sector the worst performing sector in early trading.
BHP dropped 1.9%, RIo Tinto lost 2.8% and Newcrest was down 2.4%. AMP was the strongest stock in the top 200 after returning to first-half profitability.
Origin Energy is down 2.5% to $8.72 after it flagged over $533m in writedowns.
Tabcorp was the worst top 200 performer of the morning after revealing a decline in first-half profit led by provisions for its UK Sun Bet arm and Tatts Group acquisition.
Overnight, US stocks remained on unsteady footing as the bout of volatility that’s gripped global financial markets persisted amid signs that the rise in Treasury yields has yet to run its course.
Resources heavyweights Rio and BHP were among those hit this morning. Photo: Shutterstock
Pressure overnight came from a weak 10-year note auction, sending the rate toward the four-year high that days ago sparked the biggest equity selloff in seven years.
Stocks swung between gains and losses throughout the session before ending lower after heavy selling in the final 15 minutes of trading.
Volume on US exchanges topped 9 billion shares for a fourth straight day after surpassing that total just once in the past seven months.
The S&P 500 erased a gain that reached 1.2% at its highest and closed lower by 0.5% in the biggest reversal since 2015.
The Dow Jones Industrial Average swung 500 points from peak to trough, and heavy selling in megacap technology shares pushed the Nasdaq indexes to losses of at least 0.9%.
While the CBOE Volatility Index eased back from levels last seen in August 2015, at 26.84 it remains about 40% above its average since 1990.
The US equity decline signaled that Tuesday’s rebound - the S&P 500 had its best day in 15 months, as buyers picked over the wreckage from Monday’s 4.1% rout - might not persist into the Asian open.
The region’s bid for its own recovery faltered late Wednesday, with the MSCI Asia Pacific Index almost completely erasing a gain of as much as 2.4%. Europe proved an outlier, with shares halting a seven-day slide on the biggest rally in nine months.
The dollar rallied, adding to pressure in commodities: Bloomberg’s index of materials fell for a fourth day with its biggest drop since November.
West Texas intermediate crude declined the most in two months after government data showed a jump in production. Gold futures slid and copper futures tumbled more than 3%.
Information sources: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets and commodities
- S&P/ASX 200 Index futures are up 0.2% to 5804. Futures relative to fair value suggest little early change.
- Bank of New York Australia ADR Index is down 2.6% to 280.2, BHP Billiton ADRs are down 2.8% to A$29.65 equivalent, a 0.7% discount to last Sydney close, Rio Tinto ADRs are down 2.1% to A$69.06 equivalent, a 11.8% discount to last Sydney close.
- Gold slipped on Wednesday as the U.S. dollar strengthened and global shares clawed their way off two-month lows, though bullion was underpinned by the view that the dollar's bear run remains in place despite rate hike expectations. Spot gold dropped 0.85% at $1,313.61/oz, the lowest since January 10. US gold futures for April delivery settled down $14.90, or 1.1%, at $1,314.60/oz. Gold failed to capitalise this week from the biggest selloff in six years in global equities as US Treasury yields have recently risen, but bullion, still driven largely by dollar movement, is not poised to unwind. Gold stocks in Toronto fell overnight by 0.57%. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Oil posted the biggest loss in two months as record crude production from US fields reignited worries that supplies will swamp demand. Futures slid 2.5% in New York. Crude output from American wells jumped to 10.25 million barrels a day last week, vaulting the US into the elite of world producers alongside Saudi Arabia and Russia. With production set to climb even higher later this year, the Saudi- and Russia-led alliance of other major suppliers will come under renewed pressure to reconsider self-imposed output caps aimed at eroding a glut. The bombshell production report on Wednesday came a day after the government made a surprise revision to its supply outlook that forecast domestic daily output will hit 11 million barrels in November, a year sooner than previously expected.
- West Texas Intermediate for March delivery dipped $1.60 to settle at $61.79/barrel on the New York Mercantile Exchange, the lowest level in four weeks. Total volume traded was about 68% above the 100-day average. Brent for April settlement declined $1.35 to end the session at $65.51/b on the London-based ICE Futures Europe exchange, the lowest level since late December. The global benchmark traded at a premium of $3.96 to WTI for the same month and closed below its 50-day moving average for the first time since July. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- The bulk sector bucked the commodity trend, as iron ore prices managed to end the session higher. An increased interest from physical traders in China looking to restock ahead of next week’s Spring Festival holiday appears to be the catalyst. Traders were no doubt worried about reports that India has once again revoked mining licences in the iron ore rich region of Goa. Companies there have been increasingly focused on the export market, with demand so strong from China. Exports rose to 25mt in 2017, up from 15.6mt the previous year. Spot iron ore added 0.7% or $0.55 to close at 75.12. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Copper fell by almost 3% on Wednesday and other base metals turned lower as stock markets resumed this week's volatile trading while concerns that fundamentals do not justify current price levels also weighed on the red metal. Copper, chiefly used in construction, has struggled to make headway this year after rallying to a near four-year high late last year on expectations that global growth would drive demand higher.
- Lead was the biggest faller as some holders cashed in gains after the metal rallied to a 6-1/2-year high late last week. Three-month copper on the London Metal Exchange closed down 2.8% at $6,880/tonne, extending Tuesday's 1.3% fall. LME aluminium shed 0.6% to end at $2,158/t after touching $2,152, the weakest since January 9. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Reporting this morning: Carsales.com Limited (CAR) accelerates on 27% profit growth. Carsales says half-year net profit rose 27% to $60.2 million, and it expects the momentum to trickle through to the second half of the year. Revenue growth was largely driven by a solid performance from the domestic private business, including online advertising, which grew 9% to $141.6 million, and a 23% rise to $32.1 million in the finance and related services segment, which includes the Stratton Finance subsidiary. Bloomberg Data.
- AGL Energy (AGL) interim div/share $0.54c, 1H underlying profit A$493m, Net Income A$622m. Bloomberg Data; National Australian Bank Limited (NAB) reported $1.65bn unaudited statutory net profit, 3% cash earnings growth vs 1Q17, 10.2% Group Common Equity Tier 1 Ration (CET1). Revenue up 1% with good growth in Business & Private Banking and Corporate & Institutional Banking Revenue. Expenses rose 4% due to higher investment spend and personel costs including Enterprise Bargaining Agreement increases. Continue to expect FY18 expenses to grow 5-8% in FY18 then targeted to remain broadly flat over FY19-20. Bad and doubtful debts charges fell 23% to $160 million. Bloomberg Data.
- Mirvac Group (MVG) reported revenue for the first half of A$984 million. 1H net income A$465 million, 1H operating profit A$215 million, Interim dividend per share A$0.05. Reaffirms Operating EPS Guidance for FY18, 1h net a$465m vs a$508m in prior corresponding period, 1h Operating profit after tax a$215m vs a$230m a year ago corresponding period. Bloomberg Data.
- Tabcorp Holdings Limited (TAH) reported net income for the first half of A$24.6 million. 1H revenue A$1.38 billion up 18.7%, interim dividend per share A$0.11. Combination of Tatts Group and Tabcorp completed in December 2017 creates a world-class, diversified gambling entertainment group. Bloomberg Data.
- AMP Limited (AMP) reported underlying profit of $1,040m increased 114% from A$486m in FY16, driven by the recovery in Australian wealth protection earnings and strong operating earnings growth from AMP bank (+17%) and AMP Capital (+8%). Total AUM of $257b in FY17, increased 7% from FY16. Australian wealth protection earnings of A$110m increased A$525m on FY16. AMP declared a partially franked final dividend of 14.5 cents per share, up from 14 cents. ASX Release.
- Cimic Limited (CIM) reported net income for the full year that beat the highest analyst estimate. FY net income A$702.1 million, estimate A$686.8 million up 21% at the top end of guidance. Cash flows from operating activities of $1.5bn up 27%, EBITDA conversion rate 101%, Robust financial position with net cash of $910m, up more than $500m. Final dividend per share A$0.75. Bloomberg Data.
- From overnight Rio Tinto Limited (RIO) reported underlying profit of US$8.6bn (best result since 2014), beating market expectations with a US$2.90 full year dividend (2nd half dividend of US$1.80 per share). The improved profit result was mostly driven by stronger iron ore, coal and other commodity prices, which added $US4.1 billion more to underlying earnings than last year. Rio said total shareholder returns topped $US9.7 billion in 2017. Net debt was also much lower than expected at $US3.84 billion. Rio's earnings continue to be dominated by its Western Australian iron ore division, which delivered more than 69 per cent of the company's total underlying earnings in 2017.
- In other news: AWE (AWE AU): Australia Panel Issues Interim Order on China Energy Bid for AWE; BHP (BHP AU): Iron Exports Hit Record as Barclays, Goldman Spar on Outlook; IOOF Holdings (IFL AU): Said to Mull Sale of Stake in Ord Minnett, AFR Reports; New Century (NCZ AU): Zinc Mine Back From Dead Spurs Dispute Over ‘Life-of-Mine’ Deal; Rio Tinto (RIO AU): Confident U.S. Will Treat Canada Differently on Trade.;
- CBA (CBA AU): Upgraded to Buy at Bell Potter; Price Target A$83.90
- Carsales.com (CAR AU): Upgraded to Neutral at UBS; Price Target A$14
- Genworth Australia (GMA AU): Raised to Neutral at Evans and Partners
- Greencross (GXL AU): Downgraded to Neutral at UBS; PT A$6.15
- Integrated Research (IRI AU): Upgraded to Buy at Bell Potter; PT A$4.10
- Macquarie Atlas (MQA AU): Downgraded to Sell at Goldman; PT A$5.31
- Sonic Healthcare (SHL AU): Upgraded to Neutral at Credit Suisse; PT A$24
- Steadfast (SDF AU): Upgraded to Buy at Morningstar
- Transurban (TCL AU): Downgraded to Neutral at Goldman; PT A$12.26
SSE Composite Index and CNHJPY
Shanghai Stock Exchange composite index (SSE) had a sharp sell off yesterday and it has now fallen almost 8% from this year’s top 3,587.
Uptrend (from 2016 low 2,639) appears to overlap with 200 Day Mean Average near 3,300, while the key support area has formed at 3,260 during December last year. The focus should be to watch whether weekly close would be below 3,260.
Shanghai Index monthly chart
Since bottoming out late 2016, CNHJPY has been a beautiful carry trade benefiting from high interest differentials.
However, the upside momentum seems to be slowing down as CNHJPY appears to have formed an ascending wedge.
CNHJPY has hit 17.50 which coincides with 50% retracement of all time high 20.28 and 2016 low 14.81. We are anticipating a break out of the wedge to the downside in the near term as the convergence is about to end. We would feel comfortable to get short if 2018 low 17.06 is breached.
CNHJPY quarterly chart
Source: Saxo Bank
Information sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
--Edited by Adam Courtenay
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