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Article / 16 April 2018 at 7:16 GMT

Today's Trade: Risk appetite returns on hopes of limited Syria impact

Trading Desk / Saxo Capital Markets
Australia
  • US and Japanese stock-index futures bounce; gold and yen decline
  • Dollar edges lower amid bearish hedge fund sentiment
  • IEA: Oil inventories at their lowest levels since April 2015

By Saxo Capital Markets (Australia)

Overnight and early trading

US and Japanese stock-index futures bounced and the yen slipped as traders bet a wider fallout from an American-led strike on Syria can be contained. Gold declined.

Risk appetite returned Monday morning as investors assessed the impact of geopolitical tensions in the Middle East. The yen declined amid international reaction to the Syrian strike, even as polls showed falling support for Japanese Prime Minister Shinzo Abe’s government. The dollar edged lower as CFTC data showed hedge funds are the most bearish on the greenback in five years.
US stocks slipped Friday but notched gains for the week, buoyed by rallying energy shares and signs that a trade spat between the world’s top economies was easing.

Trading was quiet for much of the day, with just 5.7 billion shares changing hands on exchanges owned by the New York Stock Exchange and Nasdaq. It was the quietest full trading session so far in 2018.

Despite the day’s losses, the S&P 500, Dow Jones Industrial Average and Nasdaq Composite each rose more than 1% for the week, thanks to a rebound in technology shares that had been hit hard in March, as well as a jump in energy shares.

Another factor helping boost investors’ optimism: a string of solid earnings reports. In the second half of the week, BlackRock, JPMorgan Chase, Wells Fargo and Citigroup posted results that beat analysts’ expectations, marking an upbeat start to the first-quarter earnings season.

While bank shares fell Friday, a move some attributed to investors largely pricing in robust results ahead of the earnings reports as well as concerns over continuing investigations at Wells Fargo, the KBW Nasdaq Bank Index of large US lenders ended the week up 1.2%.

The Dow industrials fell 122.91 points, or 0.5%, to 24360.14, while the S&P 500 lost 7.69 points, or 0.3%, to 2656.30 and the Nasdaq Composite declined 33.60 points, or 0.5%, to 7106.65.
One of the best-performing sectors in the S&P 500 for the week was technology, where shares took a hit last month as backlash over Facebook’s handling of user data raised fears among investors of tighter regulations.

Facebook, whose chief executive, Mark Zuckerberg, testified before Congress Tuesday and Wednesday, rose 65 cents, or 0.4%, to $164.52 on Friday and notched its biggest one-week percentage gain since March.

Meanwhile, energy shares in the S&P 500 gained 1.1% Friday, boosted by a rally in oil prices.
Worries that an escalation of conflict in the Middle East could disrupt supply sent oil prices higher five trading days in a row, with US crude for May delivery settling at $67.39 a barrel for a weekly gain of 8.6%, its biggest one-week gain since December 2016.

The International Energy Agency said that commercial oil inventories for advanced nations were at their lowest levels since April 2015, a sign that demand is increasing. Still, the agency warned, an uptick in trade disputes could dent the world’s appetite for crude.

Growing trade tensions had driven investors out of stocks last month and into assets considered havens, such as government bonds and the yen, though those moves largely reversed this week on signs that the Trump administration could be amenable to softening its stance.

President Trump told a group of lawmakers Thursday that he had asked his top economic advisers to study re-entering talks on the Trans-Pacific Partnership, which he withdrew from last year. Elsewhere, the Stoxx Europe 600 edged up 0.1% Friday

International earnings

Monday: Bank of America, Netflix, Charles Schwab, M&T Bank, Celanese, Pinnacle Financial.

Tuesday: Goldman Sachs, IBM, Johnson and Johnson, UnitedHealth, United Continental, CSX, Comerica, Northern Trust, Interactive Brokers, Prologis, Omnicom.

Wednesday: Abbott Labs, American Express, Morgan Stanley, US Bancorp, Textron, Alcoa, Steel Dynamics, BancorpSouth, Umpqua Holdings, United Rentals, Universal Forest Products, Pier 1 Imports.

Thursday: Novartis, Blackstone, Bank of NY Mellon, Danaher, Luxottica Group, Taiwan Semiconductor, KeyCorp, ETrade, Genuine Parts, Sonoco Products, BB&T, Philip Morris, Nucor, Pentair, Snap-On, Quest Diagnostics, Sky.

Friday: Procter and Gamble, Honeywell, General Electric, Baker Hughes, Synchrony Financial, Manpower Group, Steve Madden, SunTrust, Schlumberger, Kansas City Southern, State Street, Stanley Black and Decker, Cleveland-Cliffs, Roper Industries.

Local markets

  • S&P/ASX 200 Index futures fell 0.1% to 5,810 as of 6:59 a.m. ASX is called to open higher following the gap up in S&P futures.
  • Bank of New York Australia ADR Index is up 0.3% to 273.0, BHP Billiton ADRs are up 1.3% to A$30.13 equivalent, a 1.3% premium to last Sydney close, Rio Tinto ADRs are up 0.8% to A$69.85 equivalent, a 10.7% discount to last Sydney close.
  • Gold prices swung between small gains and losses Friday, with markets slightly calmer going into the weekend. Front-month gold for April delivery closed up 0.5% at 1,344.80 a troy ounce on Comex. Prices have stayed between about $1,305 and $1,360 this year, moving within that range based on safe-haven buying, swings in the dollar and worries about the prospect of higher interest rates. Anxiety over protectionist trade policies and tensions between the US and Russia pushed gold back to around $1,360 mid last week, but some analysts have said they don’t expect conflicts to fully escalate and disrupt the global economy. Gold erased its Wednesday gains a day later, continuing a frustrating trend for bullish investors. Gold stocks rallied 1.92% in Toronto. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • WTI for May delivery rose as much as 0.5% to $67.74 in early morning trade, before trading 0.3% lower at $67.20/bbl on Nymex as of 8:37am in Sydney. This move follows oil price closing at a fresh three-year high on Friday as the International Energy Agency predicted robust oil demand for the full year and as geopolitical risks to supply remained. Light, sweet crude for May delivery settled up 32 cents, or 0.5%, to $67.39 a barrel on the New York Mercantile Exchange, the highest level since December 2014. Brent, the global benchmark, advanced 56 cents, or 0.8%, to $72.58 a barrel. Prices have climbed as supply cuts from major oil exporters and strong global demand have helped ease a longstanding glut. Increased geopolitical risk has also put a premium on crude, as production from countries like Iran and Syria has been threatened. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • Iron ore prices rose on Friday gaining 1.1% to 65305. This was despite data showing mixed demand in China. Imports for March rose slightly from the previous month to 85.8mt; however this was down over 10% from March 2017. Reports that Vale would report lower exports helped support prices. The weaker demand for lower grade iron ore should see Vale record its lowest quarterly production in over four years. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • LME copper ended the day up 0.1% at $US6830 a tonne. The base metals were broadly benefiting from sharper appetite for cyclical assets on Friday, reflected by strength in equities. Zinc finished up 0.7% at $US3117 a tonne, while lead closed down 1.3% at $US2303. Tin ended up 0.7% at $US21,050, and nickel finished the day 1.6% higher at $US13,940 a tonne. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • Ex-dividend: New Hope, TPG Telecom.
  • Wesfarmers (WES AU): Fletcher fits Wesfarmers’ acquisition criteria: Morgan Stanley.
  • Woolworths (WOW AU): Sale process for ~230 petrol stations said to be drawing to close.
  • Chief Brad Cooper, Perpetual head Geoff Lloyd the top contenders to replace Craig Meller: Australian.
  •  ASX (ASX AU): Is said to crack down on China firms seeking listing: AFR.
  • BHP (BHP AU): Block trade worth about A$655m crosses on Chi-X.
  • Cochlear (COH AU): Sues Oticon to Block Rival Bone-Anchored Hearing System.
  • Fortescue (FMG AU): Mining billionaire backs Outback Gas Pipeline to ease power woes.
  • Lynas Corp. (LYC AU): March Quarter Production Report Scheduled.
  • Rio Tinto (RIO AU): Issues Force Majeure on Some Contracts on Rusal Sanction
  • Sirtex (SRX AU): Says SORAMIC study did not meet primary endpoint.
  • Virgin Australia (VAH AU): Should reconsider delisting as share price undervalued, Wilson Asset Management founder says: AFR.

Broker upgrades and downgrades

  • Fletcher Building (FBU AU): Downgraded to Hold at Morningstar

Australian earnings schedule

Tuesday: Bank of Queensland results
Wednesday: BHP & STO Q1 Prodn & Sales, Woodside AGM
Thursday: Sydney Airport report, Q1 traffic and revenue

EURUSD,  GBPUSD and EURGBP

The euro is once again sitting dangerously close to the 2017 positive trendline with this week’s trade to explore selling opportunities upon two closes below the 1.23 handle. This level is where the positive trendline should hold losses and a failure to hold the euro from further selling here, easily opens 1.20 as the downside target. All stops on short positions to be placed above last week’s swing high at the 1.24 handle. The rally that followed the one time false break was very minute in nature, with the euro forming a lower swing high for the week so short positions which again is triggered at 2 closes below 1.20 should prove to be quite a painless trade to 1.20.
1
 Source: Saxo Bank

Cable has closed at its highest weekly level since June 2016 or the pre-Brexit levels but has struggled to claim its 200-week moving average, which would have confirmed acceleration in the trend. The RSI divergence on a weekly scale allows one to explore a tactical, a very short-term short position with stops above 1.4343 or this year’s high. Downside target is 1.40 or 236 points from Friday’s close.
2
  Source: Saxo Bank

EURGBP last week violated its late 2017 / 2018 base which was the 61.8% retracement between the 2017 low to high. This week we look for any gains to fail at 0.8686 or the retest of the triple bottom original support , so look to sell the rally at 0.8686, stops at two closes above here and to the downside we would look to target the 85 handle.
3
  Source: Saxo Bank

– Edited by Clare MacCarthy

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

Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters

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