Article / 02 August 2016 at 1:29 GMT

Today's Trade: Shares sputter awaiting RBA decision

Trading Desk / Saxo Capital Markets

  • Financial stocks weaker with market pricing in 75% chance of a RBA cut
  • Iron ore miners enjoying a good morning, as ore prices reach $60/t
  • Conversely, energy stocks are down, with oil prices at just on $40/b
  • AUD at US75.35c in morning deals after seeing heavy losses overnight

By Saxo Capital Markets

The S&P/ASX 200 has opened slightly down, dipping 0.2% or 13 points to 5573.4 at the open.

The big miners were strong after iron ore prices struck a near three-month high above $US60/tonne, with Rio Tinto rising 0.83% to $50.11 and Fortescue jumping 1.5% to $4.535.

The main players dragging the index down are in energy, with Woodside Petroleum, Origin Energy and Santos all showing big early falls, while the banks are also showing weakness before the Reserve Bank of Australia makes its decision at 1430 AEST (0430 GMT)

Financial stocks are also weaker ahead of the Reserve Bank of Australia decision where the market is pricing in around 75% chance of a cut.

Overseas, crude oil sank into a bear market, falling below $40/barrel for the first time since April amid renewed concerns over a supply glut.

Energy producers drove declines in US stocks, while emerging market equities jumped to their highest level in almost a year.

Oil settled 22% below its June high as Saudi Arabia cut prices to Asian customers and US drillers boosted rigs for a fifth week, fueling angst a global surplus will worsen.

The S&P 500 Index fell from near a record as energy shares slid the most since March, while biotechnology shares advanced. Treasuries slipped, sending 10-year yields up seven basis points to 1.52%.

Technology stocks led gains in the MSCI Emerging Markets Index as a gaugeof developing-nation currencies reached its highest point since last July.

Investors mulled the outlook for US monetary policy, weighing Friday’s weaker-than-expected economic growth data with more hawkish commentary from Federal Reserve officials.

New York Fed chief William Dudley said traders are underestimating how many times the central bank may raise interest rates over the next 18 months. Odds of a Fed rate hike this year have slipped below 40% as policy makers from Australia to the UK consider further easing.

Corporate earnings in the US have come in better than analysts expected this season, though oil’s slump is fueling concern over wider growth.

The S&P 500 fell 0.1% to 2,170.84 as of 1600 AEDT, after earlier rising to an intraday record.

The US benchmark has climbed for five straight months, its longest rally since 2014. The Nasdaq 100 Index, meanwhile, added 0.6%, led higher by gains of more than 3.8% in Biogen and Alexion Pharmaceuticals.

S&P 500 companies posting earnings this week include Pfizer, Procter & Gamble, Time Warner and Priceline Group. About 58% of index members that have reported so far have beaten sales projections, while 80% topped profit estimates, according to data compiled by Bloomberg.

Analysts estimate profit at S&P 500 companies fell 3.2% in the second quarter.

The Stoxx Europe 600 Index slipped 0.6%, following the gauge’s steepest monthly advance since October. Even so, July was marked by record outflows from European equity funds and thin trading volume, indicating a lack of conviction in the rally.

Spain’s Banco Santander fell 1.9% Monday and Banco Bilbao Vizcaya Argentaria lost 3.7%, while UniCredit sank more than 8%. Lenders had initially risen at the European open after stress tests last week showed most of them would keep an adequate level of capital in a crisis.

MSCI’s emerging markets gauge jumped 1%, the most in more than two weeks, as equity benchmarks in Taiwan, Turkey and the Philippines advanced more than 1%. Indonesian stocks rallied 2.8%, rebounding from their steepest drop in five months on Friday.

Index futures signaled Asian stocks may decline on Tuesday, with contracts on equity gauges in Australia, South Korea and Hong Kong down at least 0.3% in most recent trading.

Futures on the Nikkei 225 Stock Average traded in Osaka slipped 0.8%, while yen-denominated contracts on the gauge rose by that amount in Chicago amid a pullback in the yen Monday.

Sterling weakened 0.4% to $1.3179 as data showed UK manufacturing shrank more than was initially forecast in July.

Hedge funds and other large speculators are the most bearish on the pound in almost 25 years amid speculation the Bank of England will cut interest rates for the first time in more than seven years this week.

The yen retreated 0.3% to 102.39 per dollar after soaring 4% last week. The MSCI Emerging Markets Currency Index rose 0.3%, after gaining 1% in July and 2.4% in June.

In a sign traders are confident the record-setting Treasuries rally has further to run, positions in 10-year futures were boosted to a net 185,521 contracts last week, the most since December 2012, according to Commodity Futures Trading Commission data.

Microsoft is bringing the third largest US corporate debt sale of the year to market, selling $19.75 billion of bonds to help finance its planned LinkedIn purchase.

West Texas Intermediate crude slid 3.7% to $40.06/b after touching $39.82 during the session. It’s 22% decline from the June peak meets the common definition of a bear market.

 Industrial metals advanced, and Zinc is now trading near its highest in a year. Photo: iStock

Saudi Arabia cut prices to Asian customers as the country continues to fight for market share. Drillers in the US boosted the number of rigs seeking oil for for a fifth week, the longest run of gains since last August, according to data from Baker Hughes Inc.

Gold was little changed near its highest price in more than two weeks as traders shift focus to US jobs data due later this week. Futures rose 0.2% to settle at $1,359.60/oz in New York.

Palladium, which is used in pollution-control devices for cars, climbed to its highest level since October amid improving vehicle sales in China, Citigroup analysts wrote in a report out Monday.

Most industrial metals advanced, with zinc and nickel pacing gains after a measure of manufacturing in China - the world’s biggest metals consumer - rose to the highest level since February 2015.

Zinc climbed for a third straight session, gaining 1.1% to settle at $2,267 a metric ton. It traded near the highest in more than a year.

Information sources: Bloomberg,

US earnings

Procter & Gamble, Pfizer, Cummins, Honda Motor, AIG, CVS Health, Aetna, Archer Daniels Midland, Genworth Financial, Seagate Technology, Royal Caribbean, Avon Products, Electronic Arts, Newfield Exploration, Solar Capital, Etsy, Fitbit, Steve Madden, Tableau Software, La Quinta

Time Warner, Tesla Motors, Allstate, Agrium, Continental Resources, Virtu Financial, Clorox, Transocean, Marathon Oil, Kate Spade, Iamgold, Occidental Petroleum, Herbalife, Tesoro, Delphi Automotive, MetLife, 3D Systems, Sunoco Logistics, Noble Energy, Humana, HollyFrontier

Kraft Heinz, LinkedIn, Toyota, Siemens, Regeneron, Church & Dwight, Alcatel-Lucent, Apache, SeaWorld, Time Inc, Motorola Solutions, Priceline, Symantec, Activision Blizzard, FireEye, Zillow, Weight Watchers, Lionsgate, El Pollo Loco, Zynga

Weyerhaeuser, Allianz, Virgin America, Buckeye Partners, Liberty Interactive

Local markets and commodities
  • The S&P/ASX 200 Index futures -0.4%; futures relative to estimated fair value suggest an early fall 0.1%.
  • Bank of New York Australia ADR Index -1.3%, BHP Billiton ADR -1.6% to A$19.40 equivalent, 1.4% discount to last Sydney close, Rio Tinto ADR -0.4% to A$43.38 equivalent, 13% discount to last Sydney close.
  • Gold prices closed higher on Monday, continuing gains in the wake of weaker-than-expected economic growth in the US Gold for December delivery settled up 0.2% to $1,359.60 a troy ounce on Comex, marking its fifth straight day of gains. In the M&A space.
  • The $50 billion gold industry deals spree is extending into its third year, even as a surging bullion price makes sealing transactions and valuing mines more difficult. Barrick, the biggest producer, last week announced plans to sell its 50% share in Australia’s largest open pit gold mine and joint owner Newmont Mining has signaled it would be willing to buy the stake at the right price. The stake may fetch as much as $1 billion, according to people familiar with the matter, while analyst valuations range from $400 million to about $1.5 billion.
  • Mergers and acquisitions and the metal’s surge this year after three straight annual declines will be major topics discussed by about 1,800 delegates, including executives from Newmont and AngloGold Ashanti, at the annual three-day Diggers and Dealers mining sector forum in the Western Australian town of Kalgoorlie. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, SAR, SLR.
  • Oil fell below $40/b in New York for the first time since April, falling into a bear market on concern that the global supply glut will expand. Oil has tumbled from its $51.23/b June peak, ending a recovery that saw prices almost double from a 12-year low in February.
  • The persistence of the supply overhang is upsetting industry expectations, with BP, Royal Dutch Shell and Exxon Mobil reporting second-quarter earnings last week that were worse than estimated. WTI for September delivery dropped 3.7% on Monday to close at $40.06/b  on the New York Mercantile Exchange. It was also the first settlement below 200 Day Moving average since April, adding to the bearish pressure.
  • Brent for October delivery fell 3.2% to $42.14/b on the London-based ICE Futures Europe exchange, the lowest close since April 7. The global benchmark settled at a premium of $1.30 to WTI for October delivery. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, DLS, AWE, KAR, ORG, SXY.
  • Iron ore continues its steady rise: Futures in China surged on Monday above the closing high seen during the height of a speculative boom in April as factory gauges signaled stimulus continues to bolster manufacturing in the top producer. The September contract jumped 5.5% to 486.5 yuan ($73) a metric ton on the Dalian Commodity Exchange, topping the April close of 474 yuan to end at the highest level since February 2015.
  • In Singapore, SGX AsiaClear futures for September rose 6.1% to $58.86/t. The benchmark price for spot iron ore rallied 4.9%. The steel-making ingredient is recovering ground lost since May, after a speculator-led boom that drew global attention fizzled. Chinese mills have maintained daily steel output at record levels, boosting demand for iron ore even as supply has remained strong. Spot ore with 62% content at Qingdao was at $62.27 a ton on Monday, according to Metal Bulletin. The benchmark has advanced 43% this year, topping $70 in April, after a three-year losing run that included a 39% loss in 2015 and 47% retreat in 2014 as global supply exceeded demand. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, ARI, BCI, SDL.
  • Copper prices retreated after hitting one-week highs as the US dollar rose, US factory activity slowed and data from China's manufacturing sector indicated sluggish growth. Benchmark copper on the London Metal Exchange ended down 0.9% at $4882/t. Three-month nickel closed up 0.9% at $10,730/t, compared with an earlier $10,800, its highest in more than a week. Aluminium fell 0.5% to $1635, zinc gained 1.1% to $2268, lead ended little changed at $1822 from Friday's close at $1823 and tin gained 0.1% to $17,875 a tonne. Copper stocks: PNA, OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
  • In other news: ANZ Bank (ANZ): Seeks indicative bids for online broking unit by the end of August: AFR; Arrium (ARI): Bank proposals for potential Moly-Cop IPO due next week: AFR; ASX (ASX): Incoming CEO Stevens says will adopt cautious approach to blockchain technology: AFR; Brierty (BYL): Gets contract from Newmont for Boddington gold mine; Centuria (CMA: Drops GMF bid; Evolution Mining (EVN), Regis Resources (RRL), Western Areas (WSA): Among cos presenting at 2016 Diggers & Dealers forum; Navitas (NVT): Annual results expected; NOTE: Adj. net income est. A$90.2m (5 analysts); Seven West Media (SWM): Annual results expected; NOTE: Adj. net income est. A$207.2m (9 analysts); GAAP est. A$205.7m (6 analysts); Virgin Australia (VAH), Qantas (QAN): Virgin Australia says will be able to operate flights to Bali today amid impact from Mt. Rinjani.

Broker gradings

  • Fortescue rated new sector perform at RBC Capital
  • Independence Group (IGO): Cut to underperform at Credit Suisse
  • Investa Office Fund (IOF): Ratings remain on creditwatch: S&P

Pending orders: See here. Note: We have cancelled the buy limit over Independence Group (IGO: ASX) due to capital raising

US500.i and AUDUSD

US500 appeared to have made a break out of the rectangle consolidation yesterday morning, but it failed to hold the gains above the previous resistance level 2,175.

This price action may indicate a false break for now and the anticipating a near term direction remains unclear. The gold (XAUUSD) continued to bid up while the crude oil (CL) sold off sharply lower to break below 40, therefore positive sentiments seem to show signs of reversal.
Source: Saxo Bank

The AUDUSD sold off on the back of the decline from the price of copper (HG) although its uptrend is still intact.

The building approval and the trade balance come out at 1130 AEST (0130 GMT) but the major focus for AUDUSD for today is the RBA rate decision at 1430 AEST (0430 GMT).

The probability of a 25 basis point cut is 68%, therefore we see upside risk is higher than the downside if there is no rate cut. The resistance level is 0.76 and the support level would be at 0.74 handle.   

AUDUSD monthly chart
Source: Saxo Bank - create your own charts with SaxoTrader. Click here to learn more 

Today's Trade information source: 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 at 1030 AEST.


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